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Employee share schemes are a useful recruitment and
retention tool. They can be Revenue approved, enjoying
certain tax advantages, or can be unapproved. Unapproved
schemes are not so tax-efficient, but may be more flexible
in their operation.
Willis Ireland design, administer and communicate employee
share plans for a number of leading companies.
As an administration manager, Willis Ireland
- liaises with stockbrokers to purchase
shares in your parent company on behalf of the members
of the plan;
- produces membership certificates
that include the name, address, PPS no., number of
shares, share price, date of purchase and the total
number of shares purchased for all plan members;
- keeps a database for all members
with full share purchase records.
Willis Ireland's profit-sharing plans are specially
designed by a project team to meet the needs of your
company and of your employees.
Approved Share Option Schemes
- Employees receive an option
to buy shares in the employer company, without incurring
any income tax liability on the option.
- Capital gains tax, currently
20%, is payable on the difference between the option
price and the sale price at the date the employee
sells the shares. This contrasts favourably with a
higher income tax rate of 42%
- The option price is the market
value of the shares on the date on which the option
is granted. The shares cannot be sold for at least
three years to get full tax advantages.
- The scheme must be open to
all employees and full-time directors (subject to
a maximum service bar of three years). Generally,
the entitlement to shares should be available on similar
terms to all eligible employees, i.e. the same method
of calculating share entitlement should be used for
all such employees.
- Up to 30% of the total shares
allocated can be given to key employees without reference
to the similar terms requirement. For example, a company
decides to issue options over 2,000 shares under its
scheme in 2001. 70%, i.e. options over 1,400 shares
must be issued on the similar terms basis, so the
employer decides that they will be distributed on
the basis of team performance. The same criteria must
be used to assess the performance of each team. The
options over the other 600 shares can be distributed
between key employees however the employer likes.
Approved Profit Sharing Schemes
Employees can receive a bonus in the form of tax-free
company shares, instead of taxable cash.
- All employees are entitled
to join the scheme, although the company may impose
a service requirement of up to three years. The bonus
must be made available on similar terms to all eligible
employees.
- The company may also allow
employees to use up to 7½% of their salary
(tax-free) to buy shares (subject to a cap of €12,697.38
per annum).
- The shares are purchased under
a trust on behalf of the employees and cannot be sold
for at least two years. If the shares are held for
at least three years, no income tax is payable on
their sale (although capital gains tax may be payable
if the shares perform well).
Save As You Earn (SAYE) Schemes
Under an SAYE scheme, introduced in the Finance Act
1999, employees contract to save a set figure of after-tax
salary (between €12.69 and €317.43 (IR£10
and £250) per month for three or five years, with
tax-free interest.
These savings can then be used at the end of the saving
period to purchase shares in the company.
- The share price is fixed on
the date the savings contract starts, and can be at
a discount of up to 25% of the market value at that
date. No income tax is payable on this discounted
option, provided the option is exercised at least
three years after entering the scheme.
- At the end of the set term
the employee can either use the savings to buy the
shares at the exercise price, leave the savings in
the savings scheme for a further six months or withdraw
the savings, including interest earned. Capital Gains
Tax may be payable on the subsequent sale of the shares.
Unapproved Share Option Schemes
Unapproved Share Option Schemes may be more flexible
than approved schemes - for example, the scheme may
be open to selected employees only.
- The company grants an option
to the eligible employees to purchase shares at a
set price, usually the market price of the shares
on the date the option is granted. Except in certain
circumstances, the option only gives rise to income
tax liability on the date on which the option is exercised.
- Tax is payable on the difference
between the price the employee pays for the shares,
and the market value of the shares on the date the
shares are bought.
For further information on share plans please contact
us
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