Sharing equity with staff offers them a reward for the company’s success and helps businesses to attract and retain staff. Data shows that businesses offering employee share schemes also see a marked increase in employee engagement and productivity.

On Monday 5 June, the government launched a “shake up” to two employee share schemes, Save As You Earn (SAYE) and Share Incentive Plan (SIP), to help expand their use.

Commenting on the recent Treasury call for evidence on employee share schemes, Ifty Nasir, CEO of employee share scheme platform Vestd, said:

“We support the government’s push to encourage more firms to motivate their teams with shares and options. At Vestd we’ve seen a huge uptake in interest among startups and SMEs over recent years and have helped thousands of businesses to set up share schemes for employees.

“In a challenging macroeconomic environment, employee ownership is a powerful tool to unlock growth so the review of the Save As You Earn (SAYE) and Share Incentive Plan (SIP) schemes is encouraging for businesses and employees alike.”

What are employee share schemes?

There are ten different ways to distribute equity and among them are four HMRC-approved share schemes which can be more tax-efficient for businesses and employees.

The SAYE and SIP schemes are company-wide, meaning all employees need to be eligible to participate, and are often used by bigger companies with hundreds or thousands of employees.

The enterprise management incentive (EMI) scheme is used by startups and SMEs, offering staff a tax-efficient way to share in a company’s success.

First set up in 2,000, EMI has become the most widely used HMRC-backed scheme. EMIs give employees the option (ie. the right) to buy shares in a company at an agreed price after meeting specific requirements which could be related to performance or a certain service period.

Tax is only incurred on the value of the shares when they’re awarded and not at the point they are exercised, offering staff a highly tax-efficient way to benefit from their hard work.

There are six other, non-approved, schemes which offer more flexibility but fewer tax benefits. They are ordinary shares, preferred shares, growth shares, unapproved options, restricted stock units (RSUs), and employee-owned trusts (EOTs).

How do employee share schemes benefit workers?

As well as offering staff a tax-efficient reward for their contribution to a business’s success, employee share schemes offer a number of other benefits for staff.

Ifty added: “We’re passionate about the ‘ownership effect’ - the positive impact of sharing a slice of the pie with employees - and evidence shows that increased employee ownership can unlock increased productivity, as well as supporting recruitment and retention.

“The teams we speak to often report a greater sense of belonging among staff and ownership over their work. The feeling that everyone is pulling in the same direction is incredibly powerful and can go a long way to improving happiness and productivity at work.

“At Vestd, we’d like to see further changes to policy to widen access and enable more employees to own equity if they are contributing to the success of the business. For example, we have previously supported campaigns to increase the limits of the Enterprise Management Incentive (EMI) scheme to 500 employees and £100m of net assets from the current criteria of 250 employees and £30 million of assets.”