A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings. Also known as "deferred profit-sharing plan" or "DPSP."
Profit sharing is an attractive option for many business owners due to its flexibility. A company will be able to decide how much employees will receive on a year by year basis, depending on the amount of revenue the business makes. There are no requirements. If one year exhibits poor performance, the employer can either eliminate the profit sharing for that year or give a smaller amount.
Employees typically enroll in profit sharing automatically after they meet eligibility requirements. These requirements are determined by the company based on length of service or even age. Contributions can equal the lesser amount of up to 25 percent of an employee’s salary or $50,000. This amount may be changed based on inflation.
Many businesses use vesting schedules to detail how long an individual must be working for the company before they can claim their profit sharing, including when they move to another job or retire. Once employees become fully vested, they are eligible to receive the entire amount. This money may be rolled over into an IRA account or into a new employer’s retirement plan.
When employees feel like they are vested in a company and are part of its success, they are more willing to work harder. Profit sharing plans can be a great incentive for employees to give their all, increasing the profitability of your business overall. They will look forward to obtaining their share of your profits.
Contact us today to get information on how to implement this incentive into your business practices.