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New rules proposed for employee share schemes

Start-ups will often find it harder to take on new staff members, especially when cash flow is tight and finding qualified workers is difficult. As a result, many smaller companies will consider implementing an employee share scheme or similar arrangement to help offset their staffing costs.

An employee share scheme allows companies to offer staff shares or securities in the company in place of a portion of their wages. Employers can also use a share scheme to offer staff the option of purchasing shares in the future.

Recently, new federal legislation has also been introduced that will make these schemes easier for employers to manage and ensure they remain an attractive option for small-business owners.

The proposed bill will revise the way these schemes are established and operated, reducing the ongoing costs and maintenance for companies that choose to pursue these options.

Organisations that want to offer this option to staff will also be able to offer a discount when they transfer ownership of these shares, with this up-front discount likely to be exempt from taxation.

Small Business Minister Bruce Billson also stated this new legislation would affect the way staff were offered the option to purchase stock in the future.

“In past options were taxed when they were provided to the employee. There was no real way of determining their true values, which meant that employees were hit with a substantial tax liability, even though there was no material capacity to generate the resources to pay it,” stated Mr Billson.

“Our amendments mean that the tax on the options is paid when there is an actual material value on the options.”

If your company is considering establishing an employee share scheme in the future, it will be important that you get the right legal advice ahead of time in order to minimise these costs. Organisations will still need to ensure they have the right legal advice, both when setting up this program and for ongoing responsibilities like taxation.

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