An employee share option scheme (ESOP) is an employee incentive scheme that allows you (a corporate employer) to grant your employees an option to buy shares in the business.
There are various types of employee share schemes and depending on the tax rules that apply, staff members may have to hold the shares for a certain length of time before they enjoy any associated tax benefits.
What are employee share options?
It’s a right granted to a member of staff entitling him or her to buy ESOP shares in your company. The right typically specifies a future date on which it’s possible to exercise the option. As well as a specified price that’s set on the day the option is available.
Assuming your company grows and the value of its shares increase, the employee can buy shares at a discount on the future market value.
Do employers enjoy any employee share scheme tax advantages?
There's a wide range of schemes and plans. From your perspective, it's a scope to make a tax saving on employer PRSI when you provide remuneration through shares rather than cash or salary.
Are ESOPs and employee share ownership trusts different?
For a member of staff, share ownership trust is, putting it broadly, a trust established for the purpose of allowing employees to hold shares in your company. Employee share ownership trusts are distinct from employee share option schemes.
Differences between plans and schemes
So, is there a difference between an employee share option plan and an employee option scheme? Well, there are numerous terms that tend to be in use interchangeably to describe this genre of incentive schemes.
Examples of employee shareholder schemes include:
- Share options
- KEEP share options
- Save as you earn
- Approved profit
- Restricted share schemes
- Employee share ownership trusts
Is creating an employee share scheme right for my business?
Ownership schemes for staff can incentivise your workforce to grow your business. If the value of your organisaton increases, so will the value of the shareholder shares.
There are also certain tax advantages for you. Whether or not your company should create a share option scheme is a question that needs assessing by tax and accounting professionals. Subject to receiving confirmation your company is eligible and suitable, an ESOP could be a useful way to incentivise staff, encourage retention and reduce your tax bill.
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