Employee Share Schemes

There are a number of ways employers can reward staff for their efforts and loyalty in addition to increasing pay. One of these methods is an employee share scheme. These schemes have been around for a number of years. There are 3 main types of plan:

1) Free shares – employers can give each employee up to £3,000 per tax year worth of free shares. The employer may decide to link these shares to some form of performance based reward.

2) Partnership shares – these can be bought by the employee from gross pre-tax income (up to £1,500 per year or 10% of your income whichever is the lowest)

3)Matching shares – the employer is able to match partnership shares purchased by up to 2 for 1.

There are restrictions however. Companies can make employees give up their free or matching shares if they leave within a certain time and they can ensure that shares are held for up to 5 years. The share scheme must be available to all staff who have been with the company for a certain length of time.

One of the advantages to the employer is that the member of staff is rewarded without increasing costs. However the company should ensure that certain restrictions are placed on shares such as restricting or removing the voting rights.

There appears to be a low take up of these schemes among businesses as the legislation is complicated. This year the Office of Tax Simplification have been asked to come up with ways in which these schemes can be simplified. So we may see these schemes becoming more popular.

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