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Employee-Shareholder Contracts Introduced

The Growth and Infrastructure Bill, which received Royal Assent in April 2013, provides for a new type of employment status – the ‘employee-shareholder – with effect from 1 September 2013.

Not to be confused with partnership arrangements whereby employees benefit from a share in the profits of the organisation for which they work, employee-shareholders will agree to surrender certain employment law rights – some unfair dismissal rights, the right to statutory redundancy pay, the statutory rights to request flexible working and training and some maternity rights – in exchange for shares in their employer’s company of a value between £2,000 and £50,000.

The first £2,000 of the value of the shares is not subject to Income Tax and there is an exemption from Capital Gains Tax on profits made on shares worth up to £50,000.

Whilst new recruits can be required to accept employee-shareholder status, existing employees cannot be forced to transfer to employee-shareholder contracts and are protected against unfair dismissal or from detriment if they refuse to switch.

An employee’s agreement to work under an employee-shareholder contract will be invalid unless he or she has received advice from a relevant independent adviser, the reasonable costs of which are to be paid by the employer.

This new type of employment contract has not met with much approval and the general consensus is that such contracts are likely to prove unpopular with employers and employees alike.

The Growth and Infrastructure Act.

HM Revenue and Customs has information on the new employment status in its August bulletin and will shortly be publishing more detailed guidance on the tax treatment that applies.