How you can utilise an employee share plan

Employee Share Plan

Also known as an employee share scheme

The business owner/employee relationship often can be characterised as us and them.

As a business owner, it is a consistent challenge to hire and retain quality staff, often a feeling that the effort and care factor is lacking. Employees report feeling that their employers are profit driven with little consideration for their fulfilment; this is not the recipe for a relationship built on success.

An employee share plan is the best way of aligning business owner and employee interests.

When established and managed correctly, the employee share plan increases productivity & profitability, improved employee retention and builds a culture of team success.

With an employee share plan in place, employees are not only incentivised to work in the best interest of the business but are responsible to each other. They move from an employee mindset to a business owner mindset and expect performance from all team members.

Beyond the day-to-day operations of your business, an employee share plan can be one option in your path to succession, with employees from within the group or the group itself being the eventual purchaser of your business.

What you need to know

Employee share plans are an arrangement whereby a group of employees has a level of ownership of your business.


A typical arrangement is where employees above a certain level are invited to buy into a trust that owns a percentage (often 10% to start) of your business.

There are many variables and variations and the key is to ensure the structure you have in place achieves the desired objectives, unlike some advisors our Employee Share Plans are not a standard off-the-shelf solution but a tailored solution to your business.

Employee Share Plan Variables Include

Which employees are able to participate?

Is there a buy-in cost for employees?

Is the ownership just a profit share or is there an equity component?

Corporate structure and voting rights

Waiting periods for any capital rights

How the ownership is dealt with upon ceasing employment

A plan that pays for itself

Cost

Initial establishment costs including formulation of the plan and new structure setups are generally paid for and tax deducted by the business.

Depending on the structure certain elements of establishment and share transfers are tax deductible.

Once established costs for ongoing management and compliance are born by the employee group entity.

Equity & Profit

With many employee share plans you will be transferring a portion of your business to the employee group, this naturally is an initial loss in value of either profit share, equity or both.

In a business sale model, you are compensated for the transfer. Other models may see transfer for no consideration.

Considering the expected business growth as a result of the plan and saved employee turnover costs it is expected that the benefits cover these many times over.

Our Process

We start by having a series of conversations with you the business owner to understand what the desired outcomes are and formulate a model that best suits your requirements.

1. Initial Consultation

The initial setup process includes business indicative valuations, setting out an employee communication plan and coordinating corporate structures as required.

2. Management Mode

Once operational we move to management mode, which includes coordination of compliance requirements, annual business valuations and quarterly reporting to the participating employee group.

3. On going support & communication

We believe regular communication to be key to success as it keeps the ownership mindset current with the participating employees.

Frequently asked questions

For any other questions, drop us a line on our contact page

Generally speaking, they are interchangeable terms. The formal guidance in the Australian tax office tends to use employee share schemes. However, “employee share plans” is preferred due to its more positive connotation and broader approach.

It depends on how the employee share plan is structured. There are various ways to structure an employee share plan, ranging from profit sharing only to providing absolute share equity in the company. If there is a buy-in, employees may receive a discount or have the option of borrowing the money from the business.

It depends on the structure of the employee share plan. If employees have direct ownership, they will likely have access to the business’s financials as shareholders. However, direct access to financial information may not be necessary in some structures where the shares are held indirectly through another entity. Providing ongoing updates and high-level financial information is recommended to keep employees engaged in the business’s performance.

In most cases, employees do not have a say in how the business is run. Their level of influence depends on whether they directly or indirectly hold shares in the business. Generally, employees will be minority shareholders and will not have decision-making power. However, it may be beneficial to provide opportunities for employees to share their opinions, such as through quarterly meetings or employee committees, depending on the size and structure of the business.

There are two ways an employee share plan can pay for itself. Firstly, depending on the structure, ongoing costs such as management and compliance costs are typically covered by the plan itself and deducted from the employee’s profit share. Secondly, a well-structured employee share plan can provide significant benefits to the business, leading to cost savings, increased employee performance, and overall business growth. The resulting increase in profits can outweigh any portion of the business given up to the employee share plan.

There are several tax incentives for businesses to implement an employee share plan. These incentives include tax deductions for providing employee share plans as benefits, allowing businesses to give these benefits without being taxed. Additionally, there may be discounts on capital gains taxes and the shares’ regular price. The employee’s benefit from the employee share plan may exceed what they would have gained from investing a similar amount in an alternate opportunity.

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