Health and 401k

[Al Iglesias]

What is the name of your state? FL

Hello everyone and to my friend Beth:

We have a U.S. company that is German owned which I am a controller for, that now has 11 employees. We currently don't have a policy and procedure booklet in place. We have contracts only for the 6 salesmen and we kinda have sometimes a "we make the rules as we go type thing", which I am not to crazy about. So as far as I know, what is common practice rules as policy in this case.
We have one "commission only" employee in PA and about to hire another one in Texas. Everyone else (salesmen) get 60K a year plus 2% commission. The commissioned people will get a auto allowance & reasonable travel expenses. My question is, in the past we did not provide health or 401k for the commission only people (who are working 40hrs a week), even though all other employees after 1 month eligible. Do we need to offer this to them as well. Is it our obligation??? They by the way do not have contracts just e-mail confirms of their hire date and commission structure. I want to make sure we do the right thing. The owner brought it to my attention as a question to me and I wanted to check with my buddies. Thanks guys.

Al Iglesias
Tampa, Fl

 

[Beth3]

No, you do not have to offer group health, retirement, or any other benefits to these individuals if the company does not wish to.

What you DO need to do in your 401(k) and group health plan documents is to define what the "classes" of employees are who are eligible to participate. If you already offer these benefits, then you need to look at the language in the existing insurance contracts/plan doc's/etc. to see who it says is eligible and how they're defined.

A small company doesn't need reams of policies and it's okay to develop them as needed but I suspect at a minimum you need to define what your classes of employees are for internal purposes. Ex: regular full time, regular part-time, on call/temporary, commission-only etc. You likely have the choice of deciding whether you want to consider commission-only sales people as "regular employees" or independent contractors but you do need to be consistent with your practices once you have them defined. You don't want there to be any confusion as to what an employee's or contractor's status is and what they're eligible for - that can lead to problems with the DOL.

Once you identify and define these things, then you need to be consistent with them. If an employee is in an "eligible class," then you must offer participation - you cannot pick and choose among employees in an eligible class. ("Love him, hate her." )

FYI - You can also define classes for participation in additional ways to those I've described above. They can include: executive, managerial/supervisor, administrative, production, exempt and non-exempt, etc. You can do it in any "non-discriminatory" manner that makes sense for your business.

I do suggest you read through your existing documents and then consult with your insurance broker and the trust company who handles your 401(k) plan for additional information and guidance. Being such a small employer, you may not have as much flexibilty as a larger employer might.

 

[Al Iglesias]

Thanks Beth

Dear Beth:

As always thanks for your quick response and very detailed response. Your are very much appreciated and thanks for your time!! My expertise is in Quickbooks accounting software, so if you ever need any help there let me know!

Al Iglesias

 

[Beth3]

You're very welcome.

What I know about accounting, taxes, and all related "numerical stuff" would fill a thimble, so I might take you up on that one day. I prefer to think of myself as a "right brain" type of person.

 

[Al Iglesias]

Commissioned Employee

Dear Beth:

We are hiring a 10% commissioned only employee in Texas effective 5/1/03 without benefits. He used to work for us in another company and now has decided to join our team again. The only other one that is on this basis, is employed since 9/9/02, and we take taxes out and he got a short e-mail confirm welcoming him to the company from me back then.

Based on your e-mail of last week we must be consistent, however, I am thinking now that we should have probably originally just 1099'ed the first person until we formerly employ them. Your thoughts.

As always thanks for your advice, even though I am accountant, I like to check with the experts to make sure I am doing things right. I am sometimes looked at as if I have a Human Resources/Legal Hat. I am a strong believer in ethics and a by the books type guy. I always want to do what is fair on all levels for our employees.

Best regards,

Al in Tampa

 

[Beth3]

We're starting to cross the line that separates HR from payroll and tax law which is not my area, so I'm going to tread lightly here but yes, I do think you could have problems down the road if you are consistent with these two employees in terms of their employment status. If the new 1099 employee discovers his counterpart is being treated as an employee (taxes withheld, FICA match made, benefits eligibilty he doesn't have), you're going to have a hard time explaining why one individual is being treated as an IC and the other an employee. And you sure don't want any complaints made to either the State or federal DOL and them asking why the inconsistency and gee while we're at it, let's audit all your payroll records and make sure that you're in full ERISA compliance...

 

[Al Iglesias]

W-2 employee

Dear Beth:

We were going to go with the W-2 status just like the other employee to maintain consistency as well as the giving him an auto allowance like the commission only employee as well. I was just curious in case he asked me to be a 1099 employee. If he asks, I will just tell him that all "commission only" employees are W-2 employees. They both will not be eligible for benefits unless they come on as "Salaried" employees.
Thanks for your feedback.

Take care,

Al in Tampa

 

[Beth3]

Sounds like a good idea. It hasn't been established that these commission-only employees qualify for independent contractor status (although they well might.) It's perfectly okay to treat an individual who would qualify for IC status as a regular employee but the reverse is prohibited.