Avoiding making staff redundant has been the theme for much of 2020. While government subsidies and reduced hours have helped somewhat, if you’re panicking about what to do once the hand-outs dry up, it could be time to consider an employee shares scheme (ESS).
As the name suggests, an ESS involves allocating company shares to your team members.
According to a statement from the government’s MoneySmart, “Companies use share schemes to attract, retain and motivate employees. They also align employee interests with those of shareholders.” In other words, it’s an incentive for your staff to stay on board because even though things may be tough now, when things get better, they stand to make more money.
There are different ways of paying for shares, such as:
- salary sacrifice over a set period, say six months: When you and your staff agree to pay a portion of their pre-tax salary as an additional contribution to their superannuation. This can be a tax-effective strategy and usually suits middle to higher income earners.
- Dividends received on shares: A payment made by a company to its shareholders. The payment is a share of the profits of the company and is based on the number of shares a person holds. A franked dividend consists of profits the company has already paid tax on.
- a loan from your employer
- full payment up front
Staff may be eligible to receive shares as a performance bonus, or as remuneration instead of a higher salary.
Larger companies typically offer ‘ordinary shares’, which give an equity investment in raw company. That is, an investment where staff buy and hold shares in a company or property from which they expect to receive income and capital gains.
In a smaller company, staff may get dividends only, which means you don’t get other shareholder rights, such as a vote at the annual general meeting.
Visit the #BEAUTYSTRONG hub at https://www.professionalbeauty.com.au/beautystrong/
For more news and updates, subscribe to our weekly newsletter.