Depending on your plan needs and situation, there are several types of profit sharing formulas that your company may be a good fit for.
As a default, all Guideline plans are set up with a safe harbor “comp-to-comp” profit sharing formula. However, you may also choose to allocate your profit sharing as a flat dollar amount to each employee, or new comparability if your plan is a Prime Plan. If you wish to change your profit sharing method (including the vesting schedule applicable to profit sharing contributions), you must amend your plan before December 31, 2020.
The comp-to-comp method (also called pro rata) takes a fixed contribution amount and allocates it to your employees based on their relative salaries. This is the default profit sharing method for Guideline 401(k) plans:
The company profit share is $10,000. The total of all eligible employee compensation is $200,000.
The flat dollar amount method gives every employee the same contribution amount:
The company profit share is $10,000. Three employees share it equally — $3,333 each.