Employee Census

Completing the employee census accurately is vital for reliable retirement plan testing and reporting. Omitting an employee or incorrectly reporting compensation for even one person can affect test results.

Who to Include:

Generally, all employees who received compensation from the plan sponsor or any participating employer during the plan year should be included—regardless of plan eligibility.

Required to be reported:
  • Employees whose income will be reported on a W-2 (including union, part-time, seasonal, and excluded classes)
  • Sole proprietors whose income is reported on Schedule C of IRS Form 1040
  • Partnership members whose income is reported on Schedule K-1 of IRS Form 1065
  • Leased, contract, or temporary employees paid by a third party who perform work for the plan sponsor
NOT required to be reported:
  • Independent contractors whose compensation is reported on IRS Form 1099.

Part-Time / Temporary Employees

A common misconception is that part-time or temporary employees are not eligible for a retirement plan. If any employee not specifically excluded by classification in the plan document meets the age and service requirements, they are eligible to enter the plan on the next entry date even if classified as part-time or temporary.

Example:
If your plan requires 1 year of service with 1,000 hours, a part-time employee working 20 hours per week for a full year would accumulate 1,040 hours and be eligible.

New Two-Year Rule:
Employees age 21 or older who complete two consecutive years with at least 500 hours each year must be allowed to make elective deferrals, even if they don’t meet normal eligibility rules. For example, employees who worked 500+ hours in 2023 and 2024 must be offered the opportunity to contribute starting in 2025.

Important: This rule applies only to employee deferrals, not employer contributions. Make sure payroll is coded accordingly.

Leased Employees

Leased employees who are not common-law employees are generally treated as employees for plan purposes if they meet all of the following:

  • Provide services under an agreement between the employer and a leasing organization
  • Perform substantially full-time services for at least 1 year (usually 1,500 hours in a 12-month period)
  • Work under the employer’s primary direction or control

Some plans may exclude leased employees as a class if the plan document allows it and coverage testing requirements are met.