What’s the Definition of a Highly Compensated Employee?

HR Tech

HR / HR Tech 18 Views 0

There are several differences between highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). It’s important for HR professionals to understand the definition of a highly compensated employee for tax reasons, benefits, and legal purposes.

So, what exactly is an HCE? The definition states that it’s an employee who meets one of the following scenarios:

  • He or she owns 5 percent of the company providing the benefits plan
  • She or he earned more than $120,000 during the previous tax year

Although these are the basic qualifying factors for HCEs, there’s still much more to know. Let’s dive in.

What’s the definition of a highly compensated employee in 2019?

The income brackets for qualifying HCEs are different depending on the year. Since employees are classified based on the income from the previous year’s tax return, make sure you’re looking at the requirements for the right year. In 2019, the HCE threshold will increase to $125,000 (from $120,000 in 2018). For previous years’ requirements refer to the COLA Table.

On the other end of the spectrum, non-highly compensated employees (NHCEs) are individuals who own less than 5 percent of the company or make less than the above income thresholds. Employees are classified by third-party administrators who

Read from Zenefits Blog