Profit Sharing Plan Example

Time period will be from January 1 through December 31 of each calendar year.

Must be with the company six months to participate in the plan. Any loss carried forward applies indefinitely. Losses are never forgiven.

Employee(s) may choose between their current bonus plan or the profit share plan, but not both. Profit share dollars not to exceed 50% of base salary. Profit share dollars to be paid at year-end.

Should employee leave prior to year-end for any reason, the profit share for that year would be waived. Current company owners will not participate in the plan.


1st $100,000 net profits 2nd $200,000 net profits Above $300,000 net profits of the Profit Sharing Pool

= 0% Profit Share = 5% Profit Share = 10% Profit Share

Distribution of the Profit Sharing Pool

Each employee receives:

1 unit per year with the company 1 unit per $1,000 of salary


a. John has been with the company 2 years 1 x 2 years b. John makes $36,000 per year 1 x 36K


d. Total units of all people in the company 380 units e. John has 10% of all the units 38 / 380

2 units + 36 units 38 units

f. John receives 10% of the pool, not to exceed 50% of his base salary.


$300,000 Profit = $10,000 = $1,000 to John $400,000 Profit = $20,000 = $2,000 to John $500,000 Profit = $30,000 = $3,000 to John will be considered contributions to the plan. Also consider delayed vesting and how nonvesting might occur on any company contribution. Vesting may also be affected by the legal structure of your company, so make sure you do your homework before putting anything in writing.

With retirement plans and insurance benefits, by far the easiest, most cost-effective way to provide these forms of compensation is to outsource them through a professional employer organization (PEO), which can offer excellent standardized retirement benefits. A PEO virtually "employs" thousands of employees and has the ability to negotiate high-quality investment, insurance, and retirement plans, which are almost always better than you can offer for a similar cost. They also provide a broad range of payroll and human resource administration while limiting your liabilities as an employer.

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