Child z-index solution

HTML

<div id="overlay"></div>
<header>
    <div id="below-overlay"></div>
    <div id="above-overlay"> <a href="#">Toggle overlay</a> 
    </div>
</header>

CSS

body {
    position: relative;
}
#overlay {
    display: none;
    position: fixed;
    top: 0;
    right: 0;
    bottom: 0;
    left: 0;
    background: #ccc;
    z-index: 2;
}
header {
    position: relative;
    height: 50px;
}
header #below-overlay,
header #above-overlay{
    position: absolute;
    top: 0;
    right: 0;
    bottom: 0;
    left: 0;
}
header #below-overlay {
    z-index: 1;
    background: yellow;
}
header #above-overlay {
    line-height: 50px;
    z-index: 2;
    padding: 0 20px;
}

JavaScript

$(function () {
    $('a').click(function () {
        $('#overlay').fadeToggle(200);
    });
});