Must Companies Offer 401(k)s to Hourly Workers?

You can often use a 401(k) to save for retirement even if you work hourly

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Andrew Martins
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Andrew Martins is an award-winning journalist who has performed thousands of hours of research on small business products and services and technology. Over the last 12 years, he has also studied and covered taxes, politics, and the economic impacts policy decisions have on small business.
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Updated March 28, 2024
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Regardless of whether you earn a salary or are paid hourly, saving for retirement is key to staying in good financial health throughout your life.

Tax-advantaged 401(k) retirement plans are among the best tools for helping employees save and invest for their golden years. However, hourly workers have often been excluded from participating in these plans.

Now, as a result of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, companies are required to provide access to their 401(k)s to certain hourly workers. To be entitled to a company’s 401(k), you must be at least 21 years old and have worked a minimum of 500 hours each year for three consecutive years.

Let’s learn more about the rules that companies must follow and how they could change in the years ahead.

Key Takeaways

  • Enrollment in company 401(k) plans increased after the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 took effect.
  • The SECURE Act requires employers to allow you to sign up for their 401(k) plan if you worked 500 hours or more each year for three consecutive years.
  • The SECURE 2.0 Act changed this to two years for plans starting after Dec. 31, 2024.
  • You must be at least age 21 before your employer is required to provide you with its 401(k) plan.

Hourly Workers’ Access to 401(k)s

The traditional version of a 401(k) plan allows you to contribute pretax income, which lowers your tax bill. With a Roth 401(k), you contribute after-tax money but then enjoy tax-free withdrawals in retirement. In addition to tax advantages, employees often get the benefit of matching contributions from their employers, up to a limit.

Employers are required to let all eligible employees contribute to their 401(k) if they offer one, but employees must be at least 21 years old to do so.

Previously, they must have also had a year of service, which was defined as a 12-month period during which the employee worked 1,000 hours or more. Thus, many hourly employees who worked fewer than those hours were excluded. Now, employees who work 500 or more hours for three consecutive years can also qualify.

How the SECURE Act Changed 401(k) Access

In 2021, 76.1 million workers ages 16 and older, or 55.8% of all wage and salary workers, were paid hourly rates, according to the U.S. Bureau of Labor Statistics. In an effort to open tax-advantaged retirement savings plans to more workers, Congress passed the SECURE Act in 2019.

In that legislation, the hourly requirement was lowered from 1,000 hours in 12 consecutive months to 500–999 hours in each of the preceding three years. Employees who meet those requirements are considered long-term part-time employees.

The three years will be reduced to two years for plans starting after Dec. 31, 2024, as determined by the SECURE Act 2.0, which was passed in 2022.

What Makes Someone an Hourly Employee?

In the United States, you’re an hourly employee if you’re paid at a rate based on the hours that you work. Hourly workers are paid per hour. Hourly workers must receive overtime pay of at least 1.5x their rate for any work of more than 40 hours. In contrast, salaried workers are paid a flat annual amount made in regular payments throughout the year, and they do not receive overtime.

Are Companies Legally Required to Offer a 401(k) Retirement Plan?

There is no federal provision requiring that employers offer a 401(k) to their employees, though 17 states have laws enabling retirement plans. If an employer does offer a retirement plan as part of its benefits package, they’re required to provide it to every eligible employee.

When Can Workers Begin Withdrawing Funds From Their 401(k) Without Incurring Fees or Penalties?

When you are 59½ years old, you can begin withdrawing from your 401(k) without penalties or having to pay additional taxes on that money, according to the Internal Revenue Service (IRS). You must start receiving a required minimum distribution (RMD) from traditional plans by 73, at the latest.

The Bottom Line

Companies that offer 401(k)s must extend the opportunity to participate to qualified hourly workers.

Congress has lowered the bar for more hourly workers to have access to their 401(k)s by requiring a minimum of 500 hours for each of three consecutive years worked, down from 1,000 hours in a year. This changes to two years after 2024. Still, many hourly employees in the U.S. are excluded from participating in their employer’s retirement plan.

Article Sources
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  1. Internal Revenue Service. “401(k) Plan Qualification Requirements.”

  2. Federal Register. "Long-Term, Part-Time Employee Rules for Cash or Deferred Arrangements Under Section 401(k)."

  3. U.S. Bureau of Labor Statistics. “Characteristics of Minimum Wage Workers, 2021.”

  4. Employee Fiduciary. "SECURE Act 2.0 - A Summary of the Major 401(k) Provisions."

  5. U.S. Department of Labor. “Overtime Pay.”

  6. GRF. "Updated State-Mandated Retirement Plans: An Overview for Businesses."

  7. Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."

  8. Internal Revenue Service. "Retirement Topics: Exceptions to Tax on Early Distributions."

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