Counting of Hours for DC Plan

I got a question from a client in regards to how they should be counting hours for a Plan Year.  Is it the actual hours worked from 1/1 - 12/31 for that Plan Year?  Or should it be based on the hours for the times that match the W2 (for instance, the first payroll on the W2 is all hours worked in the prior year but the pay date carries into January)?

Hopefully that makes sense.  Thanks in advance!

We count plan actual hours worked int tha plan year.  So 1/1 - 12/31 regardless of when the last contribution of the PY hit the investment house.  Exception is the first year which we count from date of hire to one year from the date of hire. 

There are many ways in which a company may schedule the pay date for actual hours worked.  Typically the company will adopt a pay period during which an employee work and a payroll date associated with that pay period.  For example, a company may have a payroll date that as of the end of the week following the close of a two week pay period.  Or, a company may have a payroll date that is as of the last day of the payroll period.  Or a company may have some other payroll timing.  Because there are so many different ways payroll may be administered, regulations do not attempt to define a set of rules for every possible way a company could run payroll.

The company needs to decide its payroll practices and the key to being considered in compliance with tracking actual hours is to be consistent year over year in how the hours are tracked.  The company should pick an hours counting method that the company can administer reliably (i.e., not screw it up).  Many companies report payroll and hours based on payroll date.  If the payroll period begins in year 1 and ends in year 2, theses companies report this payroll period for year 2.  That being said, other companies may report payroll periods that start in year 1.  Some have attempted to split a payroll period based on the days when the employee worked and learned that this takes a lot of work.

Keep in mind that a plan can count hours differently for eligibility, vesting or benefit accrual (e.g., allocation conditions).  The plan also may have different methods based on the classification of the employee (e.g., hourly paid versus salaried).

The bottom line, be consistent and keep it simple.

Plan document may also spell out some finer points regarding how the measurement period is defined, at least in terms of whether there's "discretion" for the employer in how it will set its hours-counting procedures (specific to the crossing-plan-years topic)