Essential points for employers with share schemes to ensure their staff grasp
In the world of employment, employee share plans have emerged as significant tools for both businesses and employees. These plans offer a unique opportunity for workers to save, invest, and potentially reap rewards in the form of company shares.
The most popular share plan in the UK is the Save As You Earn (SAYE), also known as Sharesave. This plan allows employees to save between £5 and £500 per month over a three or five-year period to buy shares in the company at a fixed 'option price'. If the share price is higher than the option price at the end of the share plan's term, employees can buy shares below their market value. Moreover, any gain realized when selling shares is free from income tax but is chargeable to Capital Gains Tax (CGT).
Another popular UK share plan is the Share Incentive Plan (SIP). This plan allows employees to purchase up to £1,800 of shares each year through four methods—free shares (up to £3,600 per year), partnership shares (purchased with gross salary), matching shares (employer provides free shares based on partnership shares bought), and dividend shares (buying more shares with dividends). Shares must be held for at least 5 years to get full tax benefits, and any gain on shares held in a SIP are free from income tax and CGT as long as they are held in the plan for at least 5 years. If the share price falls below the 'option price' at the end of the period, employees receive all of their savings back.
Both SAYE and SIP have attractive tax benefits. For instance, with SAYE, no income tax or National Insurance Contributions (NICs) are payable on the difference between the discounted purchase price and market value when exercising the option. Similarly, if shares are held for 5 years in a SIP, no income tax or NICs are payable.
Businesses see employee share plans as important tools for recruiting and retaining staff. They can offer a way to motivate and incentivize employees, potentially building greater financial resilience. Some employers provide financial education and guidance on share plans to help employees understand the real value of these plans and improve financial resilience and wellbeing.
In the United States, employee share plans take different forms, such as Employee Stock Options (ESOs), Employee Stock Purchase Plans (ESPPs), and Restricted Stock Units (RSUs). These plans have nuanced rules regarding ordinary income versus capital gains and potential additional taxes like Alternative Minimum Tax (AMT).
For more information about employee share plans, you can contact Jonathan at [email protected]. It's essential for employees to understand how these plans work to make informed decisions about their financial future.
[1] HMRC - Employee Share Schemes: Share Incentive Plans (SIPs) and Save As You Earn (SAYE) Plans: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32000 [2] IRS - Incentive Stock Options (ISOs): https://www.irs.gov/businesses/small-businesses-self-employed/incentive-stock-options-isos [3] IRS - Employee Stock Purchase Plans (ESPPs): https://www.irs.gov/businesses/small-businesses-self-employed/employee-stock-purchase-plans-espps [4] IRS - Restricted Stock Units (RSUs): https://www.irs.gov/businesses/small-businesses-self-employed/compensation-income-defined-stock-units-rsus
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