Will a husband and wife who each owned 2.5% of the company be considered HCEs?

To determine whether a husband and wife who each own 2.5% of a company are considered Highly Compensated Employees (HCEs), it's important to understand the definition of HCEs as it pertains to ownership and compensation.

A Highly Compensated Employee is typically defined as one who owns more than 5% of the company, regardless of their compensation level. In the case presented, since both the husband and wife each own only 2.5%, their combined ownership does not reach the 5% threshold required to classify them as HCEs. In essence, individual ownership below 5% means they do not meet the criteria established by the Internal Revenue Service (IRS) for being considered HCEs.

Other answer choices suggest scenarios involving work hours or the ownership status of being the only owners, which are irrelevant to the definition of HCEs based purely on percentage of ownership. Thus, given their ownership stake falls below the required threshold, they would not be classified as Highly Compensated Employees.