Management can??t belong, employees must help develop the plan, no one person can receive unreasonable compensation, and payments can??t derive from increased charges ??? but profit-sharing for the nonprofits is now legal

Abstract

How can today's hospital improve employee productivity and operating efficiency while continuing to provide quality health care? One way to accomplish this goal is to develop an organizational profit-sharing plan. Such plans give employees a share of the savings which result from improvements in operating efficiency and productivity. In the past, nonprofit hospitals have not offered employees profit-sharing plans because the federal government held that tax exempt institutions must be organized and operated exclusively for exempt purposes; thus, no earnings could accrue to the benefit of individuals associated with the exempt entity.1 Recently, however, the federal government declared that organizations exempt under Section 501 can establish profit-sharing plans for their employees if certain safeguards and restrictions are present.2 This policy change enables nonprofit hospitals to make extensive use of profit-sharing plans. Since nursing managers at all administrative levels will play a vital role in the operation of profit sharing plans, they need a basic understanding of how these plans are developed and operated.