Enrolling an Owner's Spouse into 401k plan

Safe Harbor 401k has the standard one year of service 1000 hours rule.  The owner want's to bring their spouse into the plan.  The spouse does work for the company but hasn't been on the payroll.  Is this permitted?  The onwer wants to start the spouse on the roster so that the spouse can max on the deferral side and recieve the SH match as well.

If the spouse has no compensation, there is nothing to defer. 

If the spouse has not worked 1000 hours in an eligibility computation period, the spouse has not met the eligibility requirements. 

The owner must follow the plan provisions.  If the owner wants to have more liberal eligibility, they can amend the plan and apply the new liberal eligibility to all employees.

Maybe they want to do what one of my plans is doing - have a no-show job.  The owner has his wife and kids on the payroll/getting W2s/maxing out their deferrals/getting employer contributions/and none of them work there. Ever. The wife is a stay at home and the kids have their own jobs.  Nice work if you can find it. 

If, for all or some employees, service is counted with equivalencies, an employee (or a deemed employee, such as a partner or member) who works only one time each month and does so in six months of a 12-month period would be credited with 1,140 hours.

29 C.F.R. § 2530.200b-3(e)(1)(iv) https://www.ecfr.gov/current/title-29/part-2530/section-2530.200b-3#p-2530.200b-3(e)(1)(iv).

I agree that it is easy to design a plan to make a family member eligible.  Hours equivalencies and elapsed time work wonders for meeting eligibility service requirements (as long as the document specifies their use).  I am all for plans that can benefit family members including children as long as the plan follows the rules.

The hard part is justifying the compensation needed to make meaningful contributions that do not blow up plan limitations.  The plan ratherbereading described frankly sounds like an abusive tax scheme.  Hopefully the plan Pixie works on will follow the rules.

Thank you for the input.  My solution (since this is a small company) is to amend the plan to make all employees immediately eligible as of a certian date.  This fits with the rules, I assume.  Plus would add benefit to other new staff.

It fits into the rules but can be problematic if you hire new employees who are not eligible in the "near" future like until after the next plan entry date under the Plan's regular eligibility rule.

If the owner starts paying the spouse, this sounds like a new employee on the payroll, which differs from "bringing the spouse into the plan".

Also, if they amend the plan to loosen the eligibility rules, they shouldn't be too quick to change them back.  They don't want it to look like they were just doing this for the benefit of the spouse.

Are there any other, current employees who would benefit from a change?

I'm definitely not one to flout the rules and I despise the "no show" jobs whether it's family or Family (if you know what I mean).

But it's also not unheard of for an owner and/or spouse to work for quite some time for their own business without taking a paycheck. If the employer can provide evidence the spouse actually did work during that time and just wasn't compensated, then I think making the spouse eligible on the first paycheck isn't unwarranted.

But we don't make those calls just like we don't make the calls on whether someone is an employee or an independent contractor. We provide information and the employer and CPA tell us what's what.