Employee Share Schemes: Five Things You Should Know

Mar 11, 2019
Reading Time: 2 minutes
Written by Lachlan Ward

Many companies use an employee share scheme as a form of compensation for their employees. But what are they? And what should you think about before starting one? Read on what you need to know about employee share schemes.

What are Employee Share Schemes?

An Employee Share Scheme (ESS) lets employees buy shares or gives shares in the companies that they work for.  Often, they are offered as a form of salary sacrifice instead of wages. Alternatively, some companies let employees buy them outright or as a loan. Some schemes require employees to sell back their shares at the conclusion of their employment.  

What are the benefits of an Employee Share Scheme?

Chiefly, an ESS encourages employees to be dedicated to their company as they have a direct interest in the success of your business. Moreover, they can act to retain employees, saving you money on acquiring skilled employees and retaining talent in your firm. This allows your business to be more competitive. Also, an ESS can act to increase morale and improve working relationships within your company. They can also act as a short-term area of savings while your business is in its developmental stages.

What do I need to do to be eligible?

Generally you have to be a private company in order to start an ESS. Also you may be eligible for tax concessions depending on the size and lifestage of your company.  

What should I consider before starting an Employee Share Scheme?

The most vital thing that you should consider is how you will communicate the ESS to your employees. Many of them probably won’t have been part of one before, so it is crucial that you are open about the features of the scheme. Employees will have many questions about how it works, why it is happening and what they need to do, so the more clear information you can provide the better. Also it is important to consider how the ESS will contribute to your company’s aims. Another factor to consider is whether you are fine with the loss of control that will occur by selling some of your company’s shares.

Do I need legal advice?

You can do everything you need to start an ESS by yourself. However, if you are unsure about anything, it is best to consult a tax lawyer who will be able to ensure that your ESS is compliant with relevant tax and business laws.

So you should consider carefully all the relevant factors before setting up an ESS. The most important thing to remember is to make sure that your ESS links to your company’s success.

Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

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