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Highly Compensated Employee Definiton

September 11, 2017

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Term Definition
An employee whose compensation exceeds a predetermined limit or who owns five percent or more of a company is considered as a highly compensated employee for the purpose of a tax-advantaged employer-sponsored retirement plan.

Extended Definition
Employees are categorized as highly compensated and non-highly compensated for the purpose of tax-advantaged retirement programs. Employees who own five percent or more of a company or receive compensation that exceeds a predetermined limit are considered as highly compensated.

In a retirement savings program, contributions made individual employees are usually matched by the employer. The main aim behind categorizing employees as highly compensated or non-highly compensated is to minimize the discrepancy in the retirement benefits received by workers. For more information on retirement plan and highly compensated employee contribution, please refer to the Internal Revenue Service (IRS) website.

Related Article:
Who is a Highly Compensated Employee?

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