Profit Sharing As Incentive?

Not exactly a new invention when it comes to business, profit sharing enables a company to share their profits with employees as a means of financial incentive for performance.  One of the ways that this profit sharing is done is by giving the employee stock options that will increase based on the improvement in the company made by their work.  However stock options can be taxed quite heavily so there are other ways of profit sharing which have earned a mention. 

The most common is the 401 K plan which allows employees to make a contribution to a 401(k) account that the company may match, giving them a viable retirement option to live off of.  The 401(k) can also be considered a safety net as many of them enable you to cash in your 401(k) which can provide with enough cash to make it thru an emergency if you need to.  The amount that these deferred profit-sharing accounts give to the employees all depend on their account balance.

Companies decide the amount of profit-sharing contributions in two ways.  The first method is by a set formula that is written into a planning document which typically depend on the measures of profitability the company sets up.  Owners may decide that instead of using a set formula they are going to decide what an appropriate amount would be.  After deciding this there are many different ways to allocate the funds to the employees, such as sliding scales, percentage of total payroll, or other factors.

As a small business it is probably a good idea to set up some form of profit sharing for your employees to motivate them to work harder.  The small business owner should, however, contact a financial adviser or an accountant before they make any decisions.