Why you should consider giving your Employees a stake in your Business

With the COVID-19 pandemic continuing to have significant impacts on businesses across the UK, particularly as many areas continue to face strict lockdown restrictions, business owners must consider different ways of incentivising employees and driving revenue.

Dave Paterson, a Partner in the Corporate team at Blacks Solicitors, discusses why business owners should consider offering their employees a stake in their business through a fair and viable Share Scheme and the benefits that will be returned, particularly as we continue to feel the effects of COVID-19.

Attracting and retaining talent

Although we’re in the middle of challenging economic times, it’s still important, perhaps more so now then ever, for businesses to offer compelling reasons to key and talented employees or potential employees to either join, or stay at their company. This will ensure they’re attracting and retaining the most talented people available to firstly help their business through these challenging times, and to secondly take advantage of the opportunities that will emerge. 

Giving employees a stake in your business and offering them ownership opportunities will not only make them feel a valued part of the business, but will also offer them enhanced job security. 

Alternative benefits like employee ownership, which not all businesses offer, are also a great way to stand out from the crowd and attract top talent.

The type of Share Scheme chosen should offer flexibility and benefits which will work for the people that a business is trying to attract and retain. For example, Share Incentive Plans (SIPs) offer business owners and employees the chance to collaborate and decide which elements of the Scheme to implement in a given tax year.

Increasing organisational performance

In order to mitigate the ongoing effects of COVID-19 as much as possible, business owners must consider different methods of increasing and optimising the performance of their business. 

Giving employees a business stake will automatically generate more engagement in the profitability and success of the business. Their interests and objectives will be even more strongly aligned with those of the company and they’ll be incentivised to work hard and improve their performance, which will in turn generate greater rewards, including profitability.

Conserving funds

When funds are tight, particularly as some businesses battle with the economic impacts of COVID-19, offering employees compensation and benefits through stock and company ownership will give business owners greater opportunities to conserve funds for necessary expenses in other areas.

Many Share Schemes also offer generous tax advantages which can help you when it comes to conserving funds. Employee Ownership Trusts (EOTs) offer Income Tax exemption of up to £3,600 per tax year on certain bonuses, while employers who select Enterprise Management Incentive Schemes (EMIs) should receive Corporation Tax Relief on the exercise of the share options.

Employee gains

It’s not just businesses and their owners that benefit from employee ownership. There are many benefits for employees when given a stake in their workplace. 

It becomes easier to save for retirement, trust in management increases, and job security is greater, therefore reducing the impact of various stresses, particularly when the future of the economy and the job market is currently so uncertain.

Certain Schemes such as EMIs and SIPs are very beneficial for employees. Individuals can hold unexercised EMI options over shares worth £250,000. If shares are left in a SIP until the company is sold, employees also won’t have to pay any Capital Gains Tax on their disposal.