1.414(q)-1T—Highly compensated employee (temporary).
The following questions and answers relate to the definition of “highly compensated employee” provided in section 414(q). The definitions and rules provided in these questions and answers are provided solely for purposes of determining the group of highly compensated employees.
Table of contents.
Q&A-1General applicability of section 414(q).
Q&A-2Definition of highly compensated employees.
Q&A-3Definition of highly compensated active employees.
Q&A-4Definition of highly compensated former employees.
Q&A-5Definition of separation year.
Q&A-6Definition of employer.
Q&A-7Definition of employee.
Q&A-8Definition of 5-percent owner.
Q&A-9Definition of top-paid group.
Q&A-10Definition of officer and rules on inclusion of officers in highly compensated group.
Q&A-11Rules with respect to family aggregation.
Q&A-12Definition of family member.
Q&A-13Definition of compensation.
Q&A-14Rules with respect to the relevant determination periods.
Q&A-15Transition rule applicable to plan years beginning in 1987 and 1988 for certain employers that have plans that must comply with the provisions of section 401(k)(3) or 401(m)(2).
Q-1: To what employee benefit plans and statutory provisions is the definition of highly compensated employee contained in section 414(q) applicable?
A-1: (a) In general. This definition is applicable to statutory provisions that incorporate the definition by reference.
(b) Qualified retirement plans—
(1) In general.
Generally, this definition is incorporated in many of the nondiscrimination requirements applicable to pension, profit-sharing, and stock bonus plans qualified under section 401(a). See, e.g., the nondiscrimination provisions of sections 401(a) (4) and (5), 401(k)(3), 401(l), 401(m), 406(b), 407(b), 408(k), 410(b) and 411(d)(1). The definition is also incorporated by certain other provisions with respect to such plans, including the aggregation rules of section 414(m) and section 4975 (tax on prohibited transactions).
(2) Not applicable where not incorporated by reference.
This definition is not applicable to qualified plan provisions that do not incorporate it. See, e.g., section 415 (limitations on contributions and benefits), with the exception of section 415(c)(3)(C) and 415(c)(6) (special rules for permanent and total disability and employee stock ownership plans respectively).
(c) Other employee benefit plans or arrangements.
This definition is incorporated by various sections relating to employee benefit provisions. See, e.g., section 89 (certain other employee benefit plans), section 106 (accident and health plans), 117(d) (qualified tuition reduction), section 125 (cafeteria plans), section 129 (dependent care assistance programs), section 132 (certain fringe benefits), section 274 (certain entertainment, etc. expenses), section 423(b) (employee stock purchase plan provisions), section 501(c) (17) and (18) (certain exempt trusts providing benefits to employees), and section 505 (certain exempt organizations or trusts providing benefits to individuals). See the respective sections for the applicable effective dates.
(d) ERISA.
This definition is not determinative with respect to any provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), unless it is explicitly incorporated by reference (e.g., section 408(b)(1)(B) ).
Q-2: Who is a highly compensated employee?
A-2: The group of employees (including former employees) who are highly compensated employees consists of both highly compensated active employees (see A-3 of this § 1.414(q)-1T) and highly compensated former employees (see A-4 of this § 1.414(q)-1T ). In many circumstances, highly compensated active employees and highly compensated former employees are considered separately in applying the provisions for which the definition of highly compensated employees in section 414(q) is applicable. Specific rules with respect to the treatment of highly compensated active employees and highly compensated former employees will be provided in the regulations with respect to the sections to which the definition of highly compensated employees is applicable.
Q-3: Who is a highly compensated active employee?
A-3: (a) General rule. For purposes of the year for which the determination is being made (the determination year), a highly compensated active employee is any employee who, with respect to the employer, performs services during the determination year and is described in any one or more of the following groups applicable with respect to the look-back year calculation and/or determination year calculation for such determination year. See A-14 for rules relating to the periods for which the look-back year calculation and determination year calculation are to be made.
(i) 5-percent owner.
The employee is a 5-percent owner at any time during the look-back year (i.e., generally, the 12-month period immediately preceding the determination year; see A-14. (See A-8 of this § 1.414(q)-1T.)
(ii) Compensation above $75,000.
The employee receives compensation in excess of $75,000 during the look-back year.
(iii) Compensation above $50,000 and top-paid group.
The employee receives compensation in excess of $50,000 during the look-back year and is a member of the top-paid group for the look-back year. (See A-9 of this § 1.414(q)-1T.)
(iv) Officer.
The employee is an “includible officer” during the look-back year. (See A-10 of this § 1.414(q)-1T.)
(i) 5-percent owner.
The employee is a 5-percent owner at any time during the determination year. (See A-8 of this § 1.414(q)-1T.)
(ii) Top-100 employees.
The employee is both (A) described in paragraph (a)(1)(i), (ii) and/or (iv) of this A-3, when such paragraphs are modified to substitute the determination year for the look-back year, and (B) one of the 100 employees who receive the most compensation from the employer during the determination year.
(b) Rounding and tie-breaking rules.
In making the look-back year and determination year calculations for a determination year, it may be necessary for an employer to adopt a rule for rounding calculations (e.g., in determining the number of employees in the top-paid group). In addition, it may be necessary to adopt a rule breaking ties among two or more employees (e.g., in identifying those particular employees who are in the top-paid group or who are among the 100 most highly compensated employees). In such cases, the employer may adopt any rounding or tie-breaking rules it desires, so long as such rules are reasonable, nondiscriminatory, and uniformly and consistently applied.
(c) Adjustments to dollar thresholds—
(1) Indexing of dollar thresholds.
The dollar amounts in paragraph (a)(1) (i) and (ii) of this A-3 are indexed at the same time and in the same manner as the section 415(b)(1)(A) dollar limitation for defined benefit plans.
(2) Applicable dollar threshold.
The applicable dollar amount for a particular determination year or look-back year is the dollar amount for the calendar year in which such determination year or look-back year begins. Thus, the dollar amount for purposes of determining the highly compensated active employees for a particular look-back year is based on the calendar year in which such look-back year begins, not the calendar year in which such look-back year ends or in which the determination year with respect to such look-back year begins.
(d) Employees described in more than one group.
An individual who is a highly compensated active employee for a determination year, by reason of being described in one group in paragraph (a) of this A-3, under either the look-back year calculation or the determination year calculation, is not disregarded in determining whether another individual is a highly compensated active employee by reason of being described in another group under paragraph (a). For example, an individual who is a highly compensated active employee for a determination year, by reason of being a 5-percent owner during such year, who receives compensation in excess of $50,000 during both the look-back year and the determination year, is taken into account in determining the group of employees who are highly compensated active employees for such determination year by reason of receiving more than $50,000, and being in the top-paid group under either or both the look-back year calculation or determination year calculation for such determination year.
(e) Examples.
The following examples, in which the determination year and look-back year are the calendar year, are illustrative of the rules in paragraph (a) of this A-3. For purposes of these examples, the threshold dollar amounts in paragraph (a)(1) (ii) and (iii) of this A-3 are not increased pursuant to paragraph (c) of this A-3.
Code of Federal Regulations
| Year | Compensation | Status | Comments |
|---|---|---|---|
| 1986 | $45,000 | N/A | Although prior to 414(q) effective date, 1986 constitutes the look-back year for purposes of determining the highly compensated group for the 1987 determination year. |
| 1987 | 80,000 | Excl | Excluded because A was not an employee described in paragraph (a)(1) (ii) or (iii) of this A-3 for the look-back year (1986). |
| 1988 | 80,000 | Incl | Included because A was an employee described in paragraph (a)(1) (ii) or (iii) of this A-3 for the look-back year (1987). |
| 1989 | 45,000 | Incl | Included because A was an employee described in paragraph (a)(1) (ii) or (iii) of this A-3 for the look-back year (1988). |
| 1990 | 45,000 | Excl | Excluded because A was not an employee described in paragraph (a)(1) (ii) or (iii) of this A-3 for the look-back year (1989). |
Code of Federal Regulations
| Year | Compensation | Status | Comments |
|---|---|---|---|
| 1986 | $45,000 | N/A | Although prior to 414(q) effective date, 1986 constitutes the look-back year for purposes of determining the highly compensated group for the 1987 determination year. |
| 1987 | 80,000 | Incl | Included because A was an employee described in paragraph (a)(1)(ii) or (iii) of this A-3 for the determination year (1987) and was described in paragraph (a)(2)(ii) of this A-3 in that year. |
| 1988 | 80,000 | Incl | Included because A was an employee described in paragraph (a)(1)(ii) or (iii) of this A-3 for the look-back year (1987). |
|
Code of Federal Regulations
934
|
|||
| 1989 | 45,000 | Incl | Included because A was an employee described in paragraph (a)(1)(ii) or (iii) of this A-3 for the look-back year (1988). |
| 1990 | 45,000 | Excl | Excluded even though in top-100 employees during 1990 determination year because A was not an employee described in paragraph (a)(1)(ii) or (iii) of this A-3 for the look-back year (1989) or for the determination year (1990). |
A-4: Who is a highly compensated former employee?
Q-4: (a) General rule. Except to the extent provided in paragraph (d) of this A-4, a highly compensated former employee for a determination year is any former employee who, with respect to the employer, had a separation year (as defined in A-5 of this § 1.414(q)-1T) prior to the determination year and was a highly compensated active employee as defined in A-3 of this § 1.414(q)-1T for either such employee's separation year or any determination year ending on or after the employee's 55th birthday. Thus, for example, an employee who is a highly compensated active employee for such employee's separation year, by reason of receiving over $75,000 during the look-back year, is a highly compensated former employee for determination years after such employee's separation year.
(b) Special rule for employees who perform no services for the employer in the determination year.
For purposes of this rule, employees who perform no services for an employer during a determination year are treated as former employees. Thus, for example, an employee who performed no services for the employer during a determination year, by reason of a leave of absence during such year, is treated as a former employee for such year.
(c) Dollar amounts for pre-1987 determination years.
For determination years beginning before January 1, 1987, the dollar amounts in paragraph (a)(1)(B) and (C) of A-2 of this § 1.414(q)-1T are $75,000 and $50,000 respectively.
(d) Special rule for employees who separated from service before January 1, 1987—
(1) Election of special rule.
Employers may elect to apply paragraph (d)(2) of this A-4 in lieu of paragraph (a) of this A-4 in determining whether former employees who separated from service prior to January 1, 1987, are highly compensated former employees. If this election is made with respect to any qualified plan, it must be provided for in the plan. If the employer makes this election with respect to any employee benefit plan, such election must be used uniformly for all purposes for which the section 414(q) definition is applicable. The election, once made, cannot be changed without the consent of the Commissioner.
(2) Special definition of highly compensated former employee.
A highly compensated former employee includes any former employee who separated from service with the employer prior to January 1, 1987, and was described in any one or more of the following groups during either the employee's separation year (or the year preceding such separation year) or any year ending on or after such individual's 55th birthday (or the last year ending before such employee's 55th birthday):
(i) 5-percent owner.
The employee was a 5-percent owner of the employer at any time during the year.
The determinations provided for in this paragraph (b)(2) may be made on the basis of the calendar year, the plan year, or any other twelve month period selected by the employer and applied on a reasonable and consistent basis.
(e) Rules with respect to former employees—
(1) In general.
For specific provisions with respect to the treatment of former employees and of highly compensated former employees, refer to the rules with respect to which the section 414(q) definition of highly compensated employee is applicable.
(2) Former employees excluded in determining top-paid group, top-100 employees and includible officers.
Former employees are not included in the top-paid group, the group of the top-100 employees, or the group of includible officers for purposes of applying section 414(q) to active employees. In addition, former employees are not counted as employees for purposes of determining the number of employees in the top-paid group.
Q-5: What is a separation year for purposes of section 414(q) ?
A-5: (a) Separation year —(1) In general. The separation year generally is the determination year during which the employee separates from service with the employer. For purposes of this rule, an employee who performs no services for the employer during a determination year will be treated as having separated from service with the employer in the year in which such employee last performed services for the employer. Thus, for example, an employee who performs no services for the employer by reason of being on a leave of absence throughout the determination year is considered to have separated from service with the employer in the year in which such employee last performed services prior to beginning the leave of absence.
(2) Deemed separation.
An employee who performs services for the employer during a determination year may be deemed to have separated from service with the employer during such year pursuant to the rules in paragraph (a)(3) of this A-5. Such deemed separation year is relevant for purposes of determining whether such employee is a highly compensated former employee after such employee actually separates from service, not for purposes of identifying such employee as either an active or former employee. Because employees to whom the provisions of paragraph (a)(2) of this A-5 apply are still performing services for the employer during the determination year, they are treated as active employees. Thus, for example, an employee who has a deemed separation year in 1989, a year during which he was a highly compensated employee, who continues to work for the employer until he retires from employment in 1995, is an active employee of the employer until 1995 and is either highly compensated or not highly compensated for any determination year during such period based on the rules with respect to highly compensated active employees. For determination years after the year of such employee's retirement, such employee is a highly compensated former employee because such employee was a highly compensated active employee for the deemed separation year.
(3) Deemed separation year.
An employee will be deemed to have a separation year if, in a determination year prior to attainment of age 55, the employee receives compensation in an amount less than 50% of the employee's average annual compensation for the three consecutive calendar years preceding such determination year during which the employee received the greatest amount of compensation from the employer (or the total period of the employee's service with the employer, if less).
(4) Leave of absence.
The deemed separation rules contained in paragraph (a)(2) and (3) of this A-5 apply without regard to whether the reduction in compensation occurs on account of a leave of absence.
(b) Deemed resumption of employment.
An employee who is treated as having a deemed separation year by reason of the provisions of paragraph (a) of this A-5 will not be treated as a highly compensated former employee (by reason of such deemed separation year) after such employee actually separates from service with the employer if, after such deemed separation year, and before the year of actual separation, such employee's services for and compensation from the employer for a determination year increase significantly so that such employee is treated as having a deemed resumption of employment. The determination of whether an employee who has incurred a deemed separation year has an increase in services and compensation sufficient to result in a deemed resumption of employment will be made on the basis of all the surrounding facts and circumstances pertaining to each individual case. At a minimum, there must be an increase in compensation from the employer to the extent that such compensation would not result in a deemed separation year under the tests in paragraph (a)(2) of this A-5 using the same three-year period taken into account in such paragraph.
(c) Examples.
Paragraphs (a) and (b) of this A-5 are illustrated by the following examples based on calendar years. For purposes of these examples the threshold dollar amounts in A-5(a) of this § 1.414(q)-1T have not been increased pursuant to A-5(b) of this § 1.414(q)-1T.
Code of Federal Regulations
Code of Federal Regulations
Code of Federal Regulations
Q-6: Who is the employer?
A-6: (a) Aggregation of certain entities. The employer is the entity employing the employees and includes all other entities aggregated with such employing entity under the aggregation requirements of section 414(b), (c), (m) and (o). Thus, the following entities must be taken into account as a single employer for purposes of determining the employees who are “highly compensated employees” within the meaning of section 414(q) :
(1)
All corporations that are members of a controlled group of corporations (as defined in section 414(b)) that includes the employing entity.
(2)
All trades or businesses (whether or not incorporated) that are under common control (as defined in section 414(c)) which group includes the employing entity.
(3)
All organizations (whether or not incorporated) that are members of an affiliated service group (as defined in section 414(m)) that includes the employing entity.
(4)
Any other entities required to be aggregated with the employing entity pursuant to section 414(o) and the regulations thereunder.
(b) Priority of aggregation provisions.
The aggregation requirements of paragraph (a) of this A-6 and of A-7(b) of this section with respect to leased employees are applied before the application of any of the other provisions of section 414(q) and this section.
(c) Line of business rules.
The section 414(r) rules with respect to separate lines of business are not applicable in determining the group of highly compensated employees.
Q-7: Who is an employee for purposes of section 414(q) ?
A-7: (a) General rule. Except as provided in paragraph (b) of this A-7, the term “employee” for purposes of section 414(q) refers to individuals who perform services for the employer and are either common-law employees of the employer or self-employed individuals who are treated as employees pursuant to section 401(c)(1). This rule with respect to the inclusion of certain self-employed individuals in the group of highly compensated employees is applicable whether or not such individuals are eligible to participate in the plan or benefit arrangement being tested.
(b) Leased employees—
(1) In general.
The term “employee” includes a leased employee who is treated as an employee of the recipient pursuant to the provisions of section 414(n)(2) or 414(o)(2). Employees that an employer treats as leased employees under section 414(n), pursuant to the requirements of section 414(o), are considered to be leased employees for purposes of this rule.
(2) Safe-harbor exception.
For purposes of qualified retirement plans, if an employee who would be a leased employee within the meaning of section 414(n)(2) is covered in a safe-harbor plan described in section 414(n)(5) (a qualified money purchase pension plan maintained by the leasing organization), and not otherwise covered under a qualified retirement plan of the employer, then such employee is excluded from the term “employee” unless the employer elects to include such employee pursuant to the provisions of paragraph (4) of this paragraph (b).
(3) Other employee benefit plans.
The exception in paragraph (b)(2) of this A-7 is not applicable to the determination of the highly compensated employee group for purposes of the sections enumerated in section 414(n)(3)(C). Thus, for example, a leased employee covered by a safe-harbor plan is considered to be an employee in applying the nondiscrimination provisions of section 89 to statutory benefit plans. Consequently, an employer with leased employees covered in a safe-harbor plan may have 2 groups of highly compensated employees, one with respect to its retirement plans and another with respect to its statutory benefit plans.
(4) Election with respect to leased employee exclusion.
An employer may elect to include the employees excepted under the provisions of paragraph (b)(2) of this A-7 in determining the highly compensated group with respect to an employer's retirement plans. Thus, for example, by electing to forego the exception in paragraph (b)(2) of this A-7, an employer may achieve more uniform highly compensated employee groups for purposes of its retirement plans and welfare benefit plans. The election to include such employees must be made on a reasonable and consistent basis and must be provided for in the plan.
Q-8: Who is a 5-percent owner of the employer?
A-8: An employee is a 5-percent owner of the employer for a particular year if, at any time during such year, such employee is a 5-percent owner as defined in section 416(i)(B)(i) and § 1.416-1 A T-17&18. Thus, if the employer is a corporation, a 5-percent owner is any employee who owns (or is considered as owning within the meaning of section 318) more than 5 percent of the value of the outstanding stock of the corporation or stock possessing more than 5 percent of the total combined voting power of all stock of the corporation. If the employer is not a corporation, a 5-percent owner is any employee who owns more than 5 percent of the capital or profits interest in the employer. The rules of subsections (b), (c), and (m) of section 414 do not apply for purposes of determining who is a 5-percent owner. Thus, for example, an individual who is a 5-percent owner of a subsidiary corporation that is part of a controlled group of corporations within the meaning of section 414(b) is treated as a 5-percent owner for purposes of these rules.
Q-9: How is the “top-paid group” determined?
A-9: (a) General rule. An employee is in the top-paid group of employees for a particular year if such employee is in the group consisting of the top 20 percent of the employer's employees when ranked on the basis of compensation received from the employer during such year. The identification of the particular employees who are in the top-paid group for a year involves a two-step procedure:
(1)
The determination of the number of employees that corresponds to 20 percent of the employer's employees, and
(2)
The identification of the particular employees who are among the number of employees who receive the most compensation during this year.
Employees who perform no services for the employer during a year are not included in making either of these determinations for such year.
(b) Number of employees in the top-paid group—
(1) Exclusions.
[Reserved]. See § 1.414(q)-1, Q&A-9(b)(1) for further information.
(i) Age and service exclusion.
The following employees are excluded on the basis of age or service absent an election by the employer pursuant to the rules in paragraph (b)(2) of this A-9:
(A)
Employees who have not completed 6 months of service by the end of such year. For purposes of this paragraph (A), an employee's service in the immediately preceding year is added to service in the current year in determining whether the exclusion is applicable with respect to a particular employee in the current year. For example, given a plan with a calendar determination year, if employee A commences work August 1, 1989, and terminates employment May 31, 1990, A may be excluded under this paragraph (b)(1)(i)(A) in 1989 because A completed only 5 months of service by December 31, 1989. However, A cannot be excluded pursuant to this rule in 1990 because A has completed 10 months of service, for purposes of this rule, by the end of 1990.
(B)
Employees who normally work less than 17 1/2 hours per week as defined in paragraph (d) of this A-9 for such year.
(C)
Employees who normally work during less than 6 months during any year as defined in paragraph (e) of this A-9 for such year.
(ii) Nonresident alien exclusion.
Employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer that constitutes income from sources within the United States (within the meaning of section 861(a)(3)) are excluded.
(iii) Collective bargaining exclusion—
(A) In general.
Except as provided in paragraph (B) of this paragraph (b)(1)(iii), employees who are included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the employer, which agreement satisfies section 7701(a)(46) and § 301.7701-17T (Temporary), are included in determining the number of employees in the top-paid group.
(B) Percentage exclusion provision.
If 90 percent or more of the employees of the employer are covered under collective bargaining agreements that the Secretary of Labor finds to be collective bargaining agreements between employee representatives and the employer, which agreements satisfy section 7701(a)(46) and § 301.7701-17T (Temporary), and the plan being tested covers only employees who are not covered under such agreements, then the employees who are covered under such collective bargaining agreements are not counted in determining the number of noncollective bargaining employees who will be included in the top-paid group for purposes of testing such plan. In addition, such employees are not included in the top-paid group for such purposes. Thus, if the conditions of this paragraph (b)(1)(iii)(B) are satisfied, a separate calculation is required to determine the number and identity of noncollective bargaining employees who will be highly compensated employees by reason of receiving over $50,000 and being in the top-paid group of employees for purposes of testing those plans that cover only noncollective bargaining employees.
(2) Alternative exclusion provisions—
(i) Age and service exclusion election.
An employer may elect, on a consistent and uniform basis, to modify the permissible exclusions set forth in paragraph (b)(1)(i) (A), (B), (C), and (D) of this A-9 by substituting any shorter period of service or lower age than that specified in such paragraph. These exclusions may be modified to substitute a zero service or age requirement.
(ii) Election not to apply percentage exclusion provision.
An employer may elect not to exclude employees under the rules in paragraph (b)(1)(iii)(B) of this A-9.
(iii) Method of election.
[Reserved]. See § 1.414(q)-1, Q&A-9(b)(2)(iii) for further information.
(c) Identification of top-paid group members.
With the exception of the paragraph (b)(1)(iii) of this A-9 exclusion for certain employees covered by collective bargaining agreements, the exclusions in paragraph (b)(1) of this A-9 are not applicable for purposes of identifying the particular employees in the top-paid group. Thus, for example, even if an employee who normally works for less than 17 1/2 hours is excluded in determining the number of employees in the top-paid group such employee may be a member of the top-paid group. Similarly, if during a determination year, employee A receives over $75,000 and is one of the top-100 employees ranked by compensation, then employee A is a highly compensated active employee for such determination year. This is true even though employee A has worked less than six months and thus may be excluded in determining the number of persons in the top-paid group for the determination year.
Code of Federal Regulations
(e) 17
(1) In general.
The determination of whether an employee normally works less than 17 1/2 hours per week is made independently for each year based on the rules in paragraph (e)(2) and (3) of this A-9. In making this determination, weeks during which the employee did not work for the employer are not considered. Thus, for example, if an employee normally works twenty hours a week for twenty-five weeks during the fall and winter school quarters, 10 hours a week for the 12 week spring quarter, and does not work for the employer during the three-month summer quarter, such employee is treated as normally working more than 17 1/2 hours per week under the rule of this paragraph (e).
(2) Deemed above 17
An employee who works 17 1/2 hours a week or more, for more than fifty percent of the total weeks worked by such employee during the year, is deemed to normally work more than 17 1/2 hours a week for purposes of this rule.
(3) Deemed below 17
An employee who works less than 17 1/2 hours a week for fifty percent or more of the total weeks worked by such employee during the year is deemed to normally work less than 17 1/2 hours a week for purposes of this rule.
(4) Application.
The determination provided for in paragraph (e)(1), (2), and (3) of this A-9 may be made separately with respect to each employee, or on the basis of groups of employees who fall within particular job categories as established by the employer on a reasonable basis. For example, under the rule of this paragraph (e)(4) an employer may exclude all office cleaning personnel if, for the year in question, the employees performing this function normally work less than 17 1/2 hours a week. This is true even though one or more employees within this group normally work in excess of 17 1/2 hours. The election to make this determination on the basis of individuals or groups is operational and does not require a plan provision.
(5) Application based on groups.
(i)
Groups of employees who perform the same job are not required to be considered as one category for purposes of the rule in paragraph (e)(4) of this A-9. Thus, for example, an employer supermarket may determine its highly compensated employees by excluding part-time grocery checkers if such personnel normally work less than 17 1/2 hours a week while continuing to include full-time personnel performing this function. In general, 80 percent of the positions within a particular job category must be filled by employees who normally work less than 17 1/2 hours a week before any employees may be excluded under this rule on the basis of their membership in that job category.
(ii)
Alternatively, an employer may exclude employees who are members of a particular job category if the median number of hours of service credited to employees in that category during a determination or look-back year is 500 or less.
(f) 6-month rule—
(1) In general.
The determination of whether employees normally work during not more than 6 months in any year is made on the basis of the facts and circumstances of the particular employer as evidenced by the employer's customary experience in the years preceding the determination year. An employee who works on one day during a month is deemed to have worked during that month.
(2) Application of prior year experience.
In making the determination under this paragraph (f), the experience for years immediately preceding the determination year will generally be weighed more heavily than that of earlier years. However, this emphasis on more recent years is not appropriate if the data for a particular year reflects unusual circumstances. For example, if fishermen working for employer X worked 9 months in 1987 and 1988, 8 months in 1989, and then, because of abnormal ice conditions, worked only 5 months in 1990, such fishermen could not be excluded under this rule in 1990. Furthermore, the data with respect to 1990 would not be weighed more heavily in making a determination with respect to subsequent years.
(3) Individual or group basis.
This determination may be made separately with respect to each employee or on the basis of groups of employees who fall within particular job categories in the manner set forth in paragraph (e)(4) of this A-8.
Q-10. For purposes of determining the group of highly compensated employees, which employees are officers and which officers must be included in the highly compensated group?
A-10: (a) In general. Subject to the limitations set forth in paragraph (b) of this A-10 and the top-100 employee rule set forth in A-2, an employee is an includible officer for purposes of this section and is a member of the group of highly compensated employees if such employee is an officer of the employer (within the meaning of section 416(i) and § 1.416-1 A-T 13 & A-T 15) at any time during the determination year or look-back year and receives compensation during such year that is greater than 150 percent of the dollar limitation in effect under section 415(c)(1)(A) for the calendar year in which the determination or look-back year begins. In addition, an officer who does not meet the 415(c)(1)(A) dollar limitation requirement may be an includible officer based on the minimum inclusion rules set forth in paragraph (c) of this A-10.
(b) Maximum limitation—
(1) In general.
Nor more than 50 employees (or, if lesser, the greater of 3 employees or 10 percent of the employees without regard to any exclusions) shall be treated as officers for purposes of this provision in determining the group of highly compensated employees for any determination year or look-back year.
(2) Total number of employees.
The total number of employees for purposes of the limitation in this paragraph (b) is the number of employees the employer has during the particular determination year or look-back year. For purposes of this A-10, employees include only those individuals who perform services for the employer during the determination or look-back year. The exclusions applicable for purposes of determining the number of employees in the top-paid group are not applicable for purposes of the limitations in this paragraph (b).
(3) Inclusion ranking.
If the number of the employer's officers who satisfy paragraph (a) of this A-10 during either the determination year or the look-back year exceeds the limitation under this paragraph (b), then the officers who will be considered as includible officers for purposes of this rule are those who receive the greatest compensation from the employer during such determination or look-back year. The definition of compensation in A-13 is to be used for this purpose.
(c) Minimum inclusion rule.
This paragraph (c) is applicable when no officer of the employer satisfies the compensation requirements of paragraph (a) of this A-10 during either a determination year or look-back year. In such case, the highest paid officer of the employer for such year is treated as a highly compensated employee by reason of being an officer, without regard to the amount of compensation paid to such officer in relation to the section 415(c)(1)(A) dollar amount for the year. This is true whether or not such employee is also a highly compensated employee on any other basis. Thus, for example, if no officer of employer X meets the compensation requirements of paragraph (a) of this A-10 during the 1989 look-back year, and employee A is both the highest paid officer during such year and a 5-percent owner, employee A is treated as an includible officer satisfying the minimum inclusion rules of this paragraph.
(d) Separate application.
The maximum and minimum officer inclusion rules of paragraphs (b) and (c) of this A-10 apply separately with respect to the determination year calculation and the look-back year calculation. Thus, for example, if no officer of employer X receives compensation above the threshold amount in paragraph (a) of this A-10 during either the determination year or look-back year, application of the minimum inclusion rule would result in the officer of employer X who received the greatest compensation during the look-back year being treated as a highly compensated employee and, in addition, the officer of employer X who receives the most compensation during the determination year would be included in the highly compensated group if such officer is also in the top-100 employees of employer X for such year. Thus, two officers may be treated as highly compensated active employees for a determination year by reason of the provisions of the minimum inclusion rule.
Q-11: To what extent must family members who are employed by the same employer be aggregated for purposes of section 414(q) ?
A-11: (a) Family aggregation —(1) In general. Aggregation is required with respect to an employee who is, during a particular determination year or look-back year, a family member (as defined in A-12) of either (i) a 5-percent owner who is an active or former employee or (ii) a highly compensated employee who is one of the ten most highly compensated employees ranked on the basis of compensation paid by the employer during such year.