Essential aspects for employers providing stock options to explain to their workers
Employee share plans have become increasingly popular, offering employees the opportunity to own a piece of the companies they work for. This article aims to provide a clear and concise overview of the main types of employee share plans, their features, tax implications, and the support available for employees.
Types and Features
The main types of employee share plans include Share Incentive Plans (SIPs), Save As You Earn (SAYE), Company Share Option Plans (CSOP), Enterprise Management Incentives (EMIs), and Employee Stock Purchase Plans (ESPPs). Each plan has distinct features and methods for employees to acquire shares.
- Share Incentive Plans (SIPs): Allow employees to receive shares in four ways: free shares (up to £3,600 per tax year), partnership shares (bought from gross salary up to £1,800 or 10% of income), matching shares (up to two free shares per partnership share), and dividend shares (reinvest dividends to buy more shares). Shares must be held for a minimum of 5 years for tax advantages.
- Save As You Earn (SAYE): Employees save monthly (up to £500) over 3 or 5 years, gaining a tax-free bonus. At the end, employees can buy shares at a price fixed at the start.
- Company Share Option Plans (CSOPs): Options generally granted to middle or senior staff to buy shares at a fixed price, often after a vesting period.
- Enterprise Management Incentives (EMIs): Designed for smaller, high-growth companies, offering flexible options with beneficial tax treatment.
- Employee Stock Purchase Plans (ESPPs): Common in the US, employees buy stock at a discount (up to 15%), usually through payroll deductions.
Tax Implications
Understanding the tax implications of each plan is crucial. Here's a brief summary:
| Plan Type | Income Tax | National Insurance Contributions (NICs) | Capital Gains Tax (CGT) | |--------------------|-------------|------------------------------------------|----------------------------------------| | SIP | No income tax or NICs if shares held 5+ years | No NICs if held 5+ years | CGT may apply on gains when shares sold if held outside SIP | | SAYE | No income tax or NICs on gain at option exercise | No NICs | Gains subject to CGT, with annual exemption; CGT rates up to 24% | | CSOP | Income tax on difference at exercise | NICs usually not payable | CGT on further gain after exercise | | EMI | Income tax and NICs often reduced or deferred | Often no NICs if conditions met | CGT at reduced rates if conditions met | | ESPP | Discount taxed as income on sale depending on holding period | NICs may apply at sale depending on treatment | Additional gain taxed as capital gain.|
Support Available for Employees
To help employees make informed decisions, businesses often provide detailed plan guides, access to financial advice or online calculators, information sessions, HR support, and encouragement to consider linking gains to tax-efficient accounts like ISAs to mitigate CGT.
By understanding the specific features and tax treatment of each plan type and using available support resources, employees can make informed decisions about participating in share schemes and the timing of selling shares to maximize benefits.
The Benefits for Employees
Participating in employee share plans can have numerous benefits. Not only can they provide a potential financial boost, but they can also help build financial resilience. Many leading employers provide financial education and guidance on share plans and choices upon release.
[1] HM Revenue & Customs. (2021). Share schemes for employees. Retrieved from https://www.gov.uk/topic/personal-tax/share-schemes-for-employees
[2] Informa. (2021). Employee share ownership plans: A guide for employees. Retrieved from https://www.informa.co.uk/employee-share-ownership-plans-a-guide-for-employees/
[3] Share Incentive Plan (SIP) - GOV.UK. (2021). Retrieved from https://www.gov.uk/share-incentive-plan
[4] Save As You Earn (SAYE) - GOV.UK. (2021). Retrieved from https://www.gov.uk/save-as-you-earn
[5] Company Share Option Plan (CSOP) - GOV.UK. (2021). Retrieved from https://www.gov.uk/company-share-option-plan
- Engaging in personal-finance strategies like employee share plans, particularly the Share Incentive Plans (SIPs) and Employee Stock Purchase Plans (ESPPs), can be valuable for investing in personal-finance and potentially boosting one's financial standing.
- To further bolster one's financial well-being, it's essential to stay informed about technology-driven resources and education-and-self-development materials related to tax implications, plan features, and support available for employees, such as online calculators, financial advice, and HR support, when considering various employee share plans.
