Under the contracts, employees can swap some of their employment rights for a stake in the business. The plan was announced by UK chancellor George Osborne last year but has received opposition from employment groups and unions, with some labelling it “a gimmick”.
If they agree to the scheme and receive shares worth £2,000-£50,000 at the time of issue, workers give up the right to: claim unfair dismissal; receive statutory redundancy; make a statutory request for flexible working (unless it is within 14 days of returning from parental leave); and make a statutory request in relation to study or training.
Employee shareholders must also give more notice if they wish to return early from parental leave – 16 weeks compared with 8 for other workers.
Not all rights are surrendered so workers may still be able to claim unfair dismissal under discrimination rights, for example.
TUC general secretary Frances O’Grady said: “The chancellor’s shares for rights gimmick could end up costing taxpayers hundreds of millions of pounds. At best the scheme will be completely ignored and consigned to Parliament’s pointless policies hall of shame.”
“Ordinary workers who may be forced to become employee owners in order to find work could end up giving up basic rights such as redundancy pay for worthless company shares.”
Richard Godmon, partner at accountancy firm Menzies, said the introduction of the contracts by government is an attempt to involve and motivate the workforce, but it seems to apply more to small businesses rather than being a real tax incentive for employee share ownership.
“After all, there is only an income tax and NIC exemption for the first £2,000 worth of shares issued, thereafter tax will be payable as normal, which suggests that the scheme is focused on small start-up businesses where the shares have little value. If that is the case then there are perfectly adequate schemes already in place, such as the EMI share option scheme which gives very significant tax advantages to employees and can achieve the same aims, without the employees giving up employment rights.”
However, Malcolm Hurlston, chairman of the Employee Share Ownership Centre said it is unlikely SMEs will manage to meet the requirements of the contracts.
“Employee shareholder contracts take red tape with one hand and give with the other. For SMEs the requirement to give legal advice to each employee shareholder and perform complex company valuations at frequent intervals will be prohibitive. The net result is that only those who attach little value to statutory rights, primarily in private equity, will take advantage. We hope that government looks again at how incentives are allocated to encourage the use of the existing tax-advantaged employee share schemes in SMEs.”
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