Why would a small business owner incentivise employees with shares rather than cash?
If you incentivise an employee by offering them cash, in the form of a wage or salary, that’s all well and good. However, once their work is done and your cheque has cleared, the aforesaid employee has no obligation to care about your business.
Alternatively if you tie the employee’s best-interests to your company by offering them share options, the success of their work (and your business) becomes linked to the size of their payday!
What benefits are there in using the EMIS Shares?
The Enterprise Management Incentivistion Scheme (EMIS) provides tax breaks to entrepreneurs who give share options to employees. EMIS shares are also financially beneficial for the employee who receives them.
Compared to ‘plain shares’, recipients of share-options issued via the EMI scheme do not have to pay income tax on the difference between purchase price and sale price. For example, if the share option is issued at ‘1 share = £1’, and it sold at a value of ‘1 share = £10’, the shareholder does not have to pay income tax on the £9. They would have to pay income tax on the £9 difference if they held ‘plain shares’.
Does my small business qualify for the EMIS?
To qualify for EMI, the business must carry out a ‘qualifying trade’, have fewer than 250 staff and make less than £30 million each year. Also, the value of the share options at time of grant has to be less than £120k
A more detailed explanation of EMIS stipulations can be found here.
Do my employees qualify for the EMIS?
For an employee to qualify for EMI shares, they must work over 25 hours a week for your organisation. If they do not work over 25 hours per week for you, they must spend over 75 percent of their working-hours working in your business. If they do not, they do not qualify as an ‘employee’ as far as the EMIS is concerned.
I’m a director, can I have EMIS Shares?
If you are the director of a company, you legally qualify as an employee and therefore you are entitled to shares issued using the EMI Scheme.