What Is a Key Employee?

A key employee is an employee with a major ownership and/or decision-making role in the business. Key employees are usually highly൲ compensated ei🌼ther monetarily with benefits, or both. Key employees may also receive special benefits as an incentive both to join the company and to stay with the company.

Understanding a Key Employee

The Internal Revenue Service also uses the term "key employee." The IRS uses this term concerning company-sponsored defined contribution retirement plans. It refers:

• to an employee who owns more than 5% of the business,
• or has annual compensation greater than a certain amount or is an officer with compensation greater than a certain amount.

How a Key Employee Affects a Business

From an internal perspective, apart from the IRS classification, a key employee may be considered to be an intrinsic part of a company’s operations. Such an employee could be influential in securing capital for the business, which may occur through their connections or by virtue 🦋🌠of their work.

For example, the e𒊎mployee may hold a role tied directly to sales channels for the company, intertwining their performance and business activities with the cash flow. The employee might be the top-performing salesperson at the company, driving a significant portion of the regular revenue.

For various reasons, the employee may represent a public face associated with the company’s brand and is thus seen as crucial to maintaining the investment and support of 澳洲幸运5官方开奖结果体彩网:shareholders and customers.

The company may define the work of the employee as vital to the infrastructure and operation of the business, even though that employee may not have a highly visible role in t🎃erms of public or outside business relations.

For instance, the chief scientist on a team developing𓃲 a novel new product expected to be a mainstay behind the business’s revenue and income could be regarded as a key employee.

Special Considerations

Employers may feel the need to address compensation for key employees differently from the majorityജ of the staff beyond providing salary. This can include offering a variety of options for them to save for retirement or presenting them with work-life balance benefits to keep them engaged in the business.

Conversely, employers might adopt a different stance if a key employee makes use of the Family and Medical Leave Act to take unpaid leave from work. Such employees, who may rank among the top 10% of salaried workers at a company🐷, might not be reinstated by the employer under certain circumstances.

The Bottom Line

Key employees in a company hold decision-making power or significant ownership and have an outsized impact on the company's success. These individuals are highly compensated, usually through high salaries, excellent benefits, and other positives, such as stock options in order to retain them. Many investors and other interested parties, such as lenders, seek to ensure a key employee remains at the company and can institute clauses if the key employee leaves.