Working Life > Company > Employee Participation > Employee Profit Sharing

Employee Profit Sharing or Flexible Payment

Definition, Explanation

Sharing the company's profit is one form of employees' investment that is especially preferred in sales departments and customer-close areas. It can also include all employees of a company. Objective agreements and employee talks are the basis for defining factors of shared profit and paying it as a variable income. Magnitudes of relevance are the company's profit, turnover, value enhancements, new clients and the like. Individual amounts of shared profit can be equal for all or depending on duration of membership, amount of income or individual performance criteria. The agreement basis for the sharing are written in collective agreements, employment contracts or in company agreements.

• Reasons to share profit with employees are various:
• Interlinking company's success and personnel expenses
• Rewarding of individual and team success
• Motivating employees to spend more effort
• Attachment of employees to the company
• Encouraging employees' acting company-favourably

The profit sharing can be paid a single time or it can be deposited in company pension. A hot topic is a special form, the invested pay, which is not paying the shared profit but investing it in the company and paying it later as a capital return.

Since shared profit is income it is reduced by tax and social insurance contributions.

Last update: 06/14/2010