Rewarding staff in Covid times with SAYE and SIPs

Out-Law News | 14 Jan 2021 | 11:20 am |

Lynette Jacobs tells HRNews about the merits of all-employee share plans to reward employees

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  • Transcript

    How do you reward and motivate staff in the midst of a pandemic when a pay rise is not an option? The answer, for many employers right now, is with an all-employee share scheme and it is noticeable how interest in this particular reward structure has taken off lately. Last week Fleur Benns posted an article for Outlaw explaining how one of the two most popular schemes works – this is the 'sharesave' scheme, or save as you earn, scheme which has been around since 1980 designed to encourage employees to buy stakes in the companies they work for. The other is the share incentive plan, or Sip, which was first introduced in 2000 providing companies with the flexibility to tailor the plan to meet their needs – so useful in a pandemic. The beauty of both of them is that they are tax-advantaged and Revenue-approved, although that's pretty much where their similarities end. So how are they different and how do you choose what's best for your business and for your employees?  To help with that, share plans specialist Lynette Jacobs:

    Lynette Jacobs: “The two main types of all employee tax advantaged plans in the UK are known as share save, sometimes known as save as you earn or savings-related SAYE plans and SIP, the share incentive plan. Under both of these plans employees at all levels within the company can sometimes save money out of their salary on a regular basis buying shares in the company subject to tax advantages. Under share save the money comes out, typically on a monthly basis, out of the individual's net salary, so that is after their income tax and NICs have been paid. Under SIP if they are buying so called partnership shares it comes out of their gross salary. That means it is before and tax or NICs have been taken. Share save is a complete no risk to the employee because he chooses to save a certain amount of money per month, that money is then saved by him and the money goes into a savings operator for a three year period and sometimes a five year period, and the money is then used, if the employee chooses, to buy shares in the company normally at a discount of up to 20% of the share price when he first entered into his contract. If the share price has gone down the employee just chooses to have the money back. Sometimes, depending on general interest rates, he may also get some tax free interest attached to it, although at the moment there isn't any tax free interest added to it. Under SIP the partnership shares, where they are offered, are bought, as I said, on a monthly basis, those shares are bought each month so as with any other share holder if the share price falls the shares that are held by that employee will fall in value. However, because as I said, the money comes out of their gross salary he has the cushion of the gross amount of his salary because it comes out of that larger amount. SIP also offers other types of shares which a company can award to the employee. If the employee chooses to buy the partnership shares the company can award him free shares, known as matching shares, which are matched to his contribution that he is making out of his own money, and that can be on the ratio of up to two matching shares for every one partnership share. The company can also choose to make what are known as a free share award, so regardless of whether the employee is saving for partnership shares, or indeed has been given the opportunity to save for partnership shares, the company can make an award of free shares of up to a value of £3,600 in any tax year and companies sometimes do that either to kick start their SIPs plan or perhaps because it is a special anniversary, so it is a way to reward employees and, again, generally it is for the same amount across the board so it gives that feeling of unity to all employees. Where a company operates SIP companies can also offer what are known as dividend shares. Those shares are shares that the individual is already holding under the SIP, dividends that are paid on those shares can be reinvested in the plan, again having the opportunity for the tax breaks."

    A reminder, you can read more about one of the 'sharesave' scheme in Fleur Benn's guide. That is available now on the Outlaw website.