Reward Your Employees Through an Employee Management Incentive Scheme
10 July 2014 •
As the economy starts to recover the job market will pick up; for the first time in six years increases in earnings have finally caught up with inflation. As an employer and the owner of a business now could be the time to consider ways of trying to lock the talented employees you have into the company. Suddenly giving everyone a pay rise may not be financially viable but there are a number of financial incentive plans you can implement that are designed to help retain key members of your team.
Warrener Stewart has recently been helping several businesses implement an Enterprise Management Incentive scheme (EMI), even for companies with just one to two employees. An EMI scheme is a recognised HMRC initiative specifically intended to help companies to recruit and retain employees by rewarding them with options to acquire equity shares.
Reward key employees
An EMI scheme gives employers a controlled way to reward those employees who are central to the business and who have remained loyal to the company with the possibility to acquire equity shares. Under the scheme an employer can grant key employees the option to purchase small numbers of shares in the company at a predetermined price.
However, employees can only convert these options into shares at certain trigger points. Working with the business owner, Warrener Stewart will help decide what these key trigger points are for each business, for example it could be meeting particular business targets, the sale or flotation of the company or even to have stayed with the company for a predetermined number of years.
Buying into company
The ethos of the scheme is to reward employees who work within owner managed businesses by allowing them the opportunity to become more involved in the business by owning a slice of the company. Options can be granted to anyone in the company providing HMRC limits are adhered to and that no one member of staff (including their close relations) holds more than 30% of the company’s shares under option.
Built in safety net
One of the key attractions of an EMI scheme is that it has a built in safety net whereby the options can only be converted into actual shares at the specified trigger points. In addition, options would lapse if the employee left the company, plus there are overriding limits from time to time which restrict the total value of options that company is allowed to allocate.
Setting up an EMI scheme
Warrener Stewart can arrange the strategic and tax aspects of the entire scheme on your behalf. The first step is to organise a business valuation, then agree the terms of your scheme with HMRC and gain their approval for the scheme. Once this has been done, a firm of lawyers will be needed to draft the option documents and confirm the trigger points.
Tax Free
The grant of the option to employees is tax-free, also when it is exercised employees are not liable for tax or National Insurance. This makes it a perfect scheme to give employees an incentive to help grow the company and engender in them a genuine feeling of business participation and ownership.
There is a further tax saving for the company once the options are exercised, because it will be entitled to tax relief on any uplift in value on the shares between the time of the grant of the option and the date on which it is exercised.
Most owner-managed companies will qualify for EMI, although there are some exceptions. If you would like to find out more about implementing your own EMI Scheme and find out if your company qualifies, speak to Colin Edney on 020 7731 6163