Employee shareholders

30 April 2013 | Alasdair Friend

The government’s proposals to create a new status of employee shareholder have now passed through Parliament and will come into effect in Autumn 2013.

The new law

The government proposed the creation of a new category of employee – the employee shareholder. In return for giving up rights to claim unfair dismissal and redundancy pay, the employee would be allocated shares to the value of between £2,000 and £50,000 which would be free of Capital Gains Tax.

The original proposals, however, have been altered considerably following strong opposition from the House of Lords. Following consultation, the government’s proposals were:

  • In return for giving up some employment protection rights – principally the right to claim unfair dismissal and to request flexible working the employee shareholder would be issued shares in the company to the minimum value of £2,000.
  • The shares must be fully paid up and issued free of charge.
  • They would be free of Capital Gains Tax on sale up to a maximum value of £50,000.
  • Shares may be issued in the employer’s parent company although not a subsidiary
  • Non-UK registered companies will qualify.

The House of Lords were concerned that there were insufficient protections for employees and so the following concession have been made:

For a valid employee shareholder status agreement, the employee must first have received advice from a “relevant independent advisor” – for example, a lawyer or trade union or law centre – the reasonable cost of which is paid for by the employer.

  • A written statement must be provided to the employee in advance setting out full details of the shares and the rights they carry. This is a significant change to the government’s original position which did not require an employer to divulge any details including, for example, how the shares could be transferred and what would happen on termination of employment.
  • There will be a seven day ‘cooling off’ period, during which any acceptance of employee shareholder status will not be binding.
  • The first £2,000 of shares will not attract any initial income tax charge.

As before, existing employees will be free to accept the offer of shares or reject them and remain on their existing terms. There will be protection for any employees who are subjected to a detriment because they refuse such an offer. Subject to complying with the above terms, however, employers will be free to offer new roles only on the basis of employee shareholder status.

The Government conceded that their former proposal that jobseekers who refuse a job because they did not want employee shareholder position would lose their rights to benefits would no longer apply.

Commentary

The agreement of the government to these significant changes reflects the importance they have attached to this idea. Response to the initial proposals in consultation was decidedly lukewarm with 97% of respondents saying they would be unlikely to take it up. For small start up businesses the attractions for both employer and employees are clear although the initial valuation of the shares could prove to be complex for non-listed companies. It remains to be seen whether these start ups and/or more established businesses will embrace the new employee shareholder status.

How can we help?

Our team at Abbiss Cadres is ideally placed to assist employers that are interested in devising a scheme to take advantage of employee shareholder status in their business.

We can

    • advise on the legal and tax opportunities and challenges of the new employee shareholder status
    • draft the terms of the scheme to ensure it is not only compliant with the statutory requirements but fit for purpose in your business
    • prepare the necessary contractual documentation
    • devise a communications plan to ensure the scheme is presented in an attractive, easily understandable way to get maximum engagement amongst the target employee group.

For further information or to discuss the issues raised, please get in touch.

The author

Alasdair Friend
Partner
Compensation and Benefits
International Assignments
D: +44 (0) 207 036 8385
T: +44 (0) 203 051 5711
F: +44 (0) 203 051 5712

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