profit sharing

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Profit Sharing

A plan by which an employer distributes a set percentage of the company's profits to its employees. Employers may distribute the portion of its profits immediately (that is, employees may receive what amounts to a bonus) or it may set up a series of accounts for employees and defer the profit sharing until employees retire. The idea behind profit sharing is to give employees an incentive to work for the company's profitability. See also: DPSO, ESOP.

Profit sharing.

A profit-sharing plan is a type of defined contribution retirement plan that employers may establish for their workers.

The employer may add up to the annual limit to each employee's profit-sharing account in any year the company has a profit to share, though there is no obligation to make a contribution in any year.

The annual limit is stated as a dollar amount and as a percentage of salary, and the one which applies to each employee is the lower of the two alternatives.

Employers get a tax deduction for their contribution. Employees owe no income tax on the contributions or on any of the earnings in their accounts until they withdraw money.

In some cases, employees in the plan may be able to borrow from their accounts to pay for expenses such as buying a home or paying for college.

Profit-sharing plans offer employers certain flexibility. For example, in a year without profits, they don't have to contribute at all. And they can vary the amount of each year's contribution to reflect the company's profitability for that year.

However, each employee in the plan must be treated equally. This means that if an employer contributes 10% of one employee's salary to the plan, the employer must also contribute 10% of the salaries of all other employees in the plan.

profit sharing

the distribution of some portion of PROFITS to the employees of a company. It can take the form of an annual cash bonus based on the previous year's profits or it can form an element of weekly or monthly pay (see PROFIT-RELATED PAY). Less direct forms of profit sharing include allocation to employees of shares in the company, paid for out of company profits, and providing employees with the option to buy shares at some point in the future at current prices, thereby enabling them to benefit from both the share dividend and any growth in share value resulting from increases in profitability (see EMPLOYEE SHARE OWNERSHIP PLAN). Profit sharing is often advocated to improve employee commitment and thereby improve PRODUCTIVITY. See FINANCIAL PARTICIPATION.

profit sharing

the distribution of some portion of PROFITS to the employees of a company. It can take the form of an annual cash bonus based on the previous year's profits, or it can form an element of weekly or monthly pay (see PROFIT-RELATED PAY). Less direct forms of profit sharing include allocation to employees of shares in the company, paid for out of company profits, and providing employees with the option to buy shares at some point in the future at current prices, thereby enabling them to benefit from both the share dividend and any growth in share value resulting from increases in profitability (see EMPLOYEE SHARE OWNERSHIP PLAN). Profit sharing is often advocated to improve employee commitment and thereby improve PRODUCTIVITY. See PRINCIPAL-AGENT THEORY.
References in periodicals archive ?
In addition, a profit-sharing plan, which only permits distribution of amounts held in a separate MRA for reimbursement of substantiated medical care expenses (as described in the facts above) may fail to satisfy various other Sec.
There is considerable empirical evidence that profit-sharing enhances employment stability (Kruse 1993 contains an excellent review), and some theoretical models address this finding (Azfar 1996, 1999; Gottfries and Sjostrom 1995).
For Garrity and Richmond Casting, the focus on the employees doesn't end with profit-sharing and a flat organization in terms of decision-making.
In a profit-sharing plan, you can invest up to 15% of your income, or a maximum of $22,500
The drawback is that inefficient or unproductive employees might be encouraged to stay at the company to collect their mounting vested interest in the profit-sharing fund.
Instead of deferring the vesting of employees' accounts until distribution, which would also defer taxation, the company pays its annual profit-sharing bonus partly in shares and partly in cash.
The arguments both for and against ESOPs and profit-sharing plans are based on the assumption that these pay devices actually provide positive feedback from company performance to nonmanagerial pay.
Several studies showed that profit-sharing plans improved labor-management relations, and increased cooperation and communication in the workplace.
If hoarding is defined as funds in saving accounts as opposed to investment or profit-sharing accounts, then Zakat may effect a reallocation of funds in favour of profit-sharing accounts.
1 million to its employee profit-sharing and savings plan.
For example, Corporation 1 established a profit-sharing plan in 1984.