REWARD INSIGHT
Employee shareholder status to be abolished
Danny Done, managing director at Portfolio Payroll, discusses the status and recent and prospective changes
T he Government has made changes to the financial implications of the ‘employee shareholder’ status, and intends to remove that status in its entirety. Although no timeline for the full abolition has yet been set, it will be done at the next “legislative opportunity”. The employee shareholder status was introduced by the Growth and Infrastructure Act 2014 as a way to encourage confidence in employers to employ more people. The main draw to using the status for employers was that employee shareholders give up certain key employment rights and therefore present a lower risk and a lower cost if and when the employer decides that employment should be terminated. Specifically, an employee shareholder: ● has no right to claim ordinary unfair dismissal. The right not to be unfairly dismissed applies to an employee after two years of continuous service. It effectively means that employees should not be dismissed for a first offence (unless it is gross misconduct) and that a proper procedure must be applied to the employee before they can be fairly dismissed. Where the right applies, dismissal can only be for one of five reasons i.e. conduct, capability, redundancy, statutory ban and ‘some other substantial reason’. Because this right does not apply to employee shareholders, it basically means that they can be dismissed much more swiftly and with less ‘red tape’ than ‘normal’ employees. However, employee shareholders retain the right to claim automatic unfair dismissal e.g. a dismissal for a discriminatory reason ● cannot claim statutory redundancy pay. When faced with a redundancy situation, it may therefore be prudent for an employer to consider employee shareholders first because, firstly, normal procedures required to secure a fair dismissal are not required,
and subsequently, no statutory redundancy pay is payable ● has no statutory right to ask for time off for training. This is a little-used entitlement but gives employees in companies with a workforce of 250 or more the right to have their employer consider a request for time off work to study towards a qualification that will help them to do their job better. In addition, minor rule changes on maternity leave and flexible working also apply.
becoming employee shareholders. However, employers may, for now, continue to offer employment on an employee shareholder basis and the same process as outlined above must be followed in order for the status to be applied to the individual. The exclusion of certain employment rights will also continue to apply. The offer of work on an employee shareholder basis has a limited shelf life. The take up of this status has not been as high as expected, which may have something to do with the fact that, although there is no risk of unfair dismissal compensation, employers must deal with the implications of the shares upon termination of the employment. Either the employment contract will require them to buy the shares back at their market value at the time of termination – which could be significantly higher than at the start of employment and also more than a potential unfair dismissal compensation award – or the shares remain with an employee who may have been dismissed for gross misconduct but is still able to benefit from the future growth of the company. The abolition of the status in due course will mean that employment cannot be offered on an employee shareholder basis, but it is not yet clear what will happen to existing employee shareholders in terms of their employment rights. It is not likely that the abolition will have retrospective effect; indeed, it may be that some employee shareholders have sold their shares and already reaped the financial benefits from them. This will mean that, although no new employee shareholders can be created, procedures in respect of disciplinary and capability issues and redundancy situations may still be tailored for existing employee shareholders appropriate to their status. However, clarity on this must be awaited from the Government. n
...employers may, for now,
continue to offer employment on
an employee shareholder basis...
In exchange for these rights, the employer is required to give the employee shareholder a minimum of £2,000 of shares in the company. A particular type of written contract of employment must be given; the employee must obtain legal advice on the implications of the contract and wait at least seven days before accepting the role. The Finance Act 2013 provides tax relief for the shares provided to an employee shareholder. Although there is no maximum amount of shares that can be provided, only the first £2,000 will attract special treatment i.e. income tax and National Insurance contributions are not payable. There will also usually be a capital gains tax exemption for £50,000 of shares received by an employee shareholder. As of 1 December 2016, these tax benefits are not available to individuals
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| Professional in Payroll, Pensions and Reward | February 2017 | Issue 27
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