A quick introduction to profit sharing implementation

My company does not offer any employee benefits. It's sad, but true. Why do people want to work with us, despite the market being oversaturated with tons of benefit options? There are many reasons, and profit sharing is surely NOT one of them, but I think it is still an idea worth considering. In this article, I'll share with you my experience with a simple implementation of profit sharing.

My definition of profit sharing

Profit sharing is a simple system that is based on dividing X percent of company's net profit among all employees in the company. The amount should be equal for everyone who has worked through the whole quarter. Seniority doesn't matter. Everyone gets the same amount of money. While it is easy to say, it is definitely much harder to implement. As you probably know, every benefit system can be cheated, but here is the trick - profit sharing is not one of them!

There are only three simple rules:

1. An employee needs to work the whole quarter
2. If the employee works part-time, he/she will receive proportionately less money and the remaining sum will be divided once again
3. Profit sharing takes place only when all the invoices are paid

What about advantages?

Profit sharing is neither a gift nor a bonus. If the company makes profit, an employee will get a proportionate amount of money. If the company doesn't make profit, there won't be anything to share. On top of that, there are no complicated legal matters, as profit sharing is only an additional item on an employee's bill.

Let's find out some disadvantages

To start with, profit sharing lowers the results of the company. Second, cash flow will be worse, which is a real problem for small businesses. Finally, you will probably hear that seniors should have gotten more… OK… but not all seniors want to do tasks that juniors do. That's why I decided to share the profit equally. I believe that everyone in the company has an impact on the company's growth.

How to calculate profit sharing?

The calculation is straightforward. Here's the formula:

Profit Share per Person = (Net Profit × Share Percentage) / Number of Employees

For part-time employees:

Part-time Share = Full Share × (Working Hours / Full-time Hours)

The remaining amount from part-time adjustments is redistributed equally among all employees.

Example Calculation

Let's say:

• Net profit for Q1: €100,000
• Profit sharing percentage: 10%
• Number of full-time employees: 8
• Number of part-time employees (50%): 2

Step 1: Calculate total profit sharing pool

€100,000 × 10% = €10,000

Step 2: Calculate shares

Full-time share: €10,000 / 10 employees = €1,000
Part-time share: €1,000 × 50% = €500

Step 3: Redistribute the difference

Difference per part-timer: €1,000 - €500 = €500
Total to redistribute: €500 × 2 = €1,000
Extra per full-timer: €1,000 / 8 = €125

Final amounts:

• Full-time employees: €1,000 + €125 = €1,125
• Part-time employees: €500

I prepared a sample spreadsheet here. Feel free to test/use it - all feedback is appreciated.

Is this idea worth implementing in the company?

Up to the point of writing, we had only three iterations of profit sharing. Two of them happened before the pandemic (in 2019). We approached the idea again this year. It's still hard to say how profit sharing increases the feeling of ownership. For sure it is worth trying and we will definitely continue sharing our profit in the next quarters.

Key Takeaways

✅ Simple to implement - no complicated legal structures needed ✅ Fair distribution - everyone contributes to company success ✅ Transparent - based on clear, measurable metrics ✅ Flexible - adapts to part-time arrangements

⚠️ Considerations:

• Impact on company financials
• Cash flow implications
• Managing expectations about equal distribution
• Quarterly payment cycle

What do you think about profit sharing?

As a Manager / Founder / CEO, would you be willing to implement something like that in your company? As an employee, do you see value?

Remember: Profit sharing is not a silver bullet, but it can be a powerful tool to align team interests with company success. The key is transparency and consistency in implementation.