A Save as You Earn (SAYE) scheme is one of two types of approved employee ownership schemes that are accepted by the Revenue commissioners.
SAYE plans are designed to help employees exercise options in company shares without having to borrow money. Employees who buy shares under an SAYE are more inclined to hold onto their company shares, rather than disposing of them quickly which is more frequent in cases when they borrow money to purchase them.
How does it work?
When a SAYE scheme is put in place:
- An employee agrees to save a fixed amount of their net pay for a predetermined period of time. These contributions are held in a qualified savings account.
- At the same time the company grants the employee options based on the amount the participant has agreed to save.
At the end of this period, the employee has the choice to:
- Use the proceeds of their savings contract to buy some, or all of the shares OR
- Decide to not exercise their options to purchase shares, and have their savings returned as a lump sum.
The benefits for employees
As with any share option scheme, the benefit to the employee is that they only have to pay the option price for the shares, even if the share price has increased.
There is no income tax on any gain arising on the exercise of an SAYE option. However, the gain will be liable to employee PRSI and USC (universal social charge)
If the market price is lower than option price offered to the employee, they can just take back possession of their savings free of income tax, PRSI and the USC.
How are shares allocated?
The number of shares granted under option will depend on the amount a participant elects to invest, and the option price. Under the legislation of governing SAYE Schemes, a participant can save a maximum of €500 per month and a minimum of €12 per month. The total expected savings as at the end of the savings period is divided by the option price, to give the number of options granted.
In order to satisfy the shares under option, a company can issue new shares, acquire shares on the market, or establish a company or trust to hold the shares for the purpose of the Scheme. There are legal, financial and tax issues where shares are acquired by purchase by the company, subsidiary or by trust.
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