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Mark Emery of Withy King

Employee shareholder status – is it a good idea for your business?

The concept of an “employee shareholder” was first introduced by George Osborne at the 2012 Conservative party conference and is likely to come into force in Autumn 2013.

The information in this briefing will allow you to start planning whether to introduce this in your company.

Businesses will be able to issue a minimum of £2,000 worth of shares to an employee shareholder free of income tax, with any gains made on the first £50,000 of shares being exempt from Capital Gains tax.

Benefits to your business

An employee shareholder will have fewer employment rights, in particular they will not have:

1. Unfair dismissal rights;
2. Right to request time off for study or training;
3. Right to request flexible working, apart from employee shareholders who are returning from parental leave; and
4. Right to a statutory redundancy payment.

Also, employee shareholders will have to give sixteen weeks’ notice of the intention to return early from maternity, additional paternity and adoption leave instead of the usual eight weeks.

But is it a good idea?

Flexibility and employee engagement are two positive reasons. But many businesses may feel that it is more hassle than it’s worth offering shares simply to reduce employment rights.

Employees taken on from 6 April last year need two years’ continuous employment before they gain unfair dismissal rights.

Employee shareholders will be able to allege discrimination or whistleblowing or similar. Giving company shares to an unknown and untested employee may not for some businesses be the best business sense.

What do employers need to do?

1. Provide a written statement to prospective employee shareholders explaining the employment rights they are forfeiting and the rights attached to the shares.
2. An employee can only accept the offer after seven days, if accepted earlier it will be invalid.
3. Employees must receive independent legal advice from a lawyer, union or advice centre and the employer must pay their ‘reasonable costs’, even if the employee then rejects the offer. Reasonable costs may be high given shareholder agreement complexities and tax implications.

Existing employees can’t be forced into an employee shareholder agreement and have protection from dismissal or other detriment when they choose not to enter into it.

Any questions?

If you want to know more about the emloyee shareholder status, or have questions about any other aspect of employment law, please get in touch with our employment law team.