Employee share schemes (ESS) provide employees with a financial share in the organisation that they work for. They can be offered by organisations as a way to grow their business by attracting, retaining and motivating their employees.
How they work:
ESS gives employees shares in the organisation they work for at a discounted price, and the opportunity to purchase shares in the future. The discount refers to the difference between the market value of the ESS interests, and the amount paid by the employee to acquire them. This discount forms part of an employee’s assessable income, and will need to be included in their tax return.
Employee share purchase plans offer eligible employees the chance to purchase shares from their employer, often through a loan. The shares can be paid through a salary sacrifice plan over a set period, or by using the dividends received on the shares. Employees who are on a higher income may be eligible to receive shares as a performance bonus or as a form of remuneration instead of receiving a higher salary.
Possible limitations:
There may be restrictions on when employees can buy, sell and access their shares through an organisation’s share scheme. For example, employees may have to get permission from the business before buying or selling their shares, or there could be an annual window during which shares can be bought or sold.
What to consider:
Employees should take time to research the organisation they are considering participating in an ESS with. This will help determine how well the scheme is doing, and whether the shares are likely to increase in value. To avoid losing a large part of your investment portfolio, consider purchasing shares that are part of a diversified investment plan.
Before entering into an employee share scheme, consider seeking professional financial advice that is specific to your circumstances.