Share plans are an important part of any strategy for rewards and benefits. Share plans are designed to encourage long-term saving, which can lead to greater financial well-being and, in turn, improved employee retention. Jonathan Watts-Lay answers questions about the main things that employers should explain to their employees who are offered share plans.
What are the various types of stock plans?
Watts-Lay says: “To encourage employees, many companies offer shares plans. One of the most popular is Save As You Earn, also known as Sharesave. Employees can save up to PS500 a month for a period of three to five years. At the end, they are able to use their savings to purchase shares at a ‘fixed option price’ that was set at the beginning of the plan. Many employers set a fixed “option price” that is a discount up to 20% off the share price when the plan begins. Employees are not exposed to any investment risk because, at the end, if share prices have fallen below the “option price”, they can get their money back. The employee can buy shares at a discount if the price of the stock is higher than the ‘option price’. This will allow them to earn a profit.
Employees can also enjoy a payment holiday of up to 12 months with a SAYE. This allows anyone to temporarily suspend their contributions without losing their right to exercise the share option.
Share Incentive Plans (SIPs) are another popular employee share plan that allows employees to buy up to PS1,800 worth of shares per year (or 10% if their salary is less), typically through monthly contributions from pre-tax salaries. The employer may also offer matching shares, so that employees can receive two additional shares per share purchased. “Some companies use the SIP as a way to give employees ‘free shares,’ up to PS3,600 per tax year.
What should be taken into consideration?
Watts-Lay says: “Both SAYE (Simplified Investment Plan) and SIP offer attractive tax benefits. SAYE allows you to defer income tax on any gains made when selling shares purchased through the plan. However, the capital gain tax (CGT) is charged instead. Gains that are subject to CGT tax are exempted up to an annual exemption amount. Any gains over this level will be taxed with a maximum of 24 %. SIPs allow you to save income tax and National Insurance contributions by contributing from your pre-tax income. Gains on shares in a SIP will be exempt from both income tax and capital gains tax as long as the shares are held for at least five years. Tax efficiency can be maximized by transferring shares from a SAYE into an ISA. This can reduce a participant’s tax liability on capital gains.
Lack of knowledge about how share plans work can prevent employees from joining. Employees who join the plan may not fully understand how to minimize any tax charges or use the share plans as a means of boosting long-term savings.
To make the best decisions, participants need to have all of the information they need. Employees should be aware of dividends and the potential value they may bring in the future. They also need to consider diversifying their investments, not putting their eggs all in one basket, as well as understanding the importance of not placing all their eggs into one basket.
Can share plans be used as a motivating tool?
Watts-Lay says: “By aligning employee interests with the future share prices in their company, Employee Share Plans can offer a fantastic way to motivate employees and to incentivise them, as well as possibly building greater financial stability.” Share plans can be an important part of employee benefits, as businesses see them as a tool for retaining and recruiting staff, engaging the workforce and driving workplace performance.
What is the support available for ?
Watts-Lay says: “Many employers provide financial guidance and education on the various share plans and what to do with the shares when they are released. Some employers also offer access to Workplace ISAs as a way to reduce tax. All of this can make a big difference to employees’ understanding of the value of plans offered and, in turn improve their financial resilience and well-being.
The original version of this article What employers offering share plans must explain to their employees appeared first on Human Resources News.
