Year of service

What a year of service is

For eligibility, the first 12-month period starts on the hire date. For vesting, plans usually measure by plan year. Hours of service include paid time when no work is done, such as vacation, holidays and sick leave. A plan can count actual hours, use an equivalency such as 45 hours for each week worked, or use the elapsed time method, which looks only at the length of employment.

Why it matters to employers

A 401(k) cannot make employees wait more than one year of service, and age 21, before they are allowed to defer. Years of service also set how much employer money a departing employee keeps under the vesting schedule. Both depend on accurate hours for part-time and seasonal staff.

Example

A part-time employee hired on June 1, 2026 works 20 hours a week. By May 31, 2027 she has 1,040 hours, which is a year of service, and she joins on the next entry date. A coworker at 15 hours a week has 780 hours and does not qualify, although she may later qualify as a long-term, part-time employee.

Common mistakes

• Counting only hours worked and leaving out paid leave.

• Treating one year as a simple anniversary without checking hours, when the plan document uses the hours method.

• Ignoring service with related companies in the same controlled group.