Profit share program

In an effort to help its employees save for retirement, the company contributes a part of its profits into a pool of funds to be distributed among employees. Profit sharing plans may be offered in lieu of or in addition to traditional retirement benefits, and the company is free to make contributions even if it fails to make a profit. Company-funded profit sharing retirement plans differ from employee-funded profit sharing plans like k plans , in which participating employees make their own contributions.

However, the company may combine a profit sharing plan with a k plan as a part of its overall retirement benefits package. Under company-funded profit sharing plans, the company decides from year to year how much—if anything—it contributes to its employees.

However, the company has to prove that its profit sharing plan does not unfairly favor its highest-paid employees or officers. Most companies make their profit sharing contributions to qualified tax-deferred retirement accounts. Employees who leave the company are free to move their profit-sharing funds into a Rollover IRA. In addition, employees may be able to borrow money from the profit sharing pool as long as they are employed by the company.

In this case, the contribution to three different employees might look like this:. Under current U. This amount changes depending on the inflation rate. Besides helping employees build toward a comfortable retirement, profit sharing makes them feel that they are working as part of a team helping the company achieve its goals.

The assurance that they will be rewarded above and beyond their base salaries for helping the company prosper motivates employees to perform above and beyond minimal expectations. For example, in a company that only pays its salespersons commissions based on their individual sales, such a team spirit rarely exists, as each employee acts in his or her own best interest.

If you have hired someone to help with your plan, that person likely will provide the document. If not, consider obtaining assistance from a financial institution or retirement plan professional. In either case, you will be bound by the terms of the plan document. A profit sharing plan allows you to decide within limits from year to year whether to contribute for participants.

Your contributions to the plan can be subject to a vesting schedule which provides that an employee's right to employer contributions becomes nonforfeitable only after a period of time. You may need to run annual testing to ensure that contributions for rank-and-file employees are proportional to contributions for owners and managers. Once you have decided on a profit sharing plan for your company, you will have some flexibility in choosing the plan's features - such as when and which employees can participate in the plan.

Other features written into the plan are required by law. For instance, the plan document must describe how certain key functions are carried out, such as how contributions are deposited in the plan. Unless it includes a k cash or deferred feature, a profit sharing plan does not usually allow employees to contribute. If you want to include employee contributions, see k Plans for Small Businesses Publication Arrange a trust for the plan's assets - A plan's assets must be held in a trust to assure that assets are used solely to benefit the participants and their beneficiaries.

The trust must have at least one trustee to handle contributions, plan investments, and distributions. Since the financial integrity of the plan depends on the trustee, selecting a trustee is one of the most important decisions you will make in establishing a profit sharing plan. If you set up your plan through insurance contracts, the contracts do not need to be held in trust. Develop a recordkeeping system - An accurate recordkeeping system will track and properly attribute contributions, earnings and losses, plan investments, expenses, and benefit distributions.

If a contract administrator or financial institution assists in managing the plan, that entity typically will help keep the required records. Provide plan information to employees eligible to participate - You must notify employees who are eligible to participate in the plan about certain benefits, rights, and features. In addition, a summary plan description SPD must be provided to all participants. The SPD is the primary vehicle to inform participants and beneficiaries about the plan and how it operates.

The SPD typically is created with the plan document. Once you have established a profit sharing plan, you assume certain responsibilities in operating the plan. If you hired someone to help in setting up your plan, that arrangement also may have included help in operating the plan. If not, another important decision will be whether to manage the plan yourself or to hire a professional or financial institution - such as a bank, mutual fund provider, or insurance company - to take care of some or most aspects of operating the plan.

A profit sharing plan must be operated in accordance with the plan document. Typically, a plan includes all employees. However, a profit sharing plan may exclude some employees if they:. In a profit sharing plan, you can decide on your business's contribution to participants' accounts in the plan. You have the flexibility of changing the amount of contributions each year, according to business conditions. The plan document will need to have a set formula to determine how any contributions you make are allocated to participants' accounts.

The simplest, and most common, allocation formula specifies that the employer contribution is allocated so that each participant receives an amount that is the same percentage of her or her compensation. Contributions and forfeitures nonvested employer contributions of terminated participants are subject to a per-participant annual limitation.

This limit is the lesser of:. If contributions are made to a profit sharing plan, employers can deduct amounts not exceeding 25 percent of the compensation paid during the year to all participants. Your contributions to the plan can either be fully vested nonforfeitable when made or they can vest over time according to a vesting schedule. If you require 2 years of service to participate, all contributions are immediately vested. All participants must be vested according to plan terms.

To preserve the tax benefits of a profit sharing plan, the plan must provide substantive benefits for rank-and-file employees, not just business owners and managers. These requirements are called nondiscrimination rules and compare both plan participation and contributions of rank-and-file employees to owners and managers. Traditional profit sharing plans are subject to annual testing to ensure that the amount of contributions made for rank-and-file employees is proportional to contributions made for owners and managers.

An alternate way to pay the bonus would be to compensate people based on their role in the business. You can do that by dividing up the pool into shares, where each share is worth a certain percentage of the pool. Then you pay the bonus based on the number of shares an employee is given--usually based on their position in the company. You might give one share each to frontline employees, for instance, while managers get two shares and senior executives get three.

In our example, the company has 20 employees and based on roles would have 25 shares. This probably means that the more senor people get a greater percentage of their salary in bonus. The key is to do some math to make sure the amount you allocate in each share adds up to your total bonus pool amount and the potential payout is motivating to the people involved. Regardless of which distribution method you choose, you should also allow yourself as the owner or CEO to make further adjustments based on the performance of individual employees.

If an employee who was due two shares of the bonus pool is severely underperforming, you shouldn't hesitate to trim their shares to send them a clear message. Gary Keller identified the reason behind their leaving as the better commission split offered by the rival real estate companies.

This made him think, how he can keep hold of the top producing agents of his company. As a result, in , he and the first Associate Leadership Council joined forces together to reinvent Keller Williams Realty.

They researched the market and different strategies used by the rival companies and came up with some revolutionary ideas that changed the real estate industry forever. The Keller Williams Profit Share system is one of them. He launched the Keller Williams Profit Share system in His drive behind the profit share system was to find out how to build a real estate company where no agent will ever feel the need to leave Keller Williams Realty and offer a chance to prosper throughout their career in the real estate industry, even when they are retired.

Through the Keller Williams Profit Share system, he created a way to reward both the brokerage owners who are risking their investment and the Keller Williams agents who are helping Keller Williams Realty to grow.

To put the Keller Williams Profit Share system simply into words, it is a reward system where Keller Williams associates and Keller Williams owners are rewarded in accordance with their contribution to the growth of the company. Every day, agents meet many people in their line of business. He or might meet someone who has some raw talent as a real estate agent and is interested in joining a real estate company. If you meet people like that, all you have to do is introduce them to Keller Williams Realty and make them a Keller Williams associate.

Now any time he or she closes a deal, a portion of the profit will be shared with the owners and the agent who sponsored him or her. It is a great way to generate passive income. Agents can also enjoy this passive income throughout their lifetime and even choose a beneficiary to inherit their earnings from the Keller Williams Profit Share program.

The Keller Williams Profit Share program is one of the reasons why Keller Williams Realty is one of the most successful companies in the real estate industry. Their unique business culture allows Keller Williams associates to actively engage in the growth of the company and reap financial rewards as a result. Since the beginning, Keller Williams Realty has now become a multinational company. Each country has various laws and regulations. In the Growth Share system, when an agent outside of the United States and Canada real estate market has successfully closed a deal, a part of his or her commission is paid to the franchisee.

Any Keller Williams associate can participate in either of these programs. Through these programs, Keller Williams Realty has made the agents legitimate stakeholders rather than employees. This system has presented all the Keller Williams associates new or old, an opportunity to develop their wealth without wasting any money or time while Keller Williams Realty grows.

Join Keller Williams and take your career to a new height of success.