Can we exclude part time and seasonal employees from the 401k plan?
The Holidays are a great time to hire extra helping hands for your company. For many, sales are peaking and there is an increased demand for hiring seasonal, temporary, and part time employees. But the question is, do these employees need to be offered the opportunity to participate in your company’s 401(k) plan?
In determining whether or not you can exclude part-time, seasonal, or temporary employees from your company’s 401(k) plan, the first thing you need to do is check your document (or better yet, call one of our team members and ask them to check it for you).
If your plan allows employees to participate when they have been employed by you for less than one year, your document would have to specifically state that you were excluding part time employees. Even then, they might not be permanently excluded. Most plans that require less than 12 months of service for eligibility to participate in the plan do not require those months of service to be consecutive, nor do they require a minimum number of hours worked during that period.
If your plan requires one year of service for eligibility, then the maximum number of hours that you may require an employee to complete would be 1,000 hours of service. If you’re curious, 1,000 hours of service during a plan year breaks down to approximately 19 hours per week. Therefore, even part time employees who work 1,000 hours or more must be offered the plan.
Determining eligibility for plan participation is tricky, even when you check your document and think you understand it. Exclusion of eligible employees from participation in the plan can be costly to the employer since corrective contributions must be made on the employees’ behalf if they are excluded incorrectly. Please don’t ever assume that a part-time employee is not eligible to participate in your plan. There are many things to consider before you allow an employee to participate or don’t allow them to participate.
To be safe, always call or email us for help. That is what our team is here for. Our team at TriStar is ready to help you with the tough questions (and the easy questions). To us there is no such thing as a useless question. We want to help you understand what your plan document says, and we would rather spend a few minutes on the phone with you upfront than hours on the back side correcting an error that could have been avoided.
Bonus Tip: As a third party administrator, we ask our clients for census data each year on all of their employees. We do this to ensure all eligible employees are included in the plan. For this reason, it’s important you include all employees on your census data, even those who are part time and seasonal.