Highly Compensated Employees

Categories: Finance,

highly compensated employees are people whose on-the-job earnings are higher than the level the government has established to differentiate this category of worker. In 2007, that amount is $100,000. It is increased from time to time to reflect the impact of inflation. The major consequence of being a member of this group is that the percentage of earnings that highly compensated employees may contribute to their 401(k) or similar plan is determined by the contribution rates of other plan participants who earn less. If lower-paid employees contribute an average of 2% or less, higher-paid employees may contribute up to twice that percentage. If the average is 3% to 8%, higher-paid employees may contribute two percentage points more than the average. And if the average is 8% or higher, the maximum for highly compensated employees is 1.25 times that average.