Employee Shareholders - the new Employee Status
On 1 September 2013, a new kind of employment contract - the employee-shareholder contract - was introduced. Employee-shareholders will benefit from tax advantages on shares worth between £2,000 and £50,000 that they receive from their employer. However, they will have to give up important employment rights. What does this mean in practice?
The tax advantage applies only to shares of a certain value.
There will be an exemption from capital gains tax where employee-shareholders make a profit selling shares that they acquired when they entered into an employee-shareholder contract. However, the exemption applies only to profits made on shares worth up to £50,000.
There will also be exemptions from income tax and national insurance contributions, but this will be only on the first £2,000 worth of shares.
Not all employees who have shares in their employer’s business will be employed under an employee-shareholder contract.
Many employers already offer their employees shares in their company to aid recruitment, retention and employee engagement. However, for an individual to be employed under an employee-shareholder contract (with the tax advantages, but also loss of employment rights that go with it), certain conditions must be met. In particular, the employer and the individual must agree that he or she will be an employee-shareholder. The shares must be worth at least £2,000 when the employer issues them and the employee must receive a written statement setting out key information about the shares and the employment rights that he or she is giving up.
Employees cannot be forced to transfer to employee-shareholder status.
Employers cannot compel employees to transfer to employee-shareholder contracts. Employees who are dismissed for refusing to agree to become an employee-shareholder will be automatically unfairly dismissed and will not need two years' service to bring a claim. Neither can employees be subjected to a detriment - for example, by being disciplined or having their pay cut if they refuse to become an employee-shareholder. However, an employer could require new recruits to accept employee-shareholder status.
Not all employment rights are surrendered.
Employee-shareholders give up key employment rights in exchange for shares. They surrender the right to claim unfair dismissal (with some exceptions) and to receive statutory redundancy pay. They also give up the right to make a request to work flexibly or in relation to study or training. They will need to give longer notice than other employees if they want to return early from family-related leave (for example, maternity leave).
However, employee-shareholders will still be entitled to other important employment rights, such as the right not to be discriminated against because of a protected characteristic (for example, race, sex or disability), minimum periods of holiday under the working time provisions, notice rights, statutory payments such as sick pay and maternity pay (provided that they otherwise qualify), and the national minimum wage.
Employee-shareholders will still be able to claim unfair dismissal in some cases.
Individuals who agree to an employee-shareholder contract will surrender the right to claim unfair dismissal. However, they will still be able to claim unfair dismissal if the dismissal is for a reason that amounts to unlawful discrimination or it is automatically unfair for example, if it is related to certain health and safety rights, family leave, trade union membership or activities or for asserting a statutory right.
Posted on 19 Nov 2016