A profit-sharing agreement is a contract between a company and its employees, defining how profits are distributed among them. This agreement is a great way to incentivize employees to work hard towards the success of the company, as they will receive a share of the profits once the company surpasses a certain benchmark.
Here is a basic profit sharing agreement example:
1. Purpose of the agreement
The purpose of this agreement is to define the terms and conditions of profit sharing between the company and its employees.
2. Eligibility criteria
All full-time employees who have worked for the company for at least 6 months are eligible for profit sharing.
3. Profit-sharing percentage
The company will allocate a percentage of its annual profits to be distributed among eligible employees. The percentage will be determined by the company, taking into account factors such as performance, contribution to the company’s success, and market conditions.
4. Annual benchmark
The company will set an annual benchmark that must be met before profit sharing can take effect. The benchmark will be based on the company’s financial goals, such as revenue targets, profit margins, or market share.
5. Calculation of profit sharing
Once the annual benchmark is met, the company will calculate the total profit sharing amount to be distributed among eligible employees. The calculation will be based on each employee’s salary and the profit-sharing percentage.
6. Payment of profit sharing
Profit sharing will be paid out to eligible employees in the form of a one-time lump sum payment. The payment will be made within 30 days of the annual benchmark being met.
7. Amendments to the agreement
This agreement may be amended at any time by the company. Any amendments must be communicated to eligible employees in writing.
In conclusion, a profit-sharing agreement is a great way to motivate and incentivize employees to work hard towards the success of the company. By defining the terms and conditions of profit sharing, both the company and its employees can benefit from its success.