Industry
– Civil Engineering
Background
With a group of long term employees and an identified trend of staff moving on after 3 – 5 years with the business the group of 4 directors are looking to both incentivise employee retention as well as reward the current long term employees.
Other factors and considerations
The Directors are seeking tax effective strategies for both the business and employees.
They also wish to reward both fee earning and non-fee earning team members.
Solution – Employee Share Scheme
An employee share scheme is implemented whereby employees are issued a share in the company for each years service.
Each share is entitled to dividends however there is a 3 year escrow period for capital rights to accrue.
The scheme is structured to meet the requirements of the $1,000 tax free concession to ensure employees are not taxed on the shares granted whilst the company is eligible for a tax deduction.
Outcome
As well as sharing in the profits of the business employees are continuously rewarded for extending their tenure with the company.
The decreased employee turnover creates significant recruitment and training cost savings as well as retained knowledge and stable client relationships resulting increased profits outweighing the reduction in profit share attributable to each director.
Long term employees receive a significant gain upon departing the company with the buy back of their shares, as an additional benefit in many cases this gain is concessionally taxed under the CGT provisions.