Don’t be put off by Employee Shareholder Status (ESS) ‘disadvantages’

ESS has now been running for a few years and it is probably fair to say that it has been a bit of a slow burner – although we think it is a great way of rewarding employees in the right circumstances.  In a nutshell ESS involves an employee giving up some employment rights in exchange for shares in their employer company (worth between £2,000 and £50,000 at the outset). Although employees will suffer income tax in respect of any value between £2,000 and £50,000 any gain on disposal can be realised tax free.

What do employees give away?

Under ESS an employee forgoes statutory rights not to be unfairly dismissed and statutory redundancy rights.  This can set alarm bells running with some employees so that a shadow is cast over what should really be a cause for celebration (they are being awarded shares!). This sense of paranoia can be heightened due to the independent legal advice that they are obliged to take – in which they are told in detail what they are giving away.

Reversing the bad stuff

In reality all this talk of giving away employment rights is a red herring. Although the statutory rights do need to be given away many employees already have rights which are more valuable than statutory rights embedded in their employment contract.  Furthermore HMRC has confirmed that ESS is not lost if, after the ESS share issue, the lost statutory rights are restored by the employer through the employment contract. We have seen cases where the employer has written a simple letter to the ESS employees after the share issue confirming that they are happy that any lost statutory rights can be reinstated through the contract.

As few employers enter into an ESS arrangement as a way of restricting employees statutory rights it probably makes sense to give back any lost rights as a standard procedure thus making the whole arrangement 100% good news!

 

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