Advantages and disadvantages of profit sharing plan

1, the advantages of profit-sharing plan

The advantage of profit-sharing plan is that the interests of the employees are reflected in the same plan, so that all employees are concerned about the company's profits, the size of the company's profits directly affects the earnings of employees.

2. Disadvantages of Profit Sharing Plans

The disadvantage of profit sharing plans is that the plan is usually linked to the employee's basic salary, i.e., the profit sharing plan does not take into account the employee's individual performance, and it focuses on the company's business objectives only.

A profit-sharing plan is an organization-wide incentive plan in which employees receive a portion of the company's profits based on their performance. It is a program established and funded by a company that allows its employees or beneficiaries to participate in profit sharing. "Profit sharing" refers to a variable pay workplace compensation system under which employees receive a percentage of company profits in addition to their regular salary, bonuses and benefits. To help employees save for retirement, the company puts a portion of its profits into a pool for distribution to employees. Profit-sharing plans can replace or supplement traditional retirement benefits, and the company is free to contribute even if it can't make a profit.

Profit sharing distribution methods: the first is by salary grade. Profit sharing corresponds to salary grade, which is usually distributed according to the salary

level. If the wage system is unreasonable, it will directly affect the reasonableness of profit sharing. The second is profit sharing according to after-tax profit. That is, the company pays tax first, and then dividends. Of course pay taxes and then dividends, according to the (U.S.) tax mechanism, it can be counted as a year-end bonus, that is, its tax rate is fixed. But you have to count it in the monthly salary, the tax rate may be even lower for low salary, or higher if the salary is high and progressive. The West takes a more pre-tax approach. We can actually

generalize it by allocating it as a percentage of pre-tax profit or total profit, or even as a percentage of gross profit margin. This is able to be factored into the cost, which reduces the amount of tax the company pays, but it's taxed on a progressive basis at each individual.