Total and Partial Unemployment TPU 460.16

Profit Sharing

Some companies have established profit sharing plans. Generally, such plans will provide that employees of the company will receive payment under the plan established by the company based on the company's profits in the plan year.

The "plan year" is a 12-month period designated by the company. For example, the plan year might be the 12-month calendar year or it might be the State or federal fiscal year (i.e., July through June; October through September).

The profit sharing plan is not necessarily based on the company's profits for a one-year period. The company may set the plan up on any period of time. It may pay out monies based on profits within a six-month period or quarterly period.

Profit sharing plans can be designed in a variety of ways. For example, a plan may provide that an eligible employee will receive a specified percent (e.g., three percent) of the base wages the employee earned during the plan year, provided the employee was on the company payroll at the end of the plan year and the company's net profits exceed a certain amount.

The company can pay the profit sharing monies due an employee in a variety of ways. For example:

• The company may pay the money to the employee at the end of the plan year or other designated period of time.
• The company may set up a savings plan and "bank" the money in an employee's "account" at the end of the plan year. Generally, an employee can withdraw the money only at termination or for certain specified emergency uses.
• The company may design the plan as a retirement plan and only pay out the money at the time the employee retires. Companies generally give employees the option of receiving the money in a lump sum or as an annuity. Refer to Section 460.55 for discussion of eligibility if the payment is received as an annuity.

Payment to an individual under a company's profit sharing plan is wages (except when paid out as an annuity at retirement) for unemployment insurance purposes. The payment is based on the employee's work and is remuneration for personal services and is therefore wages as provided in Section 926 of the UI Code. If the money is paid as an annuity, it is treated as a pension and there is a question of eligibility under Section 1255.3 of the UI Code.

In Benefit Decision No. 6275, the Board considered the question of whether a payment made to a claimant under his former employer's profit sharing plan was wages for unemployment insurance purposes and, if so, the period to which the payment should be allocated.

In that case the claimant had last worked for a rivet company at the time of filing his claim. He last worked on August 14, 1953, and filed a claim for unemployment insurance benefits effective August 18, 1953. On October 23, 1953, the received a check from his former employer in the amount of $78.66. This payment represented the amount due the claimant under the company's profit sharing Plan.

On July 20, 1954, the Department issued a determination which held that the payment was wages under the provisions of Section 1252 of the UI Code. The Department determined that 'he wages were allocable to the week ending October 24, 1953, the week in which the claimant received the payment.

In deciding where to allocate the wages, the Board cited Benefit Decision No. 6047. In that case the Board had held that the payment, a bonus in lieu of vacation with pay, was properly allocable to the period when it was earned. In that case the claimants were not entitled to take vacations with pay. Instead, the collective bargaining agreement provided that they were entitled to receive pay in lieu of vacations with pay. The amount of pay an individual was eligible to receive was based on the individual's earnings from July 1 of one year through June 30 of the succeeding year.

The Board concluded that the wages were fully earned prior to the date of layoff and that "such wages were payable with respect to, and properly allocable to weeks prior to the lay-off period."

Thus, in Benefit Decision No. 6275, the Board held that the payment to the claimant under the company's profit sharing plan was in the nature of a bonus and was allocable to the period in which it was earned. In this case, the profit sharing payment was based on services performed by the claimant between January 1, 1953 and June 30, 1953, and thus allocable to that period and not to the period following the claimant's layoff.