Coverage of Leased Employees in SEPs
I have a customer who has 4 Full-Time Employees, one of which is leased through an employment service. He is debating about moving them all to being Leased if they can be excluded from coverage on a SEP plan. So, my question is: Are you required to cover Leased employees with a SEP Plan? with a SIMPLE IRA?
Thank you!
Permalink Submitted by Alan Spross on Sat, 2010-02-06 19:07
In most cases they still must be covered by the leasing recipient:
Copied from IRA Technical Guidance Manual:
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4.72.17.4.2 (07-31-2001)
Leased Employees
The person or firm for whom services are performed may have to include in a SEP any leased employee who is treated as an employee of the recipient. Generally speaking, a leased employee is any person who is not an employee of the recipient but who is hired by a leasing organization and performs services for the recipient. See IRC section 414(n).
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Permalink Submitted by mk foss on Sat, 2010-02-06 22:38
Leased employees may not have to be covered if the leasing company includes them in a plan. In such a case, you may be limited to the same percentage of coverage as the leasing company provides. For example, if the leasing company contributes 3% of gross salaries, that’s all the SEP could o.
Permalink Submitted by Anonymous (not verified) on Sun, 2010-02-07 22:00
Another thing to consider is that there are rules in place that prevent an employer from making a plan more restrictive and thus excluding “already” eligible empolyees. I would look at the Publication 560 to verify that (I’m pretty sure I read this somewhere?). But this may not be the case, since they are reclassified as “leased”. I am not sure…..
pko
Permalink Submitted by Karey Anne Kapoi on Mon, 2010-02-08 23:35
Thank you so much!