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 ?
However, if A instead provided that amounts payable from the MRA were available for distribution under the same terms as those held in the profit-sharing account (e.
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
Some corporations require that a minimum profit level be reached before contributions to the profit-sharing fund become due.
employees via a company-sponsored profit-sharing plan.
There has been limited empirical research to date on the impact of ESOPs and profit-sharing on employee pay.
Several studies showed that profit-sharing plans improved labor-management relations, and increased cooperation and communication in the workplace.
Baldor began its profit-sharing plan 51 years ago as a way to share the company's financial success with its employees.
The airline has also reached agreement with the Air Transport Executive Staff Union, the Airline Pilots Association Singapore and the SATS Workers Union on all issues except profit-sharing.
Contributions to profit-sharing plans, on the other hand, are discretionary and can be based on whether the plan sponsors can afford to make plan contributions.
Other initiatives include employee representation, profit-sharing, pension plan, tuition reimbursement, training and cash incentives for increased efficiency.
Most of the 50-plus employees had a stake in the privately held company thanks to a profit-sharing program.