This article is about Justworks PEO. What product am I using?
Income eligible for 401(k)
Empower through Justworks
Your 401(k) plan through Empower is set up so that 401(k) deferrals apply to all W-2 payments. This includes, but is not limited to, regular salary or hourly wages, bonuses, commissions, and owner's draws. Please note, Severance Pay is not included as eligible compensation for 401(k) deductions.
External 401(k) outside of Justworks
If you do not offer Empower, but instead offer a 401(k) plan outside of Justworks, your plan's definition of eligible compensation can be found in your plan document. This differs from plan to plan and provider to provider. Please ensure that the manual deductions set up for your employees are applied to the appropriate payment types in accordance with your plan document. It’s important to note that if you decide to move your company’s 401(k) plan from outside of Justworks to the Justworks plan through Empower, you will need to turn off the manual deductions to avoid double deductions for your employees since deductions for the Justworks plan are automatically applied.
Processing one-off payments with an Empower plan
Please note, when scheduling a one-off payment to your employee through Justworks, you will see an alert on the page that 401(k) deductions and any applicable employer contributions will be applied to the payment.
Deferrals through Empower
When your employees enroll with Empower, they can set a deferral rate for salary payments and supplemental payments, such as bonuses or commissions, within the Empower portal. The deferral rate they specify will be the rate applied to all eligible payments.
For example, if your employee has elected 6% traditional (pre-tax) and selected a bonus and commission deferral rate of 10% traditional (pre-tax), their regularly scheduled pay will still have the 6% deduction while bonus and commission payments will reflect the 10% elected.
Please note, if your employee has set a separate deferral rate for bonuses and commissions, the election will not impact their regular pay. Any applicable employer match will also apply to all eligible payments made through Justworks.
Please refer your employees to the Employee facing article, 401(k), for additional information.
Processing timeline
If an employee changes their deferral rate(s), it will be effective in Justworks within 24 hours. Please keep in mind that once a payment has been processed with a 401(k) deduction applied, we will not be able to cancel or amend the deduction except as required in very limited circumstances.
Plan Year Restrictions
The IRS sets an annual limit for the amount that can be contributed to a 401(k) plan every year. However, it is up to each plan to determine how they would like to define the plan year. The IRS requires that it be consistent and that it be documented.
For the Justworks 401(k) MEP plan through Empower, we define the plan year as January 1st through December 31st. All funds must be deposited into the 401(k) account during that time frame. Compensation paid after December 31st, even if it was paid for time worked during the year, must be applied to the new year. For example, if you receive a paycheck in January for work done in December, any 401(k) deferrals would be applied towards the 402g limits in the new year.
Disclaimer
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.