Biggest Concerns Small Business Usually Have about Employee Profit-Sharing PlansThere are a few drawbacks to setting up an employee profit-sharing plan as well. Obviously, the biggest concern is the expense. There can be some costs associated with setting up and maintaining a profit-sharing plan. Doing so can be complex. Profit-sharing plans are generally nuanced, and it is important to make sure that they are set up correctly. Otherwise, it could create problems down the road. Moreover, these programs usually include tiers, making them even more difficult to establish in the beginning.
A profit-sharing plan, also referred to as a deferred profit-sharing plan, gives employees a share in the profits of the company based on the company’s earnings. Employee profit-sharing plans have distinct advantages, which contribute to a small business’s overall morale and bottom line. —Houston Chronicle Small BusinessEmployee trust is yet another common issue. Employees need to trust that the company is doing well and that their hard work is actually contributing to the company’s success. If there is a lack of trust, employees may be less likely to participate in the profit-sharing plan. In other words, at least some plans require employees to give up part of their immediate compensation (or future earnings).
Pros of Employee Profit-Sharing PlansHowever, though downsides do exist, there are several benefits to setting up an employee profit-sharing plan. Some of the biggest benefits that create win-win situations for employees and businesses alike include:
- Increased morale and motivation. When employees see that they are benefiting from the company’s success, they will be more motivated to work harder and be a part of the company’s success.
- Increased productivity. When employees are motivated and feel appreciated, they will be more productive in their work. This boosts overall output and contributes to a healthier bottom line, which likewise contributes to the profit-sharing model.
- Attracts and retains top talent. Employees want to know that they are valued and that their hard work is being duly rewarded by making the company financially stronger. A profit-sharing plan shows employees that you care about them and want to reward them for their hard work.