Profit Sharing
Profit sharing is an arrangement in which a company shares part of its profits with employees. The payment may be made as cash compensation or through an employer-sponsored retirement plan, depending on how the program is structured.
Reviewed September 2026
Simple example
A company decides to allocate 5% of annual profit to an employee profit-sharing pool. The amount each employee receives may depend on compensation, tenure or another formula set by the plan.
Profit-sharing retirement plan
In the U.S., an employer can make contributions to a qualified profit-sharing retirement plan. The company has flexibility over whether to contribute in a given year, subject to the plan rules and applicable limits.
Profit sharing vs. bonus
A bonus can be based on individual performance, company performance or management discretion. Profit sharing is specifically tied to a defined method of sharing company profits or making plan contributions.
What employees should check
Important details include eligibility, the allocation formula, vesting, when money can be withdrawn and whether the payment is cash or a retirement-plan contribution.