(a) General rule. For the purpose of determining the hours of
service which must be credited to an employee for a computation period,
a plan shall determine hours of service from records of hours worked and
hours for which payment is made or due or shall use an equivalency
permitted under paragraph (d), (e) or (f) of this section to determine
hours of service. Any records may be used to determine hours of service
to be credited to employees under a plan, even though such records are
maintained for other purposes, provided that they accurately reflect the
actual number of hours of service with which an employee is required to
be credited under Sec. 2530.200b-2(a). Payroll records, for example, may
provide sufficiently accurate data to serve as a basis for determining
hours of service. If, however, existing records do not accurately
reflect the actual number of hours of service with which an employee is
entitled to be credited, a plan must either develop and maintain
adequate records or use one of the permitted equivalencies. A plan may
in any case credit hours of service under any method which results in
the crediting of no less than the actual number of hours of service
required to be credited under Sec. 2530.200b-2(a) to each employee in a
computation period, even though such method may result in the crediting
of hours of service in excess of the number of hours required to be
credited under Sec. 2530.200b-2. A plan is not required to prescribe in
its documents which records are to be used to determine hours of
service.
(b) Determination of pre-effective date hours of service. To the
extent that a plan is required to determine hours of service completed
before the effective date of part 2 of title I of the Act (see section
211 of the Act), the plan may use whatever records may be reasonably
accessible to it and may make whatever calculations are necessary to
determine the approximate number of hours of service completed before
such effective date. For example, if a plan or an employer maintaining
the plan has, or has access to, only the records of compensation of
employees for the period before the effective date, it may derive the
pre-effective date hours of service by using the hourly rate for the
period or the hours customarily worked. If accessible records are
insufficient to make an approximation of the number of pre-effective
date hours of service for a particular employee or group of employees,
the plan may make a reasonable estimate of the hours of service
completed by such employee or employees during the particular period.
For example, if records are available with respect to some employees,
the plan may estimate the hours of other employees in the same job
classification based on these records. A plan may use any of the
equivalencies permitted under this section, or the elapsed time method
of crediting service permitted under this
section, or the elapsed time method of crediting service permitted under
Sec. 2530.200b-9, to determine hours of service completed before the
effective date of part 2 of title I of the Act.
(c) Use of equivalencies for determining service to be credited to
employees. (1) The equivalencies permitted under paragraphs (d), (e) and
(f) of this section are methods of determining service to be credited to
employees during computation periods which are alternatives to the
general rule for determining hours of service set forth in paragraph (a)
of this section. The equivalencies are designed to enable a plan to
determine the amount of service to be credited to an employee in a
computation period on the basis of records which do not accurately
reflect the actual number of hours of service required to be credited to
the employee under Sec. 2530.200b-2(a). However, the equivalencies may
be used even if such records are maintained. Any equivalency used by a
plan must be set forth in the document under which the plan is
maintained.
(2) A plan may use different methods of crediting service, including
equivalencies permitted under paragraphs (d), (e) and (f) of this
section and the method of crediting service under the general rule set
forth in Sec. 2530.200b-2(a), for different classifications of employees
covered under the plan or for different purposes, provided that such
classifications are reasonable and are consistently applied. Thus, for
example, a plan may provide that part-time employees are credited under
the general method of crediting service set forth in Sec. 2530.200b-2
and full-time employees are credited under a permissible equivalency. A
classification, however, will not be deemed to be reasonable or
consistently applied if such classification is designed with an intent
to preclude an employee or employees from attaining statutory
entitlement with respect to eligibility to participate, vesting or
benefit accrual. For example, a classification applied so that any
employee credited with less than 1,000 hours of service during a given
12-consecutive-month period would be considered part-time and subject to
the general method of crediting service rather than an equivalency would
not be reasonable.
(3) Notwithstanding paragraphs (c)(1) and (2) of this section, the
use of a permissible equivalency for some, but not all, purposes or the
use of a permissible equivalency for some, but not all, employees may,
under certain circumstances, result in discrimination prohibited under
section 401a of the Code, even though it is permitted under this
section.
(d) Equivalencies based on working time--(1) Hours worked. A plan
may determine service to be credited to an employee on the basis of
hours worked, as defined in paragraph (d)(3)(i) of this section, if 870
hours worked are treated as equivalent to 1,000 hours of service and 435
hours worked are treated as equivalent to 500 hours of service.
(2) Regular time hours. A plan may determine service to be credited
to an employee on the basis of regular time hours, as defined in
paragraph (d)(3)(ii) of this section, if 750 regular time hours are
treated as equivalent to 1,000 hours of service and 375 regular time
hours are treated as equivalent to 500 hours of service.
(3) For purposes of this section:
(i) The term ``hours worked'' shall mean hours of service described
in Sec. 2530.200b-2(a)(1), and hours for which back pay, irrespective of
mitigation of damages, is awarded or agreed to by an employer, to the
extent that such award or agreement is intended to compensate an
employee for periods during which the employee would have been engaged
in the performance of duties for the employer.
(ii) The term ``regular time hours'' shall mean hours worked, except
hours for which a premium rate is paid because such hours are in excess
of the maximum workweek applicable to an employee under section 7(a) of
the Fair Labor Standards Act of 1938, as amended, or because such hours
are in excess of a bona fide standard workweek or workday.
(4) A plan determining service to be credited to an employee on the
basis of hours worked or regular time hours shall credit hours worked or
regular time hours, as the case may be, to computation periods in
accordance with the rules for crediting hours of service
to computation periods set forth in Sec. 2530.200b-2(c).
(5) Examples. (i) A defined benefit plan uses the equivalency based
on hours worked permitted under paragraph (d)(1) of this section. The
plan uses the same 12-consecutive-month period for the vesting and
accrual computation periods. The plan credits a participant with each
hour for which the participant is paid, or entitled to payment, for the
performance of duties for the employer during a computation period (as
well as each hour for which back pay is awarded or agreed to). During a
vesting/accrual computation period Participant A is credited with 870
hours worked. A is credited with a year of service for purposes of
vesting for the computation period and with at least a partial year of
participation for purposes of accrual, as if A had been credited with
1000 hours of service during the computation period. During the same
computation period Participant B is credited with 436 hours of service.
B is not credited with a year of service for purposes of vesting or a
partial year or paritcipation for purposes of accrual for the
computation period, but does not incur a one-year break in service for
the computation period, as if B had been credited with 501 hours of
service during the computation period.
(ii) A plan uses the equivalency based on regular time hours
permitted under paragraph (d)(2) of this section. During a computation
period a participant works 370 regular time hours and 20 overtime hours.
The participant incurs a one-year break in service for the computation
period because he has not been credited with 375 regular time hours in
the computation period.
(e) Equivalencies based on periods of employment. (1) Except as
provided in paragraphs (e)(4) and (6) of this section, a plan may
determine the number of hours of service to be credited to employees in
a computation period on the following bases:
(i) On the basis of days of employment, if an employee is credited
with 10 hours of service for each day for which the employee would be
required to be credited with at least one hour of service under
Sec. 2530.200b-2;
(ii) On the basis of weeks of employment, if an employee is credited
with 45 hours of service for each week for which the employee would be
required to be credited with at least one hour of service under
Sec. 2530.200b-2;
(iii) On the basis of semi-monthly payroll periods, if an employee
is credited with 95 hours of service for each semi-monthly payroll
period for which the employee would be required to be credited with at
least one hour of service under Sec. 2530.200b-2; or
(iv) On the basis of months of employment, if an employee is
credited with 190 hours of service for each month for which the employee
would be required to be credited with at least one hour of service under
Sec. 2530.200 b-2.
(2) Except as provided in paragraphs (e)(4) and (6) of this section,
a plan may determine the number of hours of service to be credited to
employees in a computation period on the basis of shifts if an employee
is credited with the number of hours included in a shift for each shift
for which the employee would be required to be credited with at least
one hour of service under Sec. 2530.200b-2. if a plan uses the
equivalency based on shifts permitted under this paragraph, the times of
the beginning and end of each shift used as a basis for the
determination of service shall be set forth in a document referred to in
the plan.
(3) Examples. The following examples illustrate the application of
paragraphs (e)(1) and (2) of this section;
(i) A plan uses the equivalency based on weeks of employment
permitted under paragraph (e)(1)(ii) of this section. An employee works
for one hour on the first workday of a week and then takes leave without
pay for the entire remainder of the week. The plan must credit the
employee with 45 hours of service for the week.
(ii) A plan uses the equivalency based on weeks of employment
permitted under paragraph (e)(1)(ii) of this section. An employee spends
a week on vacation with pay. The plan must credit the employee with 45
hours of service for the week.
(iii) A plan uses the equivalency based on weeks of employment
permitted under paragraph (e)(1)(ii) of this section. An employee spends
two days of a week on vacation with pay and the
remainder of the week on leave without pay. The plan must credit the
employee with 45 hours of service for the week.
(iv) A plan uses the equivalency based on weeks of employment
permitted under paragraph (e)(1)(ii) of this section. An employee spends
the entire week on leave without pay. The plan is not required to credit
the employee with any hours of service for the week because no payment
was made to the employee for the week of leave and, therefore, under
Sec. 2530.200b-2 no hours of service would be credited to the employee
for the week of leave.
(v) The workday of an employer maintaining a plan is scheduled in
shifts. Ordinarily, each shift is 6 hours in duration. At certain times,
however, the employer schedules 8-hour shifts in order to meet increased
demand. Such shifts are described in a collective bargaining agreement
referred to in the plan documents. The plan must credit an employee with
6 hours of service for each 6-hour shift for which the employee would be
credited with one hour of service under Sec. 2530.200b-2, and with 8
hours of service for each such 8-hour shift.
(vi) An employer's workday is divided into three 8-hour shifts, each
employee generally working 5 shifts per week. A plan maintained by the
employer uses the equivalency based on shifts permitted under paragraph
(e)(2) of this section. An employee is on vacation with pay for 2 weeks,
during which, in the ordinary course of his work schedule, he would have
worked 10 shifts. The employee must be credited with 80 hours of service
for the vacation (10 shifts multiplied by 8 hours per shift).
(vii) An employer's workday is divided into three 8-hour shifts,
each employee generally working 1 shift per workday. A plan maintained
by the employer uses the equivalency based on shifts permitted under
paragraph (e)(2) of this section. On a certain day, an employee works
his normal 8-hour shift and an hour during the following shift. In
addition to 8 hours service for the first shift, the employee must be
credited with 8 hours of service for the following shift, since he would
be entitled to be credited with at least one hour of service for the
second shift under Sec. 2530.200b-2.
(viii) A plan uses the equivalency based on days permitted under
paragraph (e)(1)(i) of this section. During a computation period an
employee spends 2 weeks on vacation with pay. In the ordinary course of
the employee's regular work schedule, the employee would be engaged in
the performance of duties for 10 days during the 2-week vacation period.
Under Sec. 2530.200b-2, the employee would be credited with at least one
hour of service for each of the 10 days during the 2-week vacation for
which the employee would ordinarily be engaged in the performance of
duties. Under paragraph (e)(4) of this section, the employee is credited
with 100 hours of service for the 2-week vacation (10 days multiplied by
10 hours of service per day).
(4) For purposes of this paragraph, in the case of a payment
described in Sec. 2530.200b-2(b)(2) (relating to payments not calculated
on the basis of units of time), a plan using an equivalency based on
units of time permitted under this paragraph shall credit the employee
with the number of hours of service determined under paragraph (2) of
Sec. 2530.200b-2(b), and, to the extent applicable, paragraph (e)(3),
containing the rule against double crediting, of Sec. 2530.200b-2(b).
For example, if an employee with a regular work schedule of 40 hours per
week paid at a rate of $3.00 per hour is incapacitated for a period of 4
weeks and receives a lump sum payment of $500 for his incapacity, the
employee must be credited with 160 hours of service for the period of
incapacity, regardless of whether the plan uses an equivalency permitted
under this paragraph (see example at Sec. 2530.200b-2(b)(2)(iii)(A). If,
however, the employee is incapacitated for only 3 weeks, under
Sec. 2530.200b-2(b)(3) the emmployee is not required to be credited with
more than 120 hours of service (lesser of 167 hours of service
determined under the preceding sentence or 3 weeks multiplied by 40
hours per week).
(5) For purposes of this paragraph, in the case of a payment to an
employee calculated on the basis of units of time which are greater than
the periods of employment used by a plan as a basis
for determining service to be credited to the employee under this
paragraph, the plan shall credit the employee with the number of periods
of employment which, in the course of the employee's regular work
schedule, would be included in the unit or units of time on the basis of
which the payment is calculated. For example, a plan uses the
equivalency based on days permitted under paragraph (e)(1)(i) of this
section. During a computation period an employee spends 2 weeks on
vacation with pay. In the ordinary course of the employee's regular work
schedule, the employee would be engaged in the performance of duties for
10 days during the 2-week vacation period. Under Sec. 2530.200b-2, the
emplopyee would be credited with at least one hour of service for each
of the 10 days during the 2-week vacation for which the employee would
ordinarily be engaged in the performance of duties. Under this paragraph
the employee is credited with 100 hours of service for the 2-week
vacation (10 days multiplied by 10 hours of service per day). If,
however, the employee, although paid for a 2-week vacation, spends only
one week on vacation, under Sec. 2530.200b-2(b)(3) the employee is not
required to be credited with more than 50 hours of service (5 days
multiplied by 10 hours per day).
(6) For purposes of this paragraph, in the case of periods of time
used as a basis for determining service to be credited to an employee
which extend into two computation periods, the plan may credit all hours
of service (or other units of service) credited for such a period to the
first computation period or the second computation period, or may
allocate such hours of service (or other units of service) between the
two computation periods on a pro rata basis. Crediting of service under
this paragraph must be done consistently with respect to all employees
within the same job classifications, reasonably defined.
(7) A plan may combine an equivalency based on working time
permitted under paragraph (d) of this section (i.e., hours worked or
regular time hours) with an equivalency based on periods of employment
permitted under this paragraph if the following conditions are met:
(i) The plan credits an employee with the number of hours worked or
regular time hours, as the case may be, equal to the number of hours of
service which would be credited to the employee under paragraphs (e)(1)
and (2) of this section, for each period of employment for which the
employee would be credited with one hour worked or one regular time
hour; and
(ii) The plan treats hours worked and regular time hours in the
manner prescribed under paragraphs (d)(1) and (2) of this section.
(8) Example. The following example illustrates the application of
paragraph (e)(7) of this section. A plan uses the equivalency based on
weeks of employment permitted under paragraph (e)(1)(ii) of this section
in conjunction with the equivalency based on hours worked permitted
under paragraph (d)(1) of this section, as provided in paragraph (e)(7)
of this section. During a vesting computation period an employee is paid
for the performance of duties for at least 1 hour in each of the first
20 weeks of the computation period and spends the next 2 weeks on a paid
vacation. The employee thereupon terminates employment performing no
further duties for the employer, and receiving no further compensation
in the computation period. The employee is therefore credited with 900
hours worked for the vesting computation period (20 weeks multiplied by
45 hours per week), receiving no credit for the two weeks of paid
vacation. The employee is credited with a year of service for the
vesting computation period because he has been credited with more than
870 hours for the computation period.
(f) Equivalencies based on earnings. (1) In the case of an employee
whose compensation is determined on the basis of an hourly rate, a plan
may determine the number of hours to be credited the employee in a
computation period on the basis of earnings, if:
(i) The employee is credited with the number of hours equal to the
total of the employee's earnings from time to time during the
computation period divided by the employee's hourly rate as
in effect at such times during the computation period, or equal to the
employee's total earnings for the performance of duties during the
computation period divided by the employee's lowest hourly rate of
compensation during the computation period, or by the lowest hourly rate
of compensation payable to an employee in the same, or a similar job
classification, reasonably defined; and
(ii) 870 hours credited under paragraph (f)(1)(i) of this section
are treated as equivalent to 1,000 hours of service, and 435 hours
credited under paragraph (f)(1)(i) of this section are treated as
equivalent to 500 hours of service.
For purposes of this paragraph (f)(1), a plan may divide earnings at
premium rates for overtime by the employee's hourly rate for overtime,
rather than the regular time hourly rate.
(2) In the case of an employee whose compensation is determined on a
basis other than an hourly rate, a plan may determine the number of
hours to be credited to the employee in a computation period on the
basis of earnings if:
(i) The employee is credited with the number of hours equal to the
employee's total earnings for the performance of duties during the
computation period divided by the employee's lowest hourly rate of
compensation during the computation period, determined under paragraph
(f)(3) of this section; and
(ii) 750 hours credited under paragraph (f)(2)(i) of this section
are treated as equivalent to 1,000 hours of service, and 375 hours
credited under paragraph (f)(2)(i) of this section are treated as
equivalent to 500 hours of service.
(3) For purposes of paragraph (f)(2) of this section, an employee's
hourly rate of compensation shall be determined as follows:
(i) In the case of an employee whose compensation is determined on
the basis of a fixed rate for a specified period of time (other than an
hour) such as a day, week or month, the employee's hourly rate of
compensation shall be the employee's lowest rate of compensation during
a computation period for such specified period of time 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 or 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 to all employees
within the same job classifications, reasonably defined.
(ii) In the case of an employee whose compensation is not determined
on the basis of a fixed rate for a specified period of time, the
employee's hourly rate of compensation shall be the lowest hourly rate
of compensation payable to employees in the same job classification as
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.
(4) Examples. (i) In a particular job classification employees'
wages range from $3.00 per hour to $4.00 per hour. To determine the
number of hours to be credited to an employee in that job classification
who is compensated at a rate of $4.00 per hour, a plan may divide the
employee's total earnings during the computation period for the
performance of duties either by $3.00 per hour (the lowest hourly rate
of compensation in the job classification) or by $4.00 per hour (the
employee's own hourly rate of compensation).
(ii) An hourly employee's total earnings for the performance of
duties during a vesting computation period amount to $4,350. During that
calendar year, the employee's lowest hourly rate of compensation was
$5.00 per hour. The plan may determine the number of hours to be
credited to the employee for that vesting computation period by dividing
$4,350 by $5.00 per hour. The employee is credited with 870 hours for
the vesting computation period and is, therefore, credited with a year
of service for purposes of vesting.
(iii) During the first 3 months of a vesting computation period an
hourly employee is paid at a rate of $3.00 per
hour and earns $675 for the performance of duties; during the next 6
months, the employee is paid at a rate of $3.50 per hour and earns
$1,575 for the performance of duties; during the final 3 months the
employee is paid at a rate of $3.60 per hour and earns $810 for the
performance of duties. The plan may determine the number of hours to be
credited to the employee in the computation period under the equivalency
set forth in paragraph (f)(1) of this section either (A) by dividing the
employee's earnings for each period during which the employee was paid
at a separate rate ($675 divided by $3.00 per hour equals 225 hours;
$1,575 divided by $3.50 per hour equals 450 hours; $810 divided by $3.60
per hour equals 225 hours) and adding the hours so obtained (900 hours),
or (B) by dividing the employee's total compensation for the vesting
computation period by the employee's lowest hourly rate during the
computation period ($3,020 divided by $3.00 per hour equals 1,009\2/3\
hours). The plan may also divide the employee's total compensation
during the computation period by the lowest hourly rate payable to an
employee in the same, or a similar, job classification.
(iv) During a plan's computation period an hourly employee's total
earnings for the performance of duties consist of $7,500 at a basic rate
of $5.00 per hour and $750 at an overtime rate of $7.50 per hour for
hours worked in excess of 40 in a week. If the plan uses the equivalency
permitted under paragraph (f)(1) of this section, the plan may adjust
for the overtime rate in calculating the number of hours to be credited
to the employee. Thus, the plan may calculate the number of hours to be
credited to the employee by adding the employee's earnings at the basic
rate divided by the basic rate and the employee's earnings at the
overtime rate divided by the overtime rate ($7,500 divided by $5.00 per
hour, plus $750 divided by $7.50 per hour, or 1,500 hours plus 100
hours), resulting in credit for 1,600 hours for the computation period.
(v) During a plan's vesting computation period an employee's lowest
weekly rate of compensation is $400 per week. The employee has a regular
work schedule of 40 hours per week. The employee's lowest hourly rate
during the vesting computation period is, therefore, $10 per hour ($400
per week divided by 40 hours per week). During the vesting computation
period, the employee receives a total of $7,500 for the performance of
duties. The plan determines the number of regular time hours to be
credited to the employee for the computation period by dividing $7,500
by $10 per hour. The employee is credited with 750 hours for the
computation period and is, therefore, credited with a year of service
for purposes of vesting.
