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Profit Sharing Plan Rates Massachusetts

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  • Profit Sharing Plan Rates Massachusetts

    A small company in Massachusetts set up a "profit sharing plan" a few years ago and has been paying out individual profit shares twice per year (when there are profits). Each employee has the option to take the money (with the usual withholdings) or make a contribution to the company managed SAR SEP plan with a % company match. The plan is simply written without legal technicalities and lists the percentage each employee will receive if there are profits for the work period.

    Recently, myself along with at least two other employees (I haven't talked to all) received significantly less profit sharing than previous work periods. In the previous six-month pay period, I received 10% of the employee's share of the profits. My most recent payout was only 4% of the employee's share. I questioned the employer about the reduction and their response was that the profit sharing is "not guaranteed" and that other employees have worked more hours and deserve a higher share of the profit more than myself. The other two employees I spoke with were given a similar explanation.

    My contention was that any change to method of profit distribution should have been made known to the employees before the work period began. Employees only found out about the change when the checks were issued, which was 45 days after the work period.


    1. Do I have a case to claim my lost pay—can the employer change the method to calculate an employee’s compensation in a “profit sharing”?

    2. Where in the Mass. Gen. Law does it address "profit sharing"?

    3. Is this plan really a "profit sharing plan"? My research indicates that "profit sharing" typically requires some sort of pension contribution. This plan seems more like a bonus plan.

    Any other comments are appreciated.

    Thank you in advance!
    Last edited by profitless; 02-20-2007, 07:07 AM.

  • #2
    Depending upon the wording in the plan (whether it is clear, whether it includes oral modification language, the actual vesting language, etc.), you may have a claim.

    If you do, it will most likely be an action for breach of contract or failure to pay wages. It doesn't sound like an ERISA claim at first blush, but that should be looked at as well.

    As for where MA law defines "profit sharing plan", it doesn't really. MA courts have not directly addressed the issue.

    CT has said that Profit sharing agreements are not wages in the Morales decision of 2000. NH has said that profit-sharing agreements are wages under the Ives decision of 1985.

    But MA courts have not directly addressed the issue. The Jancey court (1995) seems to adopt a broad definition of wages and specifically mentions "profit sharing", but there remain questions as to whether periodic, large or episodic pay would qualify.

    In any case, it will come down to the terms. I would not be surprised if a court looks to any one of the following factors: (1) the "definitely determined" language used in analyzing commissions, (2) the size of the amount due relative to your regular pay, and (3) the frequency, terms and regularity of past payments.

    Lastly, you should be sure that the reason for your differential treatment is not due to some improper discriminatory purpose.

    I hope that gives you a start.

    This post is by Philip Gordon, a Massachusetts employment attorney (

    This post is NOT legal advice. It is for general/educational information purposes only. You should not rely on this post if you are making decisions, and it does not create an attorney-client relationship. This post may be considered "advertising" under the MA professional rules for attorneys.


    • #3
      Thank you for your response. It helps a lot since I've been searching for a law or case in MA that addresses "profit sharing" and apparently there aren't any--yet.


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