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ERISA

Department of Labor (DOL)’s safe harbor exemption from ERISA

The Baldwin Group
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Updated: April 24, 2024
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1 minute read

Question: What requirements must be met for a payroll practice to fall under the Department of Labor (DOL)’s safe harbor exemption from ERISA?

Answer:  Certain welfare benefit plans that would otherwise fall under ERISA and are characterized as “payroll practices” are exempted by DOL regulations. To fall under the DOL’s safe harbor exemption, a payroll practice must: (1) be unfunded; (2) not pay more than an employee’s normal compensation; and (3) cover current employees only (e.g., cannot cover former employees, retirees, or other nonemployees). If the payroll practice meets these requirements, it will not be considered an ERISA plan.

Examples of practices that may fall under this exemption include the following:

  • The payment of wages for work performed by an employee, including overtime pay, shift premiums, and holiday or weekend premiums.
  • Income replacement, short-term disability, salary continuation, or paid medical leave programs (including sick pay), paid out of an employer’s general assets. These are self-insured programs and generally all are self-administered.
  • Vacation or holiday pay.
  • Pay during active military duty, jury duty, or testifying in official proceedings.
  • Pay received during periods engaged in training in which the employee is performing little or no productive work (even if paid through government subsidies).

Pay received during sabbatical leaves or time off while pursuing further education.


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