Employee share schemes - for employers

An employee share scheme is where you provide shares in your company to your employees. It is sometimes referred to as an employee share plan, employee share option plan or an employee equity scheme. Employee share schemes are often provided to attract, retain and motivate employees – by aligning employee interests with shareholder interests. The idea behind employee share schemes is that the value of the employee's shares is linked directly to the performance of your company.

An employee share scheme is generally a plan that has a vesting period from 2 to 15 years. There are specific tax concessions that apply to an Employee Share Scheme interest, if you meet certain conditions.

What benefits can I provide my employees under such a scheme?

Generally employee share schemes offer either an option to purchase shares after a certain period has passed, or the shares themselves.

How can I provide my employees with employee shares?

Common ways of providing shares to employees include:

• Salary sacrificing over a set period
• Using dividends received on shares already owned
• Special loan from the company
• Upfront payment by the employee

What are the benefits of providing an employee share scheme?

The fundamental benefit is improving employee performance and motivation. By giving your employees the opportunity to share in the company’s success and making them a valued investment partner directly participating in the company’s success, those employees are likely to work harder to ensure the company succeeds.

By providing an Employee Share Scheme, you have a powerful way of rewarding and recognising your employees. Employees are encouraged and inspired to be creative and use initiative in helping make the company great. Experience indicates that the power of the motivation in being rewarded is long lasting and usually has a meaningful effect.

In providing shares to employees, they become not only employees but also shareholders. This creates a communication line between employees and management to understand what shareholders want for the company’s future and to work together to influence that future. Employees become more interested in understanding the long-term goals of the company and what role they will play in the plan.

Finally, employees will be more understanding of business decisions. As shareholder/employees, employees are more likely to understand when there is a downturn in the business and are motivated to work with management to get the company back on track.

Monetary benefits to the company include relieving cashflow pressure on the business. Instead of paying larger amounts to headhunted employees – you can incentivise them via an employee share scheme.

How can Tax Controversy Partners help you?

Structuring an Employee Share Scheme needs careful considerations of the company’s current circumstances, protection for the shareholders, how dividends will be declared, etc. Further, there are complex tax concessions available, where certain conditions must be met for employees to be entitled and reporting obligations imposed on the employer.

At Tax Controversy Partners, our experienced lawyers can guide you through setting up and implementing your Employee Share Scheme. Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.