What’s an ‘employee shareholder’?

Described by George Osborne as a “voluntary three way deal” (between employers, employees and the taxman), the Government is pressing ahead with plans to create a new type of employment status: the ‘employee shareholder’.

Originally, the plans looked like they might be derailed by intense disagreement within Parliament. But a number of concessions were recently agreed and the new rules are set to come into force this year. The Government is understood to be targeting 1st September 2013 as the commencement date.

In essence, the rules will allow an employee to sacrifice certain employment rights (including unfair dismissal protection and redundancy pay amongst others) in return for receiving shares with a value of at least £2,000.

The intention is that, subject to various limits, the issue of the shares and any increase in their value will attract beneficial tax treatment. But the system will be subject to a number of important safeguards, such as the requirement for certain key information to be given in writing, for the employee to take independent legal advice and for the employee to have a 7 day ‘cooling off’ period.

The new system is already provoking a strong reaction as it’s unlike anything which has previously been in place.

Businesses will no doubt have plenty of questions about whether they should offer a scheme like this to their employees. What rights would the employee give up? What shares can be issued and what rights do they carry? And what happens to the shares if the employee leaves?

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