I imagine that by now many people have heard of the Chancellor’s proposal for employee-owners (set to start next year). The basic concept is that employees can “sell” their rights for shares. Employees will receive between £2k and £50k of shares in exchange for surrendering various rights (like the right for an unfair dismissal claim or to request flexible working). When they sell the shares there is no capital gains tax – which is the sweetener in this deal.
The first point is that we don’t have any real detail. So this blog is based on how I expect this is going to work in practice and the details which have been released at this point in time.
The second point is that this blog represents my personal view – not that of Matthew Arnold & Baldwin LLP – so any abusive mail or threats should be sent to shimon.shaw@mablaw.com and not my boss.
So…..
- many employees would be bonkers to give up all their rights in exchange for shares they might never be able to sell. Especially if there is tax when the shares are given, and there are provisions such as losing the shares when you leave employment and even more especially if you think you won’t ever be able to sell the shares.
- On the other hand, if you are really confident that the company is likely to be sold before you get fired or have kids or want to work flexibly, then this might be the right move for you.
- Employee-owners who take these shares need to be very aware of what they are getting into. They need to understand the rights attaching to the shares and the circumstances where those rights could be lost or the shares forfeited.
- Some employers will find that (especially when not talking about huge numbers of employees) the immediate cost of doing this is prohibitive. E.g. getting the shares valued could be several thousand pounds and if the cost of the employee’s tax also needs to be met…
- The Chancellor thinks that this will end unfair dismissal claims for companies signing up to this scheme. However, most professionals I’ve talked to (who are as cynical as me) think that unfair dismissal will be replaced with other things like claims for discrimination.
- Some employers will find that this is a good idea – it won’t necessarily attract staff but if you are an employer in a market where people are desperate for jobs they might not have too many choices.
- If given the choice I think that most businesses will need to seriously consider sticking with “traditional” incentives – e.g. EMI share option schemes.
- If businesses are concerned about the risks of taking on employees there are (limited) steps which can be taken (most easily by larger employers) but the main thing is to have proper advice and understand where you stand vis a vis your employees.
- I do think that some owner managed businesses could benefit and this might simply prove a new way to pass wealth around in a family.
However, is this going to be the panacea which removes all the barriers to starting a business? I don’t think so, but watch this space.