Profit-Sharing Plan

A profit-sharing plan is an employer-sponsored benefit plan that distributes a portion of a company's profits to eligible employees, typically as cash bonuses or contributions to retirement accounts. The amount shared depends on company profitability and a set allocation formula, such as percentage of payroll or individual compensation. Only employers contribute—employees do not make contributions themselves—and contributions are discretionary, meaning employers can choose to adjust or skip funding in years with low or no profits. Profit-sharing plans can boost employee morale, align incentives, and help fund retirement, with contributions growing tax-deferred until employees withdraw the funds. Different plan structures include cash payouts, deferred retirement plans, or employee stock ownership plans (ESOPs).