(a) General rule. An hour of service which must, as a minimum, be
counted for the purposes of determining a year of service, a year of
participation for benefit accrual, a break in service and employment
commencement date (or reemployment commencement date) under sections
202, 203 and 204 of the Act and sections 410 and 411 of the Code, is an
hour of service as defined in paragraphs (a)(1), (2) and (3) of this
section. The employer may round up hours at the end of a computation
period or more frequently.
(1) An hour of service is each hour for which an employee is paid,
or entitled to payment, for the performance of duties for the employer
during the applicable computation period.
(2) An hour of service is each hour for which an employee is paid,
or entitled to payment, by the employer on account of a period of time
during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military
duty or leave of absence. Notwithstanding the preceding sentence,
(i) No more than 501 hours of service are required to be credited
under this paragraph (a)(2) to an employee on account of any single
continuous period during which the employee performs no duties (whether
or not such period occurs in a single computation period);
(ii) An hour for which an employee is directly or indirectly paid,
or entitled to payment, on account of a period during which no duties
are performed is not required to be credited to the employee if such
payment is made or due under a plan maintained solely for the purpose of
complying with applicable
workmen's compensation, or unemployment compensation or disability
insurance laws; and
(iii) Hours of service are not required to be credited for a payment
which solely reimburses an employee for medical or medically related
expenses incurred by the employee.
For purposes of this paragraph (a)(2), a payment shall be deemed to be
made by or due from an employer regardless of whether such payment is
made by or due from the employer directly, or indirectly through, among
others, a trust fund, or insurer, to which the employer contributes or
pays premiums and regardless of whether contributions made or due to the
trust fund, insurer or other entity are for the benefit of particular
employees or are on behalf of a group of employees in the aggregate.
(3) An hour of service is each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the
employer. The same hours of service shall not be credited both under
paragraph (a)(1) or paragraph (a)(2), as the case may be, and under this
paragraph (a)(3). Thus, for example, an employee who receives a back pay
award following a determination that he or she was paid at an unlawful
rate for hours of service previously credited will not be entitled to
additional credit for the same hours of service. Crediting of hours of
service for back pay awarded or agreed to with respect to periods
described in paragraph (a)(2) shall be subject to the limitations set
forth in that paragraph. For example, no more than 501 hours of service
are required to be credited for payments of back pay, to the extent that
such back pay is agreed to or awarded for a period of time during which
an employee did not or would not have performed duties.
(b) Special rule for determining hours of service for reasons other
than the performance of duties. In the case of a payment which is made
or due on account of a period during which an employee performs no
duties, and which results in the crediting of hours of service under
paragraph (a)(2) of this section, or in the case of an award or
agreement for back pay, to the extent that such award or agreement is
made with respect to a period described in paragraph (a)(2) of this
section, the number of hours of service to be credited shall be
determined as follows:
(1) Payments calculated on the basis of units of time. (i) Except as
provided in paragraph (b)(3) of this section, in case of a payment made
or due which is calculated on the basis of units of time, such as hours,
days, weeks or months, the number of hours of service to be credited
shall be the number of regularly scheduled working hours included in the
units of time on the basis of which the payment is calculated. For
purposes of the preceding sentence, in the case of an employee without a
regular work schedule, a plan may provide for the calculation of the
number of hours to be credited on the basis of a 40-hour workweek or an
8-hour workday, or may provide for such calculation on any reasonable
basis which reflects the average hours worked by the employee, or by
other employees in the same job classification, over a representative
period of time, provided that the basis so used is consistently applied
with respect to all employees within the same job classifications,
reasonably defined. Thus, for example, a plan may not use a 40-hour
workweek as a basis for calculating the number of hours of service to be
credited for periods of paid absences for one employee while using an
average based on hours worked over a representative period of time as a
basis for such calculation for another, similarly situated employee.
(ii) Examples. The following examples illustrate the rules in
paragraph (b)(1) of this section without regard to paragraphs (b)(2) and
(3).
(A) Employee A was paid for 6 hours of sick leave at his normal
hourly rate. The payment was therefore calculated on the basis of units
of time (hours). A must, therefore, be credited with 6 hours of service
for the 6 hours of sick leave.
(B) Employee B was paid his normal weekly salary for 2 weeks of
vacation. The payment was therefore calculated on the basis of units of
time (weeks). B is scheduled to work 37\1/2\ hours per week (although
from time to time working overtime). B must, therefore, be credited with
75 hours of service for the vacation (37\1/2\ hours per week multiplied
by 2 weeks).
(C) Employee C spent 3 weeks on a paid vacation. C's salary is
established at an annual rate but is paid on a bi-weekly basis. The
amount of salary payments attributable to be paid vacation was
calculated on the basis of units of time (weeks). C has no regular work
schedule but works at least 50 hours per week. The plan provides for the
calculation of hours of service to be credited to employees in C's
situation for periods of paid absences on the basis of a 40-hour
workweek. C must, therefore, be credited with 120 hours of service for
the vacation (3 weeks multiplied by 40 hours per week).
(D) Employee D spent 2 weeks on vacation, for which he was paid
$150. Although D has no regular work schedule, the $150 payment was
established on the assumption that an employee in D's position works an
average of 30 hours per week at a rate of $2.25 per hour. The payment of
$150 was therefore calculated on the basis of units of time (weeks). The
plan provides for the calculation of hours of service to be credited to
employees in D's situation for periods of paid absences on the basis of
the average number of hours worked by an employee over a period of 6
months. D's employer's records show that D worked an average of 28 hours
per week for a 6-month period. D must, therefore, be credited with 56
hours of service for the vacation (28 hours per week multiplied by 2
weeks).
(E) Employee E is regularly scheduled to work a 40-hour week. During
a computation period E is incapacitated as a result of injury for a
period of 11 weeks. Under the sick leave policy of E's employer E is
paid his normal weekly salary for the first 8 weeks of his incapacity.
After 8 weeks the employer ceases to pay E's normal salary but, under a
disability insurance program maintained by the employer, E receives
payments equal to 65% of his normal weekly salary for the remaining 3
weeks during which E is incapacitated. For the period during which he is
incapacitated, therefore, E receives credit for 440 hours of service (11
weeks multiplied by 40 hours per week) regardless of the fact that
payments to E for the last 3 wseeks of the period during which hs was
incapacitated were made in amounts less than E's normal compensation.
(2) Payments not calculated on the basis of units of time. (i)
Except as provided in paragraph (b)(3) of this section, in the case of a
payment made or due, which is not calculated on the basis of units of
time, the number of hours of service to be credited shall be equal to
the amount of the payment divided by the employee's most recent hourly
ratre of compensation (as determined under paragraph (b)(2)(ii) of this
section) before the period during which no duties are performed.
(ii) For purposes of paragraph (b)(2)(i) of this section an
employee's hourly rate of compensation shall be determined as follows:
(A) In the case of an employee whose compensation is determined on
the basis of an hourly rate, such hourly rate shall be the employee's
most recent hourly rate of compensation.
(B) In the case of an employee whose compensation is determined on
the basis of a fixed rate for specified periods of time (other than
hours) such as days, weeks or months, the employee's hourly rate of
compensation shall be the employee's most recent rate of compensation
for a specified period of time (other than an hour), divided by the
number of hours regularly scheduled for the performance of duties during
such period of time. For purposes of the preceding sentence, in the case
of an employee without a regular work schedule, the plan may provide for
the calculation of the employee's hourly rate of compensation on the
basis of a 40-hour workweek, an 8-hour workday, or may provide for such
calculation on any reasonable basis which reflects the average hours
worked by the employee over a representative period of time, provided
that the basis so used is consistently applied with respect to all
employees within the same job classificatons, reasonably defined.
(C) In the case of an employee whose compensation is not determined
on the basis of a fixed rate for specified periods of time, the
employee's hourly rate of compensation shall be the lowest hourly rate
of compensation paid to employees in the same job classification as that
of the employee or, if no
employees in the same job classification have an hourly rate, the
minimum wage as established from time to time under section 6(a)(1) of
the Fair Labor Standards Act of 1938, as amended.
(iii) Examples. The following examples illustrate the rules in
paragraph (b)(2) of this section without regard to paragraphs (b)(1) and
(3).
(A) As a result of an injury, an employee is incapacitated for 5
weeks. A lump sum payment of $500 is made to the employee with respect
to the injury under a disability insurance plan maintained by the
employee's employer. At the time of the injury, the employee's rate of
pay was $3.00 per hour. The employee must, therefore, be credited with
167 hours of service ($500 divided by $3.00 per hour).
(B) Same facts as in Example (A), above, except that at the time of
the injury, the employee's rate of pay was $160 per week and the
employee has a regular work schedule of 40 hours per week. The
employee's hourly rate of compensation is, therefore, $4.00 per hour
($160 per week divided by 40 hours per week) and the employee must be
credited with 125 hours of service for the period of absence ($500
divided by $4.00 per hour).
(C) An employee is paid at an hourly rate of $3.00 per hour and
works a regular schedule of 40 hours per week. The employee is disabled
for 26 weeks during a computation period. For the first 12 weeks of
disability, the employee is paid his normal weekly earnings of $120 per
week by the employer. Thereupon, a lump-sum disability payment of $1000
is made to the employee under a disability insurance plan maintained by
the employer. Under paragraph (a)(3)(i) of this section, the employee is
credited with 501 hours of service for the period of disability (lesser
of 501 hours--the maximum number of hours required to be credited for a
period of absence--or the sum of 12 weeks multiplied by 40 hours per
week plus $1000 divided by $3.00 per hour).
(3) Rule against double credit. (i) Nothwithstanding paragraphs
(b)(1) and (2) of this section, an employee is not required to be
credited on account of a period during which no duties are performed
with a number of hours of service which is greater than the number of
hours regularly scheduled for the performance of duties during such
period. For purposes of applying the preceding sentence in the case of
an employee without a regular work schedule, a plan may provide for the
calculation of the number of hours of service to be credited to the
employee for a period during which no duties are performed on the basis
of a 40-hour workweek or an 8-hour workday, or may provide for such
calculation on any reasonable basis which reflects the average hours
worked by the employee, or by other employees in the same job
classification, over a representative period of time, provided that the
basis so used is consistently applied with respect to all employees
within the same job classifications, reasonably defined.
(ii) Examples. (A) Employee A has a regular 40-hour workweek. Each
year Employee A is entitled to pay for a two-week vacation, in addition
to receiving normal wages for all hours worked, regardless of whether A
actually takes a vacation and regardless of the duration of his
vacation. The vacation payments are, therefore, calculated on the basis
of units of time (weeks). In computation period I, A takes no vacation
but receives vacation pay. A is entitled to no credit for hours of
service for the vacation payment made in computation period I because
the payment was not made on account of a period during which no duties
were performed. In computation period II, A takes a vacation of one week
in duration, although receiving pay for a two-week vacation. A is
entitled to be credited with 40 hours of service for his one-week
vacation in computation period II even though paid for two weeks of
vacation. In computation period III, A takes a vacation for a period
lasting more than 2 weeks. A is entitled to be credited with 80 hours of
service for his vacation in computation period III (40 hours per week
multiplied by 2 weeks) even though the vacation lasted more than 2
weeks.
(B) Employee B has no regular work schedule. As a result of an
injury, B is incapacitated for 1 day. A lump-sum payment of $500 is made
to A with respect to the injury under an insurance program maintained by
the employer.
A pension plan maintained by the employer provides for the calculation
of the number of hours of service to be credited to an employee without
a regular work schedule on the basis of an 8-hour day. A is therefore
required to be credited with no more than 8 hours for the day during
which he was incapacitated, even though A's rate of pay immediately
before the injury was $3.00 per hour.
(c) Crediting of hours of service to computation periods. (1) Except
as provided in paragraph (c)(4) of this section, hours of service
described in paragraph (a)(1) of this section shall be credited to the
computation period in which the duties are performed.
(2) Except as provided in paragraph (c)(4) of this section, hours of
service described in paragraph (a)(2) of this section shall be credited
as follows:
(i) Hours of service credited to an employee on account of a payment
which is calculated on the basis of units of time, such as hours, days,
weeks or months, shall be credited to the computation period or
computation periods in which the period during which no duties are
performed occurs, beginning with the first unit of time to which the
payment relates.
(ii) Hours of service credited to an employee by reason of a payment
which is not calculated on the basis of units of time shall be credited
to the computation period in which the period during which no duties are
performed occurs, or if the period during which no duties are performed
extends beyond one computation period, such hours of service shall be
allocated between not more than the first two computation periods on any
reasonable basis which is consistently applied with respect to all
employees within the same job classifications, reasonably defined.
(3) Except as provided in paragraph (c)(4) of this section, hours of
service described in paragraph (a)(3) of this section shall be credited
to the computation period or periods to which the award or agreement for
back pay pertains, rather than to the computation period in which the
award, agreement or payment is made.
(4) In the case of hours of service to be credited to an employee in
connection with a period of no more than 31 days which extends beyond
one computation period, all such hours of service may be credited to the
first computation period or the second computation period. Crediting of
hours of service under this paragraph must be done consistently with
respect to all employees within the same job classifications, reasonably
defined.
(5) Examples. The following examples are intended to illustrate
paragraph (c)(4) of this section.
(i) An employer maintaining a plan pays employees on a bi-weekly
basis. The plan designates the calendar year as the vesting computation
period. The employer adopts the practice of crediting hours of service
for the performance of duties during a bi-weekly payroll period to the
vesting computation period in which the payroll period ends. Thus, when
a payroll period ends on January 7, 1978, all hours of service to be
credited to employees for the performance of duties during that payroll
period are credited to the vesting computation period beginning on
January 1, 1978. This practice is consistent with paragraph (c)(4) of
this section, even though some hours of service credited to the
computation period beginning on January 1, 1978, are attributable to
duties performed during the previous vesting computation period.
(ii) An employer maintains a sick leave policy under which an
employee is entitled to a certain number of hours of sick leave each
year, on account of which the employee is paid his or her normal rate of
compensation. An employee with a work schedule of 8 hours per day, 5
days per week, is sick from December 26, 1977 through January 4, 1978.
Under the employer's sick leave policy, the employee is entitled to
compensation for the entire period. A plan maintained by the employer
establishes a calendar-year vesting computation period. The period from
December 26, 1977 through December 31, 1977 includes 5 working days; the
period from January 1, 1978 through January 4, 1978 includes 3 working
days. Unless the plan adopts the alternative method for crediting
service under paragraph (c)(4) of this section (illustrated in Example
(iii), below) for the period of paid sick leave, the plan, pursuant to
paragraph (c)(2)(i) of this section, must
credit the employee with 40 hours of service in the 1977 vesting
computation period (5 days multiplied by 8 hours per day) and 24 hours
of service in the 1978 vesting computation period (3 days multiplied by
8 hours per day).
(iii) Same facts as in Example (ii), above, except that the plan
adopts the practice of crediting hours of service for sick leave and
other periods of compensated absences to the vesting computation period
in which the employer's bi-weekly payroll period ends. The employee
returns to work on January 5, 1978 and works for 2 days. For the 2-week
payroll period ending on January 8, 1978, the employee may be credited
with 80 hours of service in the 1978 vesting computation period (64
hours of service for the paid sick leave and 16 hours of service for the
2 days during which duties were performed).
(d) Other Federal law. Nothing in this section shall be construed to
alter, amend, modify, invalidate, impair or supersede any law of the
United States or any rule or regulation issued under any such law. Thus,
for example, nothing in this section shall be construed as denying an
employee credit for an ``hour of service'' if credit is required by
separate Federal law. Furthermore, the nature and extent of such credit
shall be determined under such law.
(e) Additional examples. (1) During a computation period, an
employee was paid for working 38\1/4\ hours a week for 45 weeks. During
the remaining 7 weeks of the computation period the employee was not
employed by this employer. The employee completed 1,721\1/4\ hours of
service (45 weeks worked multiplied by 38\1/4\ hours per week). The
employer may also round up hours at the end of the computation period or
more frequently. Thus, this employee could be credited with 1,722 hours
of service (or, if the employer rounded up at the end of each week, 39
hours of service per week, resulting in credit for 1,755 hours of
service).
(2) During a computation period, an employee was paid for a workweek
of 40 hours per week for 40 weeks and, including overtime, for working
50 hours per week for 8 weeks. The employee completed 2,000 hours of
service (40 weeks multiplied by 40 hours per week, plus 8 weeks worked
multiplied by 50 hours per week).
(3) During a computation period an employee was paid for working 2
regularly scheduled 40-hour weeks and then became disabled. The employee
was disabled through the remainder of the computation period and the
following computation period. Throughout the period of disability,
payments were made to the employee as follows: For the first month of
the period of disability, the employer continued to pay the employee the
employee's normal compensation at the same rate as before the disability
occurred; thereupon, under the employer's disability insurance policy,
payments were made to the employee in amounts equal to 80 percent of the
employee's compensation before the disability. For the first computation
period the employee is credited with 80 hours of service for the
performance of duties (2 weeks multiplied by 40 hours per week) and 501
hours hours of service for the period of disability (the lesser of 501
hours of service or 50 weeks multiplied by 40 hours per week), or a
total of 581 hours of service; for the second computation period the
employee is credited with no hours of service because, under paragraph
(a)(2)(i) of this section, the maximum of 501 hours of service has been
credited for the period of disability in the first computation period.
(4) An employee has a regularly scheduled 5-day, 40-hour week.
During a computation period the employee works for the first week,
spends the second week on a paid vacation, returns to work for an hour
and is then disabled for the remainder of the computation period.
Payments under a disability plan maintained by the employer are made to
the employee on account of the period of disability. The employee is
credited with 582 hours of service for the computation period (40 hours
for the period of paid vacation; 41 hours for the performance of duties;
501 hours for the period of disability).
(5) Same facts as in Example (4), above, except that the employee's
period of disability begins before the employee returns from vacation to
the performance of duties. The employee is credited with only 541 hours
of service,
because the paid vacation and the disability together constitute a
single, continuous period during which no duties were performed and,
therefore, under paragraph (a)(2)(i) of this section, no more than 501
hours of service are required to be credited for such period.
(6) During a computation period, an employee worked 40 hours a week
for the first 2 weeks. The employee then began serving on active duty in
the Armed Forces of the United States, which service occupied the
remaining 50 weeks of the computation period. The employee would be
credited with 80 hours (2 weeks worked multiplied by 40 hours) plus such
credit as may be prescribed by separate Federal laws relating to
military service. The nature and extent of the credit that the employee
receives upon his return and the purpose for which such credit is given,
e.g., the percentage of his or her accrued benefits derived from
employer contributions which are nonforfeitable (or vested), will depend
upon the interpretation of the Federal law governing veterans'
reemployment rights.
(f) Plan document. A plan which credits service on the basis of
hours of service must state in the plan document the definition of hours
of service set forth in paragraph (a) of this section, but is not
required to state the rules set forth in paragraph (b) and (c) of this
section if they are incorporated by reference.
