Ireland’s equity compensation landscape is changing. Previously, Ireland was criticised for its regulations that restricted many companies and employees from accessing, or taking full advantage of, employee ownership. Budget 2020 took a large first step towards reducing these hurdles, but there has always been an option for companies. Actually, two – Approved Profit Sharing Schemes (APSS) and Save as you Earn (SAYE) schemes.
We’ve talked before about the advantages of an APSS. In an SAYE, the advantages for employers are the same – improved recruitment and retention of key employees, increased performance, etc. And the overall benefits for employees are similar – they have a chance to become employee owners and make a profit on their investment at the same time.
So, maybe you’ve decided your company would benefit from an SAYE scheme. Before you rush over to your HR department and get them rolling out the communications – take a look at our checklist. Ask yourself these questions, and make sure your SAYE is launched in the right direction.
Have you considered the cost of implementation?
An approved SAYE scheme are tax deductible, for employer and employee (Picture Source)
Just kidding – the costs of implementing an approved SAYE scheme are tax deductible, and there is no employer PRSI contribution.
So, while there might be an upfront cost, implementing an SAYE scheme is incredibly budget-friendly. (Even before you get into the benefits it brings to your bottom line.)
Have you decided on the savings contract?
The way an SAYE works is that participants enter into a savings contract. A savings contract is an agreement that the participant will make the agreed number of monthly contributions, of an agreed amount, over the course of the plan.
The first choice you need to make is fairly straightforward – how long you want the plan to last. A number of considerations need to be taken into account here, but companies generally choose either three years or five years. Just demember, from a participant’s perspective, signing up to a contract of 60 monthly contributions might seem daunting.
The second choice is regarding the monthly amount for contributions. The minimum is €12, and the maximum is €500. However, companies can choose different limits within these. Again, it depends on a number of considerations – mainly, weighing the company’s needs against the attractiveness of the plan.
Do you have your savings carrier?
Most banks and building societies will act as an official savings carrier (Picture Source)
When you’re setting up an SAYE plan, you’ll need to engage the services of a savings carrier. The savings carrier, is, well, the institution that carries the participants’ savings for them. Most Irish banks and building societies are authorized already. If you need to, it’s possible to approve any EU Institution.
At the end of the plan, or the savings period, the savings carrier pays a tax-free bonus to each employee. Depending on the savings carrier, and the length of the plan, this can be a nice sum.
Have you decided on the grant rules?
Once you have designed and decided on your savings contract and your savings carrier, then it’s time to choose the rules. Although, these are not so much rules, as they are attractions.
See, it’s here that you choose the option price. The option price is the price per share for the participants. When they agree to the savings contract – for example, €100 per 60 monthly contributions – this means that they will end the plan with a savings pot of €6,000. Depending on the option price, this entitles them to however many options €6,000 can purchase.
Since the option price is set at the beginning of the plan, if the share price goes up over the savings period, then the participant will make a profit when they receive and exercise their options.
You need to decide if that is enough of an incentive for your participants – the chance at a profit in three years. If you want to provide more incentive, you have an option: instead of setting the option price at full market value – you can offer it at a discount, of up to 25%. This helps to offset any potential drop in share price. And if the share price goes up anyway, then it’s extra profit for the participant.
Which brings us to our next question.
Why haven’t you started yet?
The benefits an SAYE can bring to your company are immense – so it’s worth asking yourself why you haven’t set one up already.
It could be that you think it’s too complex, or your company doesn’t have the resources to dedicate to implementing and managing a brand new benefit scheme. If that’s the case, then don’t worry. Global Shares has been providing award-winning equity compensation software and support to small, medium and large businesses for nearly 15 years – we take the complexity out, and leave the benefits in. Contact us today to see how we can turn your checklist into a reality.