Employee Profit Sharing: Is It Right For Your Business?

If employees at your company are paid well, offered benefits such as health care and paid time off, then the company is like many in the U.S. What other compensation can be offered to new employees or added as an incentive for current employees to stay, thus reducing the time and cost of hiring replacements? Many companies that want to differentiate themselves from their competitors and attract and retain the best talent can offer employee profit sharing.

Employee profit sharing may or may not be a good fit for your business or something to implement right now. The business should be profitable for at least three years for consistency. While profit sharing can be attractive to employees, company owners and managers need to be sure the profits are there to share and that employees are truly motivated by financial rewards.

Here are some things to consider for a successful profit-sharing plan:

·      Make sure you have a written plan that includes who’s eligible. Eligible employees should have worked for the company for a minimum number of months. 

·      Consider giving a higher portion of the profit shares to those who have worked for several years at the company.

·      If you have part-time employees, will they be included in the plan?

·      Determine how often profits are distributed, quarterly, semi-annually, annually.

·      Reward employee behaviors, especially those who go above and beyond their job requirements.

·      Number of employees, rate of employee turnover, profit margins and industry

While these are only a few items to look at before implementing profit sharing, you’ll also want to consult a tax professional to determine how the profit sharing is distributed with regards to state and federal taxes.

Treating employees well with good pay, benefits and rewards that motivate them whether financial or otherwise should translate into a more valuable workforce which, in turn, translate into happier customers. For those companies seeking B Corp certification or recertification, all these things can mean a higher score on the B Impact Assessment.