As a small business owner, one of the toughest things is to attract and keep good talent.
So how do you get these great employees to stick around?
Cough up some of the business profits! Yep, share the business profits through a profit sharing plan. Don’t know what a profit sharing plan is? Profit sharing plans allow employees to receive a portion of the profits from the small business for retirement. The more profitable the business, the greater the potential contribution. In addition, as a business owner, you implement a vesting schedule that requires the employee to stay in order to get more of the contribution.
The result….Employees stay with you longer, they get rewarded more and you retain good employees.
There are a quite a few of these plans, and each one serves a different purpose. It all depends on the ages of the owner and the employees and compensation.
The most popular profit sharing plan is the 401(k). This profit sharing plan allows employees to kick in for their own retirement. In addition, the employer can contribute a match of those dollars contributed. A vesting schedule can accompany the match.
The second profit sharing plan is the Age Based Plan. With an Age Based Plan, the employer makes a contribution based on the age of the employee. So if you have older employees that have been around longer, this plan will definitely benefit them. There is no requirement to make a contribution in a given year. Especially if the business did poorly.
Another little known profit sharing plan is the Comparability Plan. In a comparability profit sharing plan, the employees are divided into different groups based on factors such as job description, job title or method of compensation. The employer makes contributions to each segment, with a different level assigned to each group. As with age-based plans, comparability plans tend to favor the more highly compensated employees. Employers can use this plan to legally contribute more to management.
The Current Profit Sharing Plan is a way to make profits performance based. If your sales team meets it’s quotas or increases sales, they receive additional contributions. Another idea is to bonus all employees on oveall profitability of the company. This amount can range from 2.5 to 15%.
Last but not least, the Integrated Profit Sharing Plan. For employees who earn less than the Social Security taxable wage base $113,700 for 2013, an employer’s contribution to Social Security as a percentage of income is higher than for those who earn above the wage base amount. Integrated plans are designed to allow employers to offset the disparity by making contributions to an integrated plan for highly paid employees. The result is that employers end up making about the same Social Security contribution percentage for all employees.
There’s an old saying, “you get more flies with honey than vinegar.” That definitely applies to attracting and retaining good quality employees for your business. The honey in this case is sharing the profits of a successful business. It gives a great employee a reward for a job well done.
If you want more info on profit sharing plans, write me at firstname.lastname@example.org, or cal me at (859) 225-2596.