Staffing Management

How Do We Get Our ESOP Plan Started?

By Staff Report

Jun. 17, 2014

Q: My company wants to start an employee stock ownership plan, or ESOP, that defines a vesting year as being an actively employed participant on Dec. 31 of that year and you credited with at least 1,000 hours of employment. Should this include regular hours, overtime hours, and PTO hours? What else might we need to consider?

— ESOP Fable, financial/insurance/real estate, Des Moines, Iowa employee stock ownership plan

A: Yes, all of those hours should be included in determining whether employees meet the 1,000 hours of service requirement. For purposes of employee stock ownership plan, or ESOP, an “hour of serve” is any hour for which an employee is directly or indirectly paid or entitled to payment by the employer. You are not required to include years of service prior to the adoption of the ESOP, but many companies choose to do so. That may be as simple as counting all years of service or giving partial credit for prior years (such as one year of ESOP vesting credit for each three years of service prior to the ESOP).

You may also want to consider adopting a vesting schedule that is faster than required by law. Participants must vest no later than the either of the standard vesting schedules. One schedule (“cliff vesting”) allows no vesting for the first five years of service, then 100 percent vesting at the end of the fifth year. A second schedule allows graduated vesting to begin at 20 percent after the second year and increase 20 percent per year thereafter. A number of companies choose to provide for faster vesting because they want employees to start feeling an ownership interest more quickly than the standard schedules.

You may also want to consider providing for full vesting upon disability, death, or reaching the early retirement age specified under the plan. See IRS Code Section 410(a)(3)C) and Labor Reg. 2530.200b-2(a)

SOURCE: Loren Rodgers, executive director, National Center for Employee Ownership, Oakland, California, June 12, 2014.

What’s New at Workforce.com?

blog workforce

Come see what we’re building in the world of predictive employee scheduling, superior labor insights and next-gen employee apps. We’re on a mission to automate workforce management for hourly employees and bring productivity, optimization and engagement to the frontline.

Book a call
See the software
workforce news

Related Articles

workforce blog

Staffing Management

Managing employee time-off requests: A guide for business owners

Summary Vacation, sick time, PTO banks, and unpaid leave are only a few forms of employee time off — Mo...

workforce blog

Staffing Management

4 proven steps for tackling employee absenteeism

Summary Identifying the cause of employee absenteeism not only helps uncover deeper-rooted issues — Mor...

absence management, Employee scheduling software, predictive scheduling, shift bid, shift swapping

workforce blog

Staffing Management

Employee or contractor? 6 worker misclassification FAQs

Misclassification of employees as independent contractors led to overtime violations, according to a La...

compliance, Department of Labor, employee engagement, FLSA, HR technology, Worker misclassification