For applications submitted to conform to the 2020 RA List

Employee

Benefit

Plans

Explanation No. 8

Employee

Leasing

Note: 

Plans submitted during the 2020 Required Amendment List 

submission period must satisfy the applicable changes in 

plan qualification requirements listed in Section IV of Notice 

2020-83, 2020-50 I.R.B. 1597 (the 2020 RA List).

This publication contains copies of:

Form 8386, Worksheet 8 

Form 8398, Deficiency Checksheet 8

These forms are included as examples only and should not 

be completed and returned to the Internal Revenue Service.

Publication 7003 (Rev. 6-2021) Catalog Number 48736V Department of the Treasury Internal Revenue Service www.irs.gov

The technical principles in this publication may be changed by 

future regulations or guidelines.

Worksheet Number 8 (Form 8386) and this explanation 

are designed to aid the specialist in deciding whether any 

qualification issue arising by reason of section 414(n) of the 

Code needs to be covered and, if so, whether the requirements 

of that section are met.

Section 9.08 of Rev. Proc. 2021-4, 2021-1 I.R.B. 157 (as 

annually revised), provides that that a determination letter 

submission which also seeks a ruling on the status of 

leased employees must specifically request that ruling in the 

submission’s cover letter (in addition to providing information 

set forth in Section 17 therein).

The worksheet and explanation (except for the procedural 

information in Part I) are based on the statute itself and on 

various questions and answers in Notice 84-11, 1984-2 C.B. 

469 and Rev. Proc. 2002-21, 2002-1 C.B. 911, as amplified 

by Rev. Proc. 2003-86, 2003-2 C.B. 1211. Until applicable 

regulations are published, the guidance provided by these 

questions and answers and procedures may be relied upon to 

comply with the provisions of section 414(n).
Page 2 For applications submitted to conform to the 2020 RA List

I. Required Information

Unless the plan provides that all leased employees within the meaning of section 414(n)(2) of the Code are treated as common law 

employees for all purposes under the plan, a determination letter issued with respect to the plan’s qualification under section 401(a) or 

403(a) of the Code will be a determination as to the effect of section 414(n) upon the plan’s qualified status only if the application includes:

1) A description of the nature of the recipient organization;

2) A copy of the relevant leasing agreement;

3) A description of the function of all leased employees within the trade or business of the recipient organization (including data as 

to whether all leased employees are performing services on a substantially full-time basis) and whether services are performed 

under the primary direction or control of the recipient organization; and

4) If the recipient organization is relying on any qualified plan(s) maintained by the leasing organization for purposes of qualification 

of the recipient organization’s plan, a description of such plan(s) (including a description of the contributions or benefits provided 

for all leased employees which are attributable to services performed for the recipient organization, plan eligibility, and vesting).

Rev. Proc. 85-43, 1985-2 C.B. 501

II. Applicability of Section 414 (n)

If the answers to a., b., c. and d. are “Yes” the plan sponsor is a “recipient” within the meaning of section 414(n)(1) of the Code; the persons 

performing the services for the recipient pursuant to the agreement are “leased employees” within the meaning of section 414(n)(2); and the 

person that the recipient has the agreement with is a “leasing organization” within the meaning of section 414(n)(2)(A). Leased employees 

are considered to be employees of the recipient organization for purposes of the requirements set forth in section 414(n)(3)(A) and (B), 

even though they are common law employees of the leasing organization, unless (i) they are covered by a safe harbor plan of the leasing 

organization, and (ii) leased employees (including those covered by a safe harbor plan) do not constitute more than 20 percent of the 

recipient’s nonhighly compensated work force. To constitute a safe harbor the leasing organization’s plan must meet the requirements set 

forth in section 414(n)(5)(B), which are reflected in part III of the worksheet.

Line a. The term “leased employee”, as defined in section 414(n)(2) of the Code, specifies that a leased employee is a person who is not 

an employee of the recipient. This specification was added by Pub. L. 98-369 (DEFRA) in 1984. Section 414(n)(6) defines “related persons” 

and also states that the rules of section 414(b), (c), (m) and (o) shall apply.

Line b. The agreement between the parties may be oral or written. An individual who is actually a common law employee of the recipient 

will not become an employee of another entity merely because the recipient enters into a formal “leasing agreement” with the other entity.

Notice 84-11 Q&A 6

Line c. A person is considered to have performed services on a substantially full-time basis for a period of at least one year if: (i) during any 

12-consecutive-month period such person has performed at least 1500 hours of service for the recipient, or(ii) during any 12-consecutivemonth period such person performs services for the recipient for a number of hours at least equal to 75 percent of the average number 

of hours that are customarily performed by an employee of that recipient in the particular position. The one-year period includes service 

of the employee prior to the effective date of section 414(n). In addition, any period of service performed by the employee as a common 

law employee of the recipient is taken into account for purposes of determining whether the employee has performed services on a 

substantially full-time basis for a period of at least one year.

Notice 84-11, Q&A 7

Notice 84-11, Q&A 8 & 12

Line d. Whether services are performed by an individual under primary direction or control by the service recipient depends on the facts 

and circumstances. In general, primary direction and control means that the service recipient exercises

the majority of direction and control over the individual. Factors that are relevant in determining whether primary direction or control exists 

include whether the individual is required to comply with instructions of the service recipient about when, where, and how he or she is to 

perform the services, whether the services must be performed by a particular person, whether the individual is subject to the supervision of 

the service recipient, and whether the individual must perform services in the order or sequence set by the service recipient. Factors that 

generally are not relevant in determining whether such direction or control exists include whether the service recipient has the right to hire 

or fire the individual and whether the individual works for others.

Conference Report 1982-2 C.B. 522, 679

IRC 414(n)(2)(C)
Page 3 For applications submitted to conform to the 2020 RA List

III. Safe Harbor

Section 414(n)(5) of the Code provides a safe harbor for a recipient organization if two conditions are met:

i) The leasing organization maintains a qualified nonintegrated money purchase pension plan that provides for an annual contribution 

by the employer of 10 percent of total compensation (defined below) for each participant, full and immediate vesting, and immediate 

participation by each employee of the leasing organization (other than employees who perform substantially all of their services 

for the leasing organization). The requirement as to immediate participation does not apply to any individual whose compensation 

from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000.

ii) Leased employees do not constitute more than 20 percent of the recipient’s nonhighly compensated work force. The term 

“nonhighly compensated work force” means the aggregate number of individuals (other than highly compensated employees 

within the meaning of section 414(q) of the Code):

A) Who are employees of the recipient (other than leased employees) and have performed for the recipient (or for the recipient 

and related persons) on a substantially full-time basis for a period of at least one year, or

B) Who are leased employees with respect to the recipient (including those excludible if the safe harbor rule applies).

The term “compensation” has the same meaning as when used in section 415, except that it includes:

A) employer contributions under a qualified cash or deferred arrangement to the extent not included in gross income under 

section 402(e)(3) or 402(h)(1)(B).

B) any amount which the employee would have received in cash but for an election under a cafeteria plan, and

C) any amount contributed to a section 403(b) annuity contract pursuant to a salary reduction agreement.

If both of these requirements are met, the leased employees participating in the safe harbor plan need not be considered employees of the 

recipient for any purpose pertaining to the requirements listed in section 414(n)(3)(A), (B) and (C).

Sec. 414(n)(5)(C)(ii) and (iii)

IV. Requirements

Line a. How leased employees will be treated under the recipient’s plan depends on the terms of the plan. Therefore, if an organization 

utilizes the services of leased employees the plan must specifically provide how leased employees will be treated under the recipient’s plan.

Notice 84-11, Q&A 16

Line b. Although the plan must treat these employees as though they are the recipient’s employees, the fact that a leased employee is 

not covered by the recipient’s plan does not necessarily mean the recipient’s plan does not qualify. A plan may still meet the coverage 

requirements of section 410, even though none of those leased employees is covered. Any contributions made or benefits funded by the 

leasing organization on behalf of a leased employee are deemed to be provided by the recipient at such time as the leased employee is 

required to be covered under the recipient’s plan.

Notice 84-11, Q&A 14, 15

Notice 84-11, Q&A 17

Line c. All service as an employee (whether by reason of being a leased employee or otherwise) must be credited. Credited service must 

also include any period of service during which the employee would have been a leased employee but for the requirement that substantially 

full-time services be performed for at least one year.

Sec. 414(n)(4)

V. PEOs

Line c. Rev. Proc. 2002-21 describes certain relief available to qualified defined contribution retirement plans maintained by professional 

employer organizations (PEOs) that benefit Worksite Employees, as that term is defined in the 2002 revenue procedure. In general, section 

414(n) does not permit PEOs to maintain plans for Worksite Employees who are not the common law employees of the PEO. If a PEO 

had a retirement plan in existence on May 13, 2002, that benefited Worksite Employees, the PEO had the option of either converting the 

PEO Retirement Plan to a multiple employer plan or terminating the plan by the last day of the first plan year of the PEO Retirement Plan 

beginning on or after January 1, 2003. 

In addition, Rev. Proc. 2003-86 provides guidance on various transitional issues.
For applications submitted to conform to the 2020 RA List

Form 8386 (Rev. 6-2021) Catalog Number 62475B publish.no.irs.gov Department of the Treasury - Internal Revenue Service

Employee Benefit Plan 

Employee Leasing 

(Worksheet Number 8 – Determination of Qualification)

Instructions – All items must be completed unless otherwise indicated. In the absence of further instructions, a “Yes” answer generally 

indicates a favorable conclusion is warranted (subject to Part V), while a “No” answer indicates a problem exists. Please use the space 

on the worksheet to explain any “No” answer. See Publication 7003 Explanation 8, for guidance in completing this form.

The technical principles in this worksheet may be changed by future regulations or guidelines

Name of plan

I. Required Information Plan Reference Yes No N/A

a. Does the employer’s plan provide that all leased employees within the meaning of

section 414(n)(2) are treated as common law employees for all purposes under the

plan? (If the answer is “Yes”, go to Part V of this worksheet)

b. Has the applicant submitted all of the information needed for a determination

covering section 414(n) of the Code? (If the answer is “No”, go to Part V of this

worksheet.) [813, 814, 815]

II. Applicability of Section 414(n) Plan Reference Yes No N/A

a. Are services performed for the plan sponsor, or for an entity that must be

aggregated with the sponsor, by a person or persons who are not employees of

such plan sponsor or aggregated entity? [801]

b. Are such services performed pursuant to an agreement between the plan sponsor

and any other person? [802]

c. Have such services been performed for the plan sponsor or aggregated entity, or for

the plan sponsor or aggregated entity and a related person, on a substantially fulltime basis for a period of at least a year? [803]

d. Are services performed under the primary direction or control of the plan sponsor?

[804]

(If the answer to question a, b, c or d is “No,” go to Part V of this worksheet)

III. Safe Harbor Plan Reference Yes No N/A

a. Does the leasing organization (see explanation) maintain a qualified money

purchase pension plan? (805, 806)

b. If so, does such plan provide for:

(i) A nonintegrated employer contribution rate for each participant of at least 10

percent of compensation? [805, 806]

(ii) Immediate participation by each employee other than:

A. Employees who perform substantially all of their services for the leasing

organization, and

B. Employees whose compensation from the leasing organization in each plan

year during the 4-year period ending with the plan year is less than $1,000?

[805, 806]

(iii) Full and immediate vesting? [805, 806]

c. Do leased employees constitute 20 percent or less of the recipient’s nonhighly

compensated work force?

(If the answers to questions a, (b)(i), (b)(ii), (b)(iii), and c above are “Yes,” go to Part V of this worksheet)

IV. Requirements Plan Reference Yes No N/A

a. Does the recipient’s plan specifically provide how leased employees will be treated

under the plan? [818]

b. Is each leased employee considered in determining whether the plan meets the

coverage and other requirements? [836, 837]

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
For applications submitted to conform to the 2020 RA List

Form 8386 (Rev. 6-2021) Catalog Number 62475B publish.no.irs.gov Department of the Treasury - Internal Revenue Service

IV. Requirements – Continued Plan Reference Yes No N/A

c. For purposes of the applicable requirements under section 414(n)(3), is the entire 

period for which the employee has performed services for the recipient (whether as 

a leased employee or otherwise) taken into account, including any period for which 

the employee would have been a leased employee but for the requirement that the 

person has performed services for the recipient (or for the recipient and related 

persons) on a substantially full-time basis for a period of at least one year? [812]

d. Does the recipient’s plan meet the requirements as to:

(i) Participation, including the minimum participation requirements?

(ii) Vesting, including the special rules for top-heavy plans?

(iii) Nondiscrimination?

(iv) Limitations on benefits and contributions?

(v) IRC 401(a)(17) limit on compensation?

V. Professional Employer Organizations Plan Reference Yes No N/A

a. Is the plan a plan other than a defined contribution plan? (If the answer is “Yes”, do 

not complete the rest of this worksheet.)

b. If the answer to question a is “No”: Is the plan a professional employer organization 

retirement plan?

c. If the answer to question b is “Yes”: Were remedial actions taken in accordance with 

section 5 of Rev. Proc. 2002-21 as amplified by Rev. Proc. 2003-86? [838]

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
For applications submitted to conform to the 2020 RA List

Form 8398 (Rev. 6-2016) Catalog Number 63079Z publish.no.irs.gov Department of the Treasury - Internal Revenue Service

Employee Plan Deficiency Checksheet

Attachment Number 8

Employee Leasing

For IRS Use Please furnish the amendment(s) requested in the section(s) checked below.

813, 814, 815

I.b.

Your application indicates that you received services provided by leased employees. However, your plan does 

not provide that all such employees are treated as common law employees for all purposes under the plan. In 

order to receive a determination letter under section 401(a) or 403(a) of the Code that will be a determination as 

to the effect of section 414(n) upon the plan’s qualified status, the following information must be submitted:

(1) A description of the nature of the business of your organization;

(2) A copy of the relevant leasing agreement(s);

(3) A description of the function of all leased employees within your trade or business (including data as to

whether all leased employees are performing services on a substantially full-time basis and whether

services are performed under the primary direction or control of the recipient organization).

(4) If your organization is relying on any qualified plan(s) maintained by the employee leasing organization for

purposes of qualification of your plan, a description of such plan(s) (including a description of the

contributions or benefits provided for all leased employees which are attributable to services performed for

your organization, plan eligibility and vesting). Rev. Proc. 85-43, 1985-2 C.B. 501.

801

II.a.

Please tell us if you (including any entity required to be aggregated with you under IRC section 414(b), (c), (m) 

or (o)) receive services of a person who is not your employee and who is leased to you by another employer. 

IRC sections 414(n)(2) and 414(n)(6).

802

II.b.

Please tell us whether the services of employees provided by another organization are provided according to an 

agreement between the recipient and the leasing organization. IRC section 414(n)(2)(A) and Notice 84-11, 

1984-2 C.B. 469, Q&A 6.

803

II.c.

Your application shows that you are the recipient of services provided by employees leased to you by another 

employer. Such employees are not covered by the plan. Please tell us if any of these employees have 

performed, during a consecutive 12-month period, either 1,500 hours of service or 75 percent of the average 

number of hours customarily performed by an employee of the recipient in that particular position. IRC section 

414(n)(2)(B) and Notice 84-11, 1984-2 C.B. 469, Q&A 7.

804

II.d.

Your application shows that you are the recipient of services provided by employees leased to you by another 

employer. Such employees are not covered by the plan. Please show that the service performed by such leased 

employees are not performed under the primary direction or control of the recipient organization. IRC section 

414(n)(2)(C).

805, 806

III.a., b. and c.

Section 414(n)(5) of the Code provides a safe harbor for a recipient organization if the leasing organization 

maintains a qualified, nonintegrated money purchase pension plan that provides for immediate participation, full 

and immediate vesting, and an annual contribution of 10 percent of total compensation for the leased employee. 

If these requirements are met and leased employees do not constitute more than 20 percent of the recipient 

organization’s nonhighly compensated workforce, the leased employee does not need to be considered an 

employee of the recipient for any purpose pertaining to the qualified plan of the recipient organization. Please 

tell us whether these requirements are met. If so, furnish a copy of the plan maintained by the leasing 

organization and show that leased employees constitute 20 percent or less of your nonhighly compensated 

workforce. IRC section 414(n)(5) and Notice 84-11, 1984-2 C.B. 469, Q&A 18 and 19.

818

IV.a.

A plan maintained by the recipient of services of leased employees must specifically provide how leased 

employees will be treated under the recipient’s plan. Your application indicates that you receive services 

provided by leased employees. Your plan should be amended. Notice 84-11, 1984-2 C.B. 469, Q&A 16.

836, 837

IV.b.

Section of the plan should be amended to provide that each leased employee must be considered in 

determining whether the recipient’s plan satisfies the minimum coverage requirement of section 410(b) of the 

Code. The leased employee is considered the recipient organization’s employee for purposes of Code sections 

401(a)(3), (4), (7), (16), (17) and (26) and sections 408(k), 408(p), 410, 411, 415 and 416, as well as sections 

79, 106, 117(d), 120, 125, 127, 129, 132, 137, 274(j), 505 and 4980B, after performing services for the recipient 

(or related organizations) on a “substantially full-time basis” for at least one year. A person has performed 

services on a substantially full-time basis within the meaning of section 414(n)(2)(B), if that person is credited 

with the lesser of 1,500 hours of service or 75 percent of the hours that are customarily performed by an 

employee of that recipient in the particular position. IRC sections 414(n)(1), (2), (3) and (4) and Notice 84-11, 

1984-2 C.B. 469, Q&A 7.

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
For applications submitted to conform to the 2020 RA List

Form 8398 (Rev. 6-2016) Catalog Number 63079Z publish.no.irs.gov Department of the Treasury - Internal Revenue Service

812

IV.c.

Section of the plan should be amended to provide that all service performed for the recipient by a 

leased employee (including any creditable service performed prior to the existence of the employee leasing 

agreement and service during any period for which the employee would have been a leased employee but for 

the fact that the employee did not perform services for the recipient on a substantially full-time basis for at least 

one year) will be credited under the recipient’s plan. IRC sections 414(n)(1), (2), (3) and (4) and Notice 84-11, 

1984-2 C.B. 469, Q&A 8 and 12.

838

V.c.

If the plan was not timely amended to (1) terminate the plan or (2) cause the plan to become a multiple 

employer plan, plan qualification issues other than the exclusive benefit rule, may be resolved under the 

Employee Plans Compliance Resolution System, Rev. Proc. 2019-19, 2019 I.R.B. 674 (or its successors).

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service