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UK Consults On Employee Owner Plans

by Robert Lee,, London

23 October 2012

The UK government is consulting on its plans for a new scheme under which tax-exempt shares will be made available to new employees in exchange for the forfeit of redundancy and unfair dismissal rights.

The scheme will introduce a new "employee-owner" type of contract, available to companies of any size, but principally intended for fast growing small- and medium-sized enterprises (SMEs). Under the contract, employees will be given between GBP2,000 (USD3,200) and GBP50,000 of shares. Any increase in the value of these shares will be exempt from capital gains tax (CGT).

In exchange, employees will have to give up certain employment rights. These include their rights on unfair dismissal and redundancy, and the right to request flexible working and time off for training. Female employee-owners will also be required provide 16 weeks’ notice of a firm date of return from adoption or maternity leave, instead of the usual eight.

The intention is to provide companies with a new option to increase the flexibility of how they hire people and help their companies grow. It will be entirely voluntary for an employer to offer the new status, and for an individual employee to choose to accept it. The consultation sets out the proposal in detail and asks for views on how the government can implement it. It is focused on both employment law and company law issues, and the Treasury will be consulting on the tax matters separately.

Launching the consultation, Business Minister Jo Swinson said: "We know that engaged employees are more productive and motivated. This scheme increases the options for business and brings greater flexibility to companies and employees in determining their employment relationship. By responding to the flexible needs of fast growing companies, it will help them take people on, providing a real incentive for employers and employees.”

The consultation will close on November 8, 2012. Legislation to bring in the new employee owner contract has been introduced via the Growth and Infrastructure Bill. The aim is for companies to be able to offer the scheme from April, 2013.

When the initiative was first announced earlier this month, concerns were raised that employees will be worried about the implications the contract would have on their rights. Ed Stacey, head of employment at PwC Legal, said: "This would be the most significant development in employment law since the Equality Act. The detail will be crucial as there will be concerns about how the plan will work in practice. We could end up with a two tier system where some employees lose significant employment rights while others are fully protected. Reducing employment red tape is important, but for many people facing today's financial pressures they may too readily rescind their employment rights which could prove very costly to them in the long run."

TAGS: individuals | capital gains tax (CGT) | tax | business | tax incentives | training | law | employees | United Kingdom | tax breaks

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