The Government is pushing ahead with its plans to implement the proposed employee owner (now re-named employee shareholder) status in April 2013, having now published its response to the recent consultation on the issue.

Under the proposals which were the subject of consultation, employee shareholders could receive between £2,000 and £50,000 worth of shares in their employer which would be exempt from capital gains tax (see below in relation to income tax proposals).  In exchange, the employee shareholder would give up certain employment rights including the right to bring a straightforward unfair dismissal claim (i.e. not a claim for automatic unfair dismissal or where there is an element of discrimination) and to receive a statutory redundancy payment. For more details of the proposals, please see our earlier update.

The Government acknowledges in its response that there is already uncertainty amongst employers on the differences between the two existing types of employment status of worker and employee and that adding a new status of employee shareholder with different rights again could add further to the confusion. As with many of its proposals, the Government intends to publish guidance for employers on all three types of status to enable them to be better informed and equipped to determine the right status for individuals in their workforce and how to implement it.

Changes to the proposals following consultation include:

  • removing the upper threshold of £50,000 which would allow businesses to offer more shares under the scheme.  The exemption from CGT, however, would remain capped at £50,000 worth of shares;
  • changing the notice period required from employee shareholders for early return from additional paternity leave from six to 16 weeks to ensure consistency with the proposals in relation to maternity and adoption leave;
  • allowing shares to be issued by both the employing company and its parent company; and
  • to preserve flexibility, the conditions for forfeiture of shares should be left to the contractual agreement between the employer and employee.  Employers will need to satisfy themselves that the shares issued to the employee have a value of £2,000, taking into account any restrictions on rights relating to the shares.

The Government is also considering the following:

  • options to reduce the income tax and National Insurance contribution liabilities that arise on the issue of the shares;
  • whether to retain the proposed restriction on the right to make a flexible working request on return from parental leave (as opposed to maternity, paternity or adoption leave) to just the four week period following such return; and
  • whether any further guidance or rules are necessary in relation to share valuation and forfeiture.

A number of areas will need to be developed further before it is possible to determine whether this new scheme will be workable in practice, in particular, the response does not provide any additional clarity on how employee shareholders will be treated on a TUPE transfer.

The response can be viewed here and we will keep you updated on any further developments.