Hours of Service is one way to decide when employees become eligible to join your Gusto Retirement 401(k) plan. This article explains when it is a good fit, what counts toward the requirement, how Gusto tracks eligibility, and what you are responsible for.
When you set up a 401(k), you choose when employees can become eligible to join the plan.
One option is Hours of Service. With this method, employees become eligible based on how many hours they accumulate, instead of only how long they have been employed.
Today, Gusto Retirement supports a fixed Hours of Service threshold of 1,000 hours in a 12-month period.
Hours of Service may be a good fit if you:
Have part-time, seasonal, or variable-hour employees that you want to keep out of the plan
Want to include employees who work enough to participate, without automatically including every short-term employee
Prefer eligibility to be based on actual paid service rather than only time on payroll
A time-employed rule may be simpler if you:
Have a mostly full-time workforce
Do not want to track or review hours for eligibility
Expect most employees would meet an hours-based threshold anyway
Hours of Service means paid or entitled-to-pay hours, not just hours actively worked.
This includes:
Hours actually worked
Paid vacation
Paid holidays
Paid sick time or disability
Jury duty pay
Similar paid time away from work
Note: For one continuous period where no work is performed, plans only have to credit up to about 501 hours for that paid absence. This usually matters only for long, uninterrupted paid leaves.
Gusto measures Hours of Service over each employee’s own 12-month employment anniversary period.
The first measurement period starts on the employee’s hire date
If the employee reaches 1,000 hours during that 12-month period, they satisfy the requirement
If they do not, Gusto keeps measuring in each following anniversary year
Important: If an employee reaches 1,000 hours before the 12-month period ends, they do not become eligible immediately. They become eligible after the computation period ends, then enter the plan on the next entry date under your plan.
Under SECURE 2.0, some employees may still become eligible even if they do not reach 1,000 hours in a year. Instead, they need to work at least 500 hours over 2 consecutive years to become eligible to participate in the plan. Gusto applies that rule automatically where required.
Employees can become eligible by meeting either:
Your plan’s 1,000-hour requirement, or
The 500-hours-for-2-years backstop
Note: While SECURE 2.0 only requires the long-term part-time rule to apply for eligibility to make elective deferrals, Gusto Retirement applies this rule for all contributions under the plan.
Gusto automates Hours of Service tracking through payroll data.
Gusto reads hours directly from your Gusto payroll data
For hourly and nonexempt employees, Gusto uses their worked and paid hours
For salaried employees, Gusto credits 190 hours per month using an approved equivalency method
Gusto monitors eligibility automatically and updates an employee’s status when they qualify
You are responsible for:
Choosing whether Hours of Service is the right eligibility method for your plan
Running payroll through Gusto so hours can be tracked automatically
Reviewing your plan design and entry dates
Confirming related-company structure if employees work across a legally related group
If employees work across businesses in the same legally related group, their hours are combined toward the requirement.
Important: Because Gusto uses your payroll data to determine eligibility for your 401(k) plan, the hours entered per pay period need to be accurate. If the hours entered for a pay period are not correct, you need to correct that pay period.
Hours of Service eligibility currently:
Requires an Enterprise plan
Requires payroll to run through Gusto
Supports a fixed threshold of 1,000 hours in 12 months
Does not currently let employers set a lower hours threshold or change the measurement window
Q: Does paid time off count toward the 1,000 hours?
A: Yes. Paid time off counts toward Hours of Service.
Q: Can we require more than 1,000 hours?
A: No. If eligibility is measured by hours, 1,000 hours in a 12-month period is the maximum requirement.
Q: What if an employee does not reach 1,000 hours in their first year?
A: Gusto keeps measuring each following anniversary year, and the SECURE 2.0 long-term part-time rule may also apply.
Q: Does this work if we do not use Gusto for payroll?
A: No. Automated Hours of Service tracking requires Gusto payroll data. It is not available for self-service plans.
Q: Do we have to track this manually?
A: No. You set the rule once, and Gusto tracks eligibility automatically through payroll.