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Government Announces New Type of Employment Contract

The Chancellor of the Exchequer has announced plans to introduce a new kind of employment status – that of ‘owner-employee’.

The plan is that new owner-employees will relinquish some of their UK employment rights in exchange for rights of ownership in the form of shares in the business they work for. Any gains on the shares will be exempt from Capital Gains Tax (CGT).

Although companies of any size will be able to use the new kind of employment contract, it is principally intended for use by fast growing small and medium-sized companies that want to create a flexible workforce.

Under the new type of contract, employees will be given between £2,000 and £50,000 of shares that are exempt from CGT. In exchange, they will give up their rights as regards unfair dismissal and redundancy, the right to request flexible working and time off for training, and will also be required to provide 16 weeks’ notice of a firm date of return from maternity leave instead of the usual eight.

Owner-employee status will be optional for existing employees, but both established companies and new start-ups will be able to choose to offer only this new type of employment contract for newly-recruited employees. Companies hiring owner-employees will continue to have the option of offering more generous contractual terms if they wish to do so.

Legislation to bring in the new owner-employee contract is expected later this year so that companies can offer the new type of contract from April 2013. The Government will consult on some details of the proposed new arrangements later this month.