Profit Sharing Definition

Definition

Profit sharing is a way for a business to share a portion of the profit it has generated with employees. In most situations, it is a voluntary benefit. Formal, legal documents must be drawn up outlining terms for participation, funding, and distribution.

Expanded Definition

Businesses can voluntarily share a portion of their profits with employees. A formal document referred to as a Profit Sharing Plan must be created, as well as a system for determining the amount distributed to each employee. Usually businesses calculate profit sharing based on a percentage of an employee’s annual pay.

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