Profit-sharing plan (2024)

You’re all in for your business. You’ve arranged your life around your company, and for you, success is the only option. You’ll do whatever it takes for your brand to thrive, but how many of your employees would say the same thing?

In order for your business to succeed and be sustainable, you have to create a team of employees that treat the company like their own. You do this by creating a culture that encourages collaboration and innovation.

But if you truly want to create a team that will stick by your side through thick and thin, then it’s time to think about a profit-sharing plan.

What is profit sharing?

Profit Sharing, Defined

Profit sharing; noun: A system in which the people who work for a company receive a direct share of the profits based on the company’s annual or quarterly earnings.

Profit sharing is a form of an incentivized compensation program for your employees. It increases loyalty and leads to raving fan employees because they understand that by providing the ultimate customer experience, their paychecks will grow.

The benefits of profit sharing

The benefits of profit sharing can be tremendous for everyone involved. One of the best things about profit sharing through a plan like an Employee Stock Ownership Plan (ESOP) is that people at every level of your company can participate and you get to decide how big of a share they’re earning. Another thing to consider is the tax benefits for business owners that come along with ESOPs. If you’re running an S-status corporation that’s participating in an ESOP, up to 35% of the funds could be eligible for federal tax exemption, meaning a large portion of your company’s profits could avoid taxes – saving you money and building trust within your corporation.

Part of being an incredible CEO or leader is recognizing all the moving pieces that came together for your dream to become a reality. By offering a profit-sharing plan at your business, you’re giving your employees a sense of ownership. You’re inviting them to see a viable, long-term future with your company and giving them the incentives to stay on board. This can create stronger connections, increase loyalty and encourage your team to work harder, which are vital to building a team that works.

Having passionate employees who are invested in the success of your business needs to be a top goal of any business owner. Those who are successful understand that their employees also have career goals and that they need incentives to stay at their current companies. A profit-sharing plan is an ideal way to give them the career security and growth they seek. This naturally attracts a higher caliber of employee – the type of employee you need to be successful.

In order to find that person, you have to be willing to create a space that empowers them. What are some of your best hiring practices? Are you asking the right questions such as how potential candidates see themselves fitting into your company over the next five, 10 or even 20 years? Hiring and keeping on an incredible team starts with talent, but ends with offering incentives like a profit-sharing plan.

The more passionate someone is about their job, the more likely they are to give you their best solutions. When you have raving fans inside your office, their energy and work is felt by those looking to buy your product and service, meaning you’re on your way to building loyal customers.

How to utilize a profit-sharing plan

You can choose the profit-sharing plan that best suits your needs and how to set it up. The Department of Labor requires that you set up an official strategy with documentation to put a profit-sharing plan in place. You must submit:

• A written plan

• A trust for the plan’s assets

• An official record-keeping system

• A way to provide eligible employees plan information

Though these plans can be flexible, you are required to keep strict records, maintain proper legal documents and only make changes with the proper oversight.

When you invest in your employees’ happiness, it will turn into positive results and growth for your business. Discover additional ways to take your business to the next level by attending Business Mastery with Tony Robbins.