Structuring Share Options for Employees

Employee loyalty can be hard to foster. In today’s business world employers may consider a variety of methods to encourage their staff to demonstrate dedication and reliability. This may include numerous financial incentives and fashionable perks. Ultimately every employer seeks a steadfast workforce that will always go that extra mile for their company and clients. In this article we explore structuring share options for employees as a reward and incentive.

Offering employees a stake in the company is one way to encourage a stalwart personnel. It involves your staff directly with the company, making it part their company. In addition, for some share options it provides you with a captive investment force that already shares your business vision.

Benefits of Structuring Share Options for Employees

There are a number of benefits to the employee from accepting share options. In addition to being physically invested and as such connected to the company, employees can receive financial rewards when the business is successful; such an investment may aid a savings plan or long-term financial strategy. There can even be some tax benefits to purchasing share options.

Employee Share Schemes

There are a variety of approved employee share schemes that benefit from tax advantages. We are going to focus on Share Incentive Plans (SIP), Employee Shareholder Shares, Company Share Option Plans and Enterprise Management Incentives (EMIs).

  1. Share Incentive Plans (SIP) – an employer may elect to provide or sell shares to employees as an incentive. If the shares are retained for 5 years the holder is not required to pay Income Tax or National Insurance on their value. The shareholder can also avoid Capital Gains Tax under certain circumstances. The four ways to get shares under SIP’s are; free shares, partnership shares, matching shares and dividend shares which offer a variety of benefits and tax relief.
  2. Employee Shareholder Shares – this requires you to own shares in your employers’ company that were worth the minimum £2,000.00 when you received them. For shares received after 17th March 2016 you are only liable to pay Capital Gains Tax on gains in excess of £100,000.00 accumulated over your lifetime.
  3. Company Share Option Plans – this option gives you the opportunity to invest and purchase up to £30,000.00 worth of shares for a fixed price. You are then not liable for Tax or National Insurance contributions on the difference between the sale price and actual value.
  4. Enterprise Management Incentives (EMIs) – perhaps the most efficient way to offer share schemes, EMI’s are applicable for companies with assets of £30 million or less. The company can offer share options up to the value of £250,000.00 in a 3 year period. If the shares are purchased at the market value there is no obligation to pay Tax or National Insurance on them however, if they were discounted then employees would be required to pay Tax and NI on the difference between the cost and their value.

The Final Word

As an employer, retaining valuable staff is vital. Commissioning, training, developing and maintaining an effective workforce requires a huge investment in terms of time and finances. It can also take some time to get the dynamic just right. As such once those people are in position, it is preferable to keep them there.

On the face of it share options may not seem to offer the kind of benefits employees seek to encourage their long-term loyalty and support however, if the right option is presented this can be a scheme that offers real financial rewards and actually supports loyalty and longevity.

If you would like to learn more about structuring share options for your employees don’t hesitate to get in touch. We would be happy to explore the best options for you and your valuable workforce.

2 Responses

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  2. hell
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    There’s certainly a great deal to find out about this subject.
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