What is a Key Employee?
A key employee in an organization is an individual with ownership in the organization and/or who exerts an influence on decisions made in the organization. Key employees are typically well-renumerated and are considered to be stakeholders in the running of an organization. Other words or phrases for key employees are key personnel or keyman. Key employees are considered to be an important part of an organization and its operations.
According to the U.S. Internal Revenue Service (IRS), the term “key employee” serves as a classification to assess whether qualified retirement plans are disproportionately slanted to an organization’s highly renumerated employees. Per the IRS, a key employee is an employee who:
- Earns over $180,000 (as at 2019), or
- Owns 5% or more of the enterprise through direct ownership or family attribution rules, or
- Owns 1% or more of the enterprise, generating over $150,000 for the financial year.
Employees who fail to meet the criteria above are considered to be “non-key employees.”
Summary
- A key employee in an organization is an individual with ownership in the organization and/or who exerts an influence on decisions made in the organization.
- Key employees are considered to be an important part of an organization and its operations.
More Resources
CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
