Yesterday, 1st September marked the introduction of a new status of employee called an "employee shareholder" – designed to give businesses greater choice about the type of employment contracts they can offer individuals, while maintaining appropriate levels of employee protection. To become an "employee shareholder" for the purposes of the Growth and Infrastructure Act 2013, an agreement must be entered into between the employee or prospective employee and the company. In exchange for giving up certain employment rights, the individual must receive fully paid up shares from the company or its parent undertaking, with a value of at least £2,000 and no more than £50,000. If shares with a market value in excess of £2,000 are issued to the employee, an income tax charge will arise on the excess of the market value over £2,000. The "employee shareholder" should benefit from significant tax advantages (such as being exempt from capital gains tax on any realised value of the shares, no matter how large the gain). To benefit from being an "employee shareholder" the employee must give up certain statutory rights - such as the right to claim unfair dismissal (on non discriminatory grounds), statutory redundancy pay and flexible working requests. However the employee shareholder will continue to have a number of the same rights as other employees (including anti-discrimination protection).
There are two sides to every coin and this new status will not be for everyone. We see two main groups who might want to investigate this new opportunity further:
- fast-growing small to medium sized companies who want to recruit and incentivise key employees – encouraging growth in the business – but who are looking for a flexible workforce; and
- senior employees or executives who are looking for a tax advantaged equity and remuneration package. The viability of this new status should also be assessed against other employee share and incentive scheme arrangements which are already available (such as Enterprise Management Incentives).