Business, Legal & Accounting Glossary
Profit-sharing is an arrangement between an employer and employees in which the former shares part of its profits with the latter. Profit-sharing plans are a way to keep employee morale, loyalty, and retention up. Employees can be given stocks (often stock in the company they work for) or bonds, or cash. To determine how much an employee will receive with profit-sharing, the employer uses government-approved formulas. If the profit-sharing contributions are part of an employee’s retirement plan (in which case they are received at retirement rather than now), they may be tax-deductible. There are eligibility requirements for profit-sharing plans; for example, the employee must work for the company for a certain period before he or she can partake in profit-sharing.
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This glossary post was last updated: 1st April, 2020