Final answer:
The safe harbor rules limit the percentage of leased employees in a company to 20% of the non-leased workforce. This cap ensures companies can't avoid providing benefits by using too many leased employees and is crucial for maintaining compliance with tax laws.
Step-by-step explanation:
The safe harbor rules pertain to various aspects of tax law, including provisions around leased employees. Under the safe harbor rules, an employer can limit the number of its leased employees to a maximum of up to 20% of its non-leased workforce. This is critical for tax purposes, as having too high a percentage of leased workers may affect a company's tax benefits related to pension plans. Leased employees are workers hired through a staffing agency and typically perform services on a long-term basis. Firms must balance their use of leased staff with direct hires to meet safe harbor requirements.
These rules are part of complex tax regulations intended to prevent companies from circumventing employee benefits requirements. Understanding these regulations is essential for businesses to maintain compliance and make the most of tax benefits. If a company exceeds the safe harbor threshold, it could face penalties or lose tax-preferred status for its benefit plans.