What is the definition of a Highly Compensated Employee?
“Highly Compensated” employees (HCE) for purposes of ADP/ACP testing are employees who are in any of the following categories: • Any employee who owns more than 5% of the business at any time during the current or prior year. • An employee with compensation in excess of $110,000.00 (as indexed) in the prior year. • Certain family members of a highly compensated employee who are attributed stock ownership.
A “highly compensated employee” generally is an employee who, in the preceding (“look-back”) year earned more than a dollar limit3 or who in the current or preceding year, was a more than 5% owner. The group earning more than the dollar limit may be limited further if the employer adopts the top-paid 20% group election. An “employee” for purposes of determining highly compensated employees includes former employees who were highly compensated in their year of separation from employment or during any year ending on or after the 55th birthday.
