We have put together some templates that I think are really valuable for people who want to begin creating a profit sharing or bonus plan for their company.
The 3 templates are:
Profit sharing plan excel template
Annual profit sharing plan agreement
Board consent agreement
Each of these are critical items that you need in order to roll out a profit sharing plan at your company. I’ll go into detail below.
Template #1: Profit Sharing Excel Template
In this spreadsheet, i’ve created a few different profit sharing plans with various criteria. The most common method used for profit sharing calculations is called the comp-to-comp Method.
Definition: Under this method, the employer calculates the sum of all of its employees’ compensation (the total “comp”). To determine each employee’s allocation of the employer’s contribution, you divide the employee’s compensation (employee “comp”) by the total comp. You then multiply each employee’s fraction by the amount of the employer contribution. Using this method will get you each employee’s share of the employer contribution.
Using the example screenshot above (also in the spreadsheet), here’s how you’d calculate each person’s profit share distribution using the comp-to-comp method:
Add up the compensation for all 8 employees. The total compensation in this example is $660,000.
Then you’d take each person’s individual compensation and divide it by the sum of the total compensation. So for John Apple you’d take his individual compensation of $65,000 and divide that by the total compensation all employees of $660,000. Using this formula John Apple would have 9.85% of the total compensation (65,000/660,000).
Next you multiply this percentage (9.85%) by the share of profits being distributed to employees. In this example we would multiply his 9.85% by $500,000. This formula assigns John Apple a profit share distribution of $49,242 (9.85% x 500,000).
You could also BLEND the comp-to-comp method with other criteria as well (this would be a separate template). The screenshot above has comp-to-comp method being only 25% of the employee profit share calculation. So you’d do the same formula for comp-to-comp but only apply it to 25% of the profit share payout. Then the rest is calculated for the other criteria.
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Template #2: Profit Sharing Company Agreement
Every company that has a profit sharing plan needs to have a company-wide agreement in place that goes over the details of the plan.
This profit sharing agreement has everything you need to roll out a profit sharing plan at your company. You simply just need to fill in the sections that are highlighted in yellow.
In this template there's different criteria for the following:
Definitions
Calculation of profit share percentage
Bonus pool amount
General terms
Template #3: Board Consent Agreement
When you’re rolling out a new profit sharing plan, you must have board consent to get approval for the plan. This agreement is the board consent agreement that is required in order to create a new profit sharing plan. You simply just need to fill in the sections that are highlighted in yellow.
This template includes:
Approval of annual profit sharing plan
Omnibus resolutions
Written consent signed by board members
If you know someone who runs a profitable SMB with 10+ employees, I’d love to chat with them. We have an affiliate program that pays 50% commission on all paying customers you refer to us.
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Talk to you all soon!
Ryan
PS. All the replies go directly to me so feel free to reply with any thoughts/ideas/questions. I’d love to hear from you.