Identifying Highly Compensated Employees

Now that the parameters for running nondiscrimination testing are defined, you must identify employees who are highly compensated employees (HCE) using the Job Data (JOB_DATA) component.

A highly compensated employee is defined as someone who meets one of the following criteria:

• Was a 5 percent (or more) owner of the organization at any time during the current or preceding year.

• Received more than an indexed compensation amount in the preceding year.

• Received more than an indexed compensation amount in the preceding year, and was among the most highly paid 20 percent of employees in the organization.

An active employee is not treated as highly compensated in the current (determination) year if that employee was not considered highly compensated in the preceding (look-back) year. This rule does not apply if the employee is a 5 percent (or more) owner. The system does not classify employees hired during the current year as highly compensated employees unless they also are or were a 5 percent (or more) owner during the current year.

To identify employees who are 5 percent (or more) owners:

1. Access the Work Location - Employment Information: Employment Data page.

2. Select the Owns 5% (or More) of Company check box to identify an employee as a 5 percent or more owner.

For additional information, see Understanding Job Data.