Employee Profit Sharing Agreement

Sharing profits with the employees of a company is a means of sharing success with the people who carry out the work on a daily basis. This can work to your business’s advantage, engaging and motivating your employees. However, connecting your workers to your company’s success can have its downsides that could have a negative effect on the company bottom line. It’s important to consider the pros and cons before you implement a profit-sharing program. In this article, employee profit sharing agreement, we take a look at the process and mechanism involved.

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For a free initial discussion on how we can help you with the legal aspects of drawing up an employee profit share agreement, get in touch with us today. We will review your situation and discuss your circumstances in a clear and approachable manner. Early expert legal assistance can help resolve the situation and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or complete our online enquiry form and a member of the team will get back to you.

Advantages of an employee profit share agreement

There are a number of advantages to an employee profit share agreement and they can include:

1. Increased employee productivity

Sharing a proportion of profits among all your employees may have a positive effect on their efficiency, their motivation and their productivity. If an employee has no vested interest in how profitable the business is, there is little motivation for them to carry out anything above the bare minimum of the responsibilities associated with their job description. We have all encountered these types of staff; the half-hearted, disaffected type where everything seems like too much bother. Add profit share to the mix and employees have a vested interest in the success of the company. They have a financial stake in business performance and may be more motivated to work toward your business goals and to boost profits.

2. Increased Employee Loyalty

Companies that have profit share agreements in place with their employees have better relationships with their staff than if they were just salaried employees. If you incentivise staff by sharing profits with them, you directly link employees to the success of your company on a financial level — if they help you make a profit, they earn a reward. Acknowledging the importance of the work they do by giving a tangible benefit may increase their loyalty to your company and their levels of job satisfaction.

3. A reduction in fixed salary costs

Adding profit sharing to your benefits package could help you keep staff happy and thus increase the rate of staff retention. This will save money on recruitment and training. Apart from keeping people happier in their roles, the extra money may dissuade them from looking for other jobs. Another advantage of a profit share scheme is if you want to retain key people but cannot or do not want to increase their base salaries. As long as the business prospers and is profitable, you can offer the incentive of additional earnings without committing to increasing their salaries.

Potential disadvantages of an employee profit share agreement

1. Staff my become preoccupied with profit

If employees focus solely on profits, your business may suffer. This may be a problem if they work toward making the greatest profit at the expense of other key business drivers such as quality. For example, if your employees are driven by selling the most expensive products or services at the expense of customer service or whether the product or service is actually appropriate for the customer’s needs, your business’s reputation will suffer rapidly.

2. Costs in setting up the scheme.

Setting up a profit-sharing program may not bring significant upfront costs, but you must still factor in long-term time, labour and administrative costs. Committing to giving away a share of your profits also reduces your disposable investment income. This may be an issue if you want to reinvest profits into your business, as you’ll have less money with which to do so. You must also consider the implications if the business starts to have a downturn in its profits. Without a full understanding of what goes on behind the scenes of running a business, there is a real possibility that a drop in profits may make some staff fearful for their jobs and some may even start looking for other jobs.

3. Issues with perceived inequality

Once employees receive profit share, they may feel entitled to earning the extra money. If you don’t make profits in a period, they may become unmotivated. Over time, you may also lose productivity gains, as employees may not maintain initial motivation once the novelty of the system wears off. You may also have problems with perceptions of inequality. For example, you may have staff that really put the hours in and take pride in what they do. On the other hand, you may have staff who just do the bare minimum. With a profit share scheme, the hard worker may become resentful of the not-so-hard worker and conflict may arise.

Is there anything else to consider?

The actual amount to be paid out through a profit-sharing scheme is typically calculated according to a threshold set by the organisation. Should it return a profit higher than this pre-set amount, a portion of this extra cash will be shared among employees. This can either be paid as a set amount to all workers, or as percentage of salary.

How we can help

We have a proven track-record of helping clients set up an employee profit share scheme. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Corporate Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.

To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Corporate, News Tagged as