Enter an individual’s compensation, the total compensation of all employees, and the total profit into the calculator to determine the profit share.
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The following formula is used to calculate the profit-share an individual at a company should receive based on their percentage of the total compensation of the company.
PS = EC / TC * P
- Where PS is the profit share ($)
- EC is the individual employee’s compensation
- TC is the total compensation of all employees
- P is the total profit of the company
Profit Share Definition
A profit share is defined as a percentage of the total profits a company has earned that is distributed to an individual. Typically profit share is calculated by determining the ratio of the employee’s compensation to the total compensation of all employees.
For example, if an employee earns 1% of all compensation, then they receive 1% of the profits for the year or period. Profits are typically paid out quarterly, annually, or semi-annually.
How to calculate profit-sharing?
Example Problem #1:
First, determine the compensation of the individual employee. This can be on an annual or any other time basis as long as it’s compared to the total compensation of the same time period. For this example, the compensation is $77,000.00 annually.
Next, determine the total compensation for all employees in the company. This comes out to $1,000,000.00 in this example.
Next, determine the total profit earned or to be distributed by the company for the year. Over the year, this company earned $100,000.00 in profit.
Finally, use the formula above to calculate the profit share that should go to the individual.
PS= EC/TC * P
= 77,000/1,000,000 * 100,000
Example Problem #2:
In this next example, the employee earns 5,000 per month, the companies total compensation on a monthly basis is 100,000, and the total profit is $50,000.00.
Using the formula above:
PS = EC/TC*P
= 5,000/100,000 * 50,000
= $2,500.00 profit share.