Jonathan Watts-Lay, Director, WEALTH at work: “To encourage employees to save more, many companies offer share plans, one of the most popular being Save As You Earn (SAYE). Employees are invited to save between £5 and £500 per month over a three or five-year period, at the end of which they can then use the savings to buy shares in the company at a fixed ‘option price’ set at the start of the plan.  Many employers offer a fixed ‘option price’ which is set at a discount of up to 20% of the actual share price at the start of the plan.

In essence, there is no investment risk involved for the employee as at the end of the period, if the share price has fallen below the ‘option price’, the employee can receive all of their savings back.  If the share price is higher than the option price at the end of the share plan’s term, the employee will be able to buy the shares below their market value, enabling them to generate a return on their money.

An SAYE also allows employees to have up to a 12-month payment holiday. Anyone can use this in order to suspend their contributions temporarily, whilst not losing the right to exercise their share option.

The Share Incentive Plan (SIP) is another popular all employee share plan enabling employees to purchase shares by making monthly contributions of between £10 and £150 from pre-tax salary. Employers may also provide matching shares so that the employee can receive up to two additional shares for each share purchased. Some companies will also use the SIP to gift ‘free shares’ of up to £3,600 in any tax year to employees.

Both SAYE and SIP have attractive tax benefits. With SAYE, any gain realised when selling the shares bought through the plan is free from income tax but is instead chargeable to Capital Gains Tax (CGT). Gains chargeable to CGT are exempt up to the annual exempt amount, and any gains above this level are taxed at a maximum rate of 20%. With the SIP there is the National Insurance contribution and income tax saving, as a result of making contributions from pre-tax income.

Any gain on shares held in a SIP are also free from income tax and Capital Gains Tax as long as they are held in the plan for at least 5 years. Tax efficiency can also be maximised by linking shares coming out of a SAYE to an ISA, which can mitigate a participant’s capital gains tax liability. By linking a SIP to a Self-Invested Personal Pension (SIPP), employees can ‘supercharge’ pension savings by effectively benefiting from double tax relief.

A lack of understanding of how a share plan works can be a barrier to employees joining a plan. It also means that employees who do join may not be fully aware of how they can best mitigate any tax charges and use the share plan as a way of boosting their long-term savings.

Participants need to be well informed to make the right decisions as to whether they should sell shares or continue to hold on to them. An understanding of the value dividends may provide in the future as well as the importance of not putting all their eggs in one basket and diversifying their investment, are all things employees should consider.

Many leading employers now provide financial education and guidance on the different share plans available, and the choices of what to do when the shares are released from the plan. This can make a huge difference in enabling employees to build an understanding of the real value of the plans on offer and in turn, improve financial resilience and wellbeing.”

“By aligning the interests of employees to the future share price in their company, employee share plans can offer a great way to motivate and incentivise employees, as well as potentially building greater financial resilience.   They can be a valuable part of an employee benefit offering, with businesses seeing share plans as important tools for recruiting and retaining staff, a way of engaging the workforce, and drive workplace performance. This is backed up by research showing the positive impact that employee share plans have on workplace productivity, with a 4.1% improvement in performance over the longer term for companies with a SAYE in place.

Additionally, Proshare (a membership organisation that promotes employee share ownership), have produced a report that highlights research which found that employee shareholders in the lowest income quartile have a median net financial wealth of £10,900 more than those who are not part of an employee share plan.”