Employee Share Schemes: How Do They Work?
September 17 2019 - Many companies are looking for more ways to get their employees involved and emotionally attached to the business they work for. One of the most common ways of doing this is by offering some type of employee share scheme. There are thousands of business in the UK who already offer different types of schemes to their employees, all with different benefits and advantages. This post looks at the three most popular types of employee share scheme, what they are and how they work.
What Types of Share Schemes are There?
Many people ask the question 'how do employee share schemes work?' Knowing this will highly influence your decision in taking out shares within your workplace. They are simple enough to understand once you know the basics. There are three main types of employee share schemes which are share award schemes, share option schemes and share purchase schemes.
Share award schemes: This can be one of the most popular options for rewarding employees for hard work or commitment to the business. As the name suggests, this scheme involves awarding shares to employees which is treated as employment income. The downside for employees is that unless the scheme is approved by HMRC as a 'tax-advantaged' share award scheme, then employees will have to pay tax and national insurance.
Share option schemes: This allows employees to use their own money to buy shares in the company for which they work. There is usually a period of time before employees can make this purchase, and when they are eligible to, they are purchased at a fixed price. If the employee leaves the business or decides to sell their shares at some point in the future they can, and if the value has gone up, they will make a profit.
Share purchase schemes: This is one of the simpler options that allows employees to save up to buy shares in the company. They might also be able to put down a deposit to buy shares and pay off the balance of the shares in the future.
Why Offer an Employee Share Scheme?
There are a number of reasons why companies are starting to offer these types of scheme. It can be beneficial both to the company and its employees. Some of the main reasons to implement an employee share scheme are:
Attracting Talent: As well as offering a good salary, modern and comfortable working conditions and a whole host of other benefits a share scheme shows potential new employees that you really value their input into the business.
Retaining Talent: Attracting new talent to help grow the business is one thing, but you must also ensure that you are retaining the talent that has got the business to where it is today. A share scheme will help these employees to literally buy into the business, so they have a stake in their future and the future of the business.
Motivation: One of the most obvious reasons a share scheme can be good for a business is because it can really focus employees on creating success. If they hold a stake in the business, it's likely that they will go the extra mile to help make it a success, much like if it was their own business.