Highly Compensated Employee


DEFINITION of 'Highly Compensated Employee'

For employer-sponsored, tax-advantaged retirement plan purposes, anyone who is a 5% owner of a company or who received more than $110,000 in compensation in 2010 (the compensation limit is adjusted annually). If the employer chooses, a highly compensated employee may also be defined as any employee whose pay is in the top 20% of compensation for that company.

BREAKING DOWN 'Highly Compensated Employee'

When a company contributes to a defined-benefit or defined-contribution plan for its employees and those contributions are based on the employee's compensation, the Internal Revenue Service wants the company to minimize the discrepancy between the retirement benefits received by highly compensated and lower compensated employees. If the difference is too great, the company can lose the tax deduction it gets for the retirement plan.

  1. Payroll

    The sum total of all compensation that a business must pay to ...
  2. Retirement Contribution

    A monetary contribution to a retirement plan. Retirement contributions ...
  3. Defined-Contribution Plan

    A retirement plan in which a certain amount or percentage of ...
  4. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  5. Supplemental Executive Retirement ...

    A non-qualified retirement plan for key company employees, such ...
  6. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
Related Articles
  1. Retirement

    Why are 401(k) contributions limited?

    Find out why contributions to 401(k) retirement plans are limited, including what the current contribution limits are and how limits encourage participation.
  2. Retirement

    Tips On How To Use IRAs To Boost Retirement Savings

    According to the Trustees of the Social Security Fund, the fund will be depleted by 2037. Are you ready?
  3. Retirement

    3 Reasons To Use An Employer-Sponsored Retirement Plan

    If you aren't participating in your employer-sponsored retirement plan, you're missing out! Learn the benefits.
  4. Taxes

    Retirement Plan Tax Form 5329: When To File

    Read this if you've taken early distributions or owe excess-contribution or excess-accumulation penalties.
  5. Taxes

    Tax Treatment Of Ineligible IRA Rollovers

    Eager to save for retirement? Learn how to avoid overpayment penalties.
  6. Retirement

    Year-End Tips For Your Retirement Plan

    To avoid penalties or missed opportunities, make sure you know which transactions must be completed by December 31.
  7. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  8. Entrepreneurship

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  9. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  10. Professionals

    4 Must Watch Films and Documentaries for Accountants

    Learn how these must-watch movies for accountants teach about the importance of ethics in a world driven by greed and financial power.
  1. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  2. Are fringe benefits deductible for the employer?

    A fringe benefit is any non-wage form of compensation and is usually offered by an employer as both an employee incentive ... Read Full Answer >>
  3. Can LLCs have employees?

    A limited liability corporation (LLC) can have an unlimited number of employees. An employee is defined as any individual ... Read Full Answer >>
  4. Do flexible spending accounts (FSA) funds roll over?

    An individual can utilize an employer’s cafeteria plan of employee benefits to establish a flexible spending account (FSA). ... Read Full Answer >>
  5. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  6. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center