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Most businesses nowadays attract better employees through incentive programs such as health benefits or 401(k) retirement plans. For small businesses, many incentive programs are often expensive and counter-intuitive to the rapid growth of their company, leaving many looking for easy ways to attract more applicants and ways to keep employees happy

Cue employee profit sharing programs! These are direct contribution plans in which an employee gets direct or indirect payments depending on the company’s profitability and the employee’s salary/bonuses. Such programs have many benefits for small local businesses. Here are some of the highlights:

1. Tax benefits

A 401(k) Profit Sharing Plan is financially beneficial to local businesses. Employee profit sharing contributions count as a tax deduction and financial contributions to the plan will not be taxed until they are distributed in employee retirement.

It's also worth noting that as long as the total contribution to the 401(k) profit sharing plan by both parties is a maximum of $51,000 ($56,500 for employees over the age of 50), those costs will be deducted from federal taxes.

This allows businesses to minimize their taxes and maximize their savings. Plus, giving employees a financial incentive to work harder doesn’t hurt either. It's a win-win!

2. You’re creating consumers

By increasing the business' financial contributions to your employees now, you are actually making a worthwhile investment for later. The more money an employee has (or will have when they cash in), the more likely they are to become a consumer and customer to your business.

Therefore, the money that a small business may be giving now has a higher chance of coming back to them later through an employee profit sharing plan. Consumer loyalty is crucial to a thriving business!

a red bay coffee employee serving coffee to a dapper man at a farmer's market benefits of employee profit sharing programs Photo Credit: Red Bay Coffee

3. The costs move with the profit

Employee Profit Sharing Programs do not have many fixed costs, once it’s been established. The costs that a company incurs to implement a profit sharing plan rise and fall with the company’s revenues.

In other words, if a small business has a less profitable year than the previous one, that’s okay. Their contribution to their employees' 401(k) plan will just be a bit smaller that year. As business goes up, they can give out larger sums again!

So employee profit sharing plans are a relatively safe program, especially for those small businesses with volatile sales and profitability.

4. Worker loyalty

Sharing the company’s earnings with the employees generally gives them the sense that they are not only workers but also part owners of the company. Thus, they are more likely to become invested in the company and its success because of the possible financial gains associated with it.

Also, this idea of part-ownership gives the company culture a sense of equality and care. It shows that the employer is genuinely invested in the employees, rather than thinking of the employee as a rank in a worker hierarchy.

Farley's Coffee employees designing their third parklet | Photo Credit: @farleyscoffee

5. Higher productivity

An employee profit sharing plan is one of the most effective ways to keep employees happy and productive because it directly connects a worker’s labor with the company’s profits. Therefore, employees are automatically incentivized to work harder in order to produce better results for the business, and therefore better results in their bank accounts.

Therefore, productivity increases when employees are directly impacted by the results of the company, rather than just being paid for their time on the job.

If you want your company to maximize their employee contribution while minimizing financial strain, employee profit sharing programs may be the route for you. The next step is to implement the plan. Good luck and happy working!

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