Employee Share Schemes (ESS) give employees shares in the company they work for or the opportunity to buy shares in the company.
If set up correctly, Employee Share Schemes are a great way of attracting, retaining and motivating employees, and are particularly well-suited to fast growing companies. They can reward employee performance and align employees’ interests with those of your company. Companies that have implemented Employee Share Schemes tend to have lower employee churn, higher sales, productivity and growth.
However, Employee Share Schemes require time and effort to plan and implement and often tax considerations can determine their success or failure. Will Merdy addressed these issues at a recent seminar on Employee Share Schemes held jointly by Accru Felsers Chartered Accountants and Bartier Perry Lawyers.
This video extract of the seminar will give you an insight into:
Tax considerations of Employee Share Schemes
A scheme can take several forms and each has different tax issues to consider. It is important to find the right balance between your commercial objectives and the tax attributes of the scheme. See the video for an explanation of:
- The tax considerations for common types of Employee Share Scheme Options
- The different ways these are taxed, including taxed upfront, tax deferred and the popular ‘startup concessions’ that were introduced in 2015.
- The different implications of each tax treatment for employees and employer.
Planning for implementation of Employee Share Schemes
Thorough planning is required to ensure that an Employee Share Scheme has maximum benefit to all parties – employees, the business and business owners. Taxes can easily erode the value of share options to employees and negate your intended goals. See the video for ESS planning tips including:
- Keep focused on what you want to achieve
- Be clear about what you want to spend and to provide to your employees
- Find the best way to structure your gift to staff – eg option, commission, bonus etc.
- Make sure your employees will value what you are giving them
- Plan communications to engage your staff and explain the benefits
- Identify external professionals and internal staff to run the project.
The tax implications of issuing ESS interests are complex but we are here to help. Please contact Will Merdy if you would like to discuss setting up an Employee Share Scheme for your organisation.