Highly Compensated Employee

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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 FAQS
  1. 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 >>
  2. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  3. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  4. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  5. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
Related Articles
  1. 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?
  2. 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.
  3. 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.
  4. Taxes

    Tax Treatment Of Ineligible IRA Rollovers

    Eager to save for retirement? Learn how to avoid overpayment penalties.
  5. 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.
  6. Entrepreneurship

    Plans The Small-Business Owner Can Establish

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

    Understanding the Top Line

    Top line refers to a company’s gross sales without any reductions for discounts or returns.
  9. Economics

    What's an Allowance for Doubtful Accounts?

    The allowance for doubtful accounts represents the percentage of the accounts receivable the company expects to write-off as uncollectible.
  10. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.

You May Also Like

Hot Definitions
  1. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  2. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  3. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  5. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  6. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!