Employee Share Schemes

Partners Legal Solutions


Employee Share Schemes

Employee Share Schemes (ESS) are an excellent tool for companies to attract, retain and motivate staff by aligning their interests with owners and investors. In an era where staff retention is difficult, tools such as these are even more important.

Employee equity schemes have previously been caught by onerous regulation, which made them challenging and expensive to put in place, particularly for:

  • Companies which weren’t able to take advantage of the start-up tax concessions; or
  • Wished to offer equity to employees who didn’t fall under an exemption to provide a prospectus or PDS (e.g. sophisticated investors and senior managers)

Thankfully, the government has recently passed amendments to the tax rules relating to ESS as well as other changes to eliminate hurdles to establishing ESS.

These changes are important for companies and their investors as they allow for:

  • the ability to offer of more significant amounts of equity with a new maximum cap of $30,000 per year per participant (up from $5,000 per year currently);
  • relaxed regulatory and disclosure requirements;
  • the ability to offer equity to a broader pool of participants; and
  • a simplified regime when equity is offered at no cost to participants.

Tax changes

Changes to the tax rules governing Employee Share Schemes became law earlier this year. These changes removed the taxing point relating to a holder ceasing employment, with effect for taxing points occurring from 1 July 2022, so employees with grants received before 1 July 2022 are able to take advantage of the changes. Previously, employees would often be required to sell their ESS interests (such as options) to fund the tax payable on the original equity grant.

These amendments are a welcome change for businesses looking to establish Employee Share Schemes or who may have been deterred previously by the regulatory burden.

If you’re looking to implement equity incentive arrangements for your company, Partners Legal Solutions can assist, in conjunction with our accounting partners.

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.