If you’re considering an employee Sharesave scheme for your company, then you’ve already made a great step on the road towards success.
There are currently around 500 UK companies that offer employee Sharesave schemes, so it is clearly an attractive way to save money – both for the employee and for the employer.
How does it work?
A Sharesave scheme (known outside the UK as Save-as-you-earn, or SAYE) is a tax efficient savings plan for employees. Each month, participants contribute a fixed amount of their net salary into a savings pot for the length of the plan. When the plan ends, employees can use their savings pot to purchase shares in the company at a price that was set at the beginning of the plan.
If the share price has gone up over the course of the plan, the employee has made a nice profit. Not only that, but most companies offer a further 20% discount on the initial price.
And there is also no risk to the employee’s savings. At the end of the plan, if the initial share price is higher than the current share price, then the employee can simply take back their savings. They have the option to buy the shares, they aren’t required to.
An employee Sharesave scheme directly impacts the employer’s bottom line as well. There are various financial incentives – for example, the cost of establishing the plan is deductible from your company’s profits when you’re computing your corporation tax.
But the benefits are more than just financial – the plan aligns the best interest of employees with that of the company. The better the company performs, the better the return on investment for the employee. It’s a great incentive for your employees to take an interest in the success of the company.
So, now you know how a Sharesave scheme can transform your company. But there’s a big difference between that how, and how you go about launching your first plan.
Here’s our step by step guide to help you set up your first Sharesave scheme.
When it comes to Sharesave schemes, one size does not fit all. There are a few ways that you can customise your plan to best suit your company. Your plan needs a design, so ask yourself some questions first.
What’s the timeline?
How long do you want your plan to last? You can choose between three lengths – three, five or seven years. It’s a straightforward choice, but it can be a difficult decision. You need to balance the needs of the company with the needs of the employees. It might be tempting to go for the longer five- or seven-year lengths – the longer the plan, the longer the employee wants to stay, the better for the company, right?
Wrong. You need to ensure that your plan is appealing to employees. These days, the average worker switches jobs after roughly two years. Even your most dedicated employees are going to struggle to imagine themselves at the same company five years into the future; the future is just way too unpredictable.
So, if your plan is three years long, then it’s appealing to employees, while potentially increasing your average worker’s stay from two to three years.
How many plans?
Besides, there’s another dimension to this. Most companies start a new plan every year. So, the plans last three years, but employees can join multiple plans. This allows new hires to join the Sharesave, while giving existing participants a way to increase the amount they’re saving (once the plan starts, they can’t adjust their contribution amount).
So, even though your plan only lasts three years – with each new plan they join, the employees voluntarily lengthen their investment in the company. (This is the reason the majority of Sharesave schemes last three years.)
You also need to decide which employees you want to be able to take part. Now, a Sharesave scheme must be open to all employees and full-time directors, and they all need to participate on the same terms. But you can implement a minimum service requirement, so an employee needs to be with the company for a certain amount of time, usually six months, before they can join.
Many companies are starting to make their plans available to all new starters, however. There are advantages to both, but it’s a question you need to answer.
And then there is the minimum and maximum amounts for monthly contributions. By law, it can’t be lower than £5, or higher than £500, but companies often set their own limits within these.
This decision comes down to how many shares you want to distribute. But again, you also need to consider how your rules impact the attractiveness of your Sharesave scheme – the maximum limit applies across all the plans a participant is enrolled in.
Make it official
Once you have answered all these questions about the design, now you need to get approval. A new Sharesave Scheme means you’re issuing new shares, so it only makes sense that your Board needs to approve it. You’ll need a lawyer for this part, as there are specific guidelines you need to follow.
And now, the hard work…
Now you need to figure out the logistics of the Sharesave plan. One advantage of a Sharesave for participants is that their chosen contribution amount is deducted directly from their paycheck, before they can spend it. But now, your payroll department has a massive new responsibility – the payroll deductions.
Not only that, but there is a massive amount of employee data that now needs to be handled and processed – who is participating, how much they’re contributing, what their status is, etc. And it needs to be handled accurately, rapidly and in accordance with GDPR.
Have we mentioned the tax scenarios that need to be addressed? Owning shares in a company affects your participants’ tax implications. They need the proper paperwork and documentation in a timely manner.
…or, leave it to Global Shares
If all of this is starting to make your head spin, don’t worry. Global Shares has been managing equity compensation plans of all different types, shapes and sizes for fifteen years now. Our Implementation team will take you through the process, making sure that you’re getting the most out of your Sharesave plan with the least amount of hassle and resource-drain from your side. From there, our Operations team will handle the day-to-day maintenance of the plan, from financial reporting, to tax implications, and more.
So, there you go. A quick and easy guide to setting up your Sharesave scheme. (Even quicker if you just skipped ahead to the last step.) Good luck!
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