Highly Compensated Employee Definition
An employee whose compensation exceeds a predetermined limit or who owns 5% or more of a company is considered a highly compensated employee for the purpose of a tax-advantaged employer-sponsored retirement plan.
Highly Compensated Employee Extended Definition
Employees are categorized as highly compensated and non-highly compensated for the purpose of tax-advantaged retirement programs. Employees who own 5% or more of a company or receive compensation that exceeds a predetermined limit are considered highly compensated.
In a retirement savings program, contributions made by individual employees are usually matched by the employer. The main goal 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 plans and highly compensated employee contribution, please refer to the Internal Revenue Service (IRS) website.
What Is a Highly Compensated Employee?
Last Updated By
Rachel Blakely-Gray | Apr 27, 2023