Submitted by John Sample, ERPA, QPA, QKA; The Vargo Company

If you are an employer who uses the services of a leasing, or “temp” agency, to complement your workforce, these employees cannot be ignored for retirement plan purposes.

For many companies who sponsor a retirement plan, it is time to complete the annual census for compliance testing.  As part of the census, the employer will compile a list of all employees who were employed during the year.  It is very important for the employer to include any employees who were working for the company through an agreement with an employment agency.

In general;

• If your company subsequently hires an employee from a temporary agency, the original date that the employee first began working is the date used to determine eligibility for the retirement plan, not the date that they are actually hired by the company. In many cases, temporary employees have already met a plan’s eligibility based on their service worked through the agency, and they may be eligible for retirement plan benefits on the date they are formally hired by the employer.
• If a leased employee performs services for the employer on a substantially full-time basis for at least one year, including 1,500 hours of service in that year, they may become eligible for retirement plan benefits, even though they are technically employed through an agency.

By contracting away payroll and other services, an employer simply cannot get out providing certain benefits for its workers.  Just because an employee is employed through a temporary agency, it doesn’t mean that the employee isn’t counted when it comes to participation in a company’s retirement plan. 

Employers who use leased employee arrangements, or who are considering using them, may want to specifically exclude leased employees in their plan document, to avoid dealing with the complexities.  Plans must pass a coverage test annually, so excluding groups of employees may not be viable for every employer.

The purpose of this blog article is to simply make an employer aware that using leased employees as part of their workforce may not get them out of excluding those employees from the retirement plan, or potentially other benefits.  The leased employee rules are extremely complex, an employer should consult with their retirement plan’s ERISA attorney or third party administrator to review their situation.