What is an employee share option scheme?

A share option scheme allows an employee the right to buy a certain number of shares at a fixed price, some time in the future, within a company. Employees can generally exercise their options – for example buy the shares – after a specified period, known as the vesting period. Companies can make the granting and using options dependent on reaching specific targets, such as sales targets.

Why introduce employee share options?

Companies use employee share incentive plans to hire, retain and motivate employees. Many employee share schemes bring statutory tax reliefs, based on government views that they are good for the business and the broader economy. Employee share schemes can also reduce employment costs, by providing long-term rewards through shares partly in place of regular salary.

What types of employee share schemes are available?

There are two types of employee share schemes ‘approved’ and ‘unapproved’ plans. Approved schemes are recognised by HMRC so benefit from tax advantages. Unapproved plans do not have these same benefits but are very flexible.

There are four ‘approved’ share incentive schemes:

• Save As You Earn (SAYE)
• Share Incentive Plans (SIPs)
• Company Share Option Plans (CSOPs)
• Enterprise Management Incentives (EMI)

SIP and SAYE, are relatively low-value schemes which suit large organisations to incentivise a sizeable workforce. These schemes must be made available to all employees, including part-time employees.

The CSOP and EMI schemes are discretionary schemes allowing a significant award of share options with more favourable tax treatment than unapproved schemes.

The role of NOVATIVE

Do you like the sound of using one of these share options, to incentivise your workforce? But are you reluctant due to the legislation and admin surrounding them? NOVATIVE have a team of experts that can take care of this for you. By opting for an outsourcing service, you free yourself from administrative, salary and legislative constraints. To find out more about our services, visit our website.

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