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If you run a business and have a dedicated workforce who you hope will stay with your company, you may look into employee share schemes. Employee share schemes are an excellent way of showing your employees that you trust and value them. It also shows that you would like them to stay and help grow your business. Finally, it provides a financial incentive for your employees to help boost productivity and grow your business.
This article will explain an employee share scheme and touch on some of the benefits of using one.
What is an Employee Share Scheme?
Employee share schemes are a way of sharing ownership of your company with your employees. You can reward employees with a financial stake in your company.
In an employee share scheme, the employee is usually granted an option to purchase company shares. The option is usually for the market value of the shares when you grant the option. An option is simply a choice that the employee has to purchase the shares in the future if they wish. It does not mean that you grant the employees a share then and there.
How Do Employee Share Schemes Work?
Share schemes can come in very different forms. It is up to you to decide who benefits from a share scheme. For example, you may state that only employees will benefit from a share scheme or that non-employees such as consultants can also benefit.
Once you have decided, you should then assess the two types of share schemes: unapproved schemes and HMRC-approved share schemes, approved by Her Majesty’s Revenue and Customs.
You can use a share incentive plan in an HMRC-approved share scheme. This is where a trustee holds the shares on behalf of the employees for at least five years. In this type of plan, no capital gains tax is paid on the shares when they are sold if they are sold without leaving the trust. This means that you can give your employees shares, and they can sell them in five years without paying capital gains tax.
You could also use a Save As You Earn plan. In this case, part of the employee’s salary is saved as part of a savings contract. The employee can then purchase shares at the market value when the plan was created, with a possible discount.
Alternatively, you can use a Company Shares Options Plan. This is where an employee can purchase up to £30,000 of company shares without income tax or national insurance contributions due to the difference in the value. Again, you can use this scheme with specific employees, and make it conditional on certain performance goals.
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Benefits of Employee Share Scheme
As mentioned, employee share schemes are an excellent way of:
- retaining top talent in your business;
- attracting top talent to your business;
- incentivising your employees to be productive, to add value, and to grow your company; and
- rewarding your employees in a way with tax advantages.
Having motivated and committed employees will make it easier for you to be confident in how your employees will run your business after you. If it is a business you have invested significant time and money into, you will want to make sure that it is in safe hands after you leave. This will be important both for the longevity of your work and the value of your shares. As a result, an employee share scheme can help you create dedicated and productive employees who can take your place.
Key Takeaways
If you are running a business and want to increase productivity while building a loyal base of employees, it is good to look at options within employee share schemes. In addition, you will want to look at HMRC-approved schemes to benefit from tax advantages when doing so. Ultimately, the type of scheme you choose to use depends on your business goals and objectives.
If you need help with an employee share scheme, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
An employee share scheme is where you give your employees a stake in your company, usually through company shares.
An option is the right to choose (in the future) whether to purchase shares at a predetermined price. This is often the market value of the shares at the time of the grant.
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