Who's the Employer?

Answer: Bring out the aspirin.

IRC 414(n)(4)(B) says that when someone becomes an employee or a leased employee, their prior service under a leasing arrangement must be counted. No more, no less. It becomes hours of service just like the hours of service of a W-2 employee -- no more, no less. As hours of service, it is subject to all the rules of IRC 410 on what hours may be counted and what hours may be disregarded, including the break in service rules.

There are a couple of alternatives to getting migraines over this:

1. This is a document provision. You don't have to implement the break in service rule. The Code merely allows you to do so. Especially in a 401(k) situation, is it really worth the bother? If it is worthwhile in general, how about adding a clause that counts all IRC 414(n)(4)(B) service without regard to the break in service rules?

2. Simply inform your clients that they should never, never, never rehire anyone. This includes temps who have left for a while before coming on to the payroll. The penalty for breaking the rule is $X/hour for you to straighten out the mess that it causes. At least then they can pay for the Excedrin.

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