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Employee Share Scheme Reform

Making employee share schemes more accessible for small and medium enterprises


Employee Share Schemes (ESS) are a great tool for small and medium enterprises (SMEs) to attract and retain emerging talent and increase employee productivity, performance and engagement. This is because ESS provide the opportunity for employees to acquire equity in the company they work for as part of their employment package. Unfortunately, ESS are often underutilised by employers due to the limitations imposed on ESS under the Corporations Act 2001 (Cth), and the subsequent expense which would be incurred by the employer in meeting legislative requirements.

However, the red tape, limitations and requirements associated with ESS are set to be reduced from 1 July 2022. Following the 2022/23 Federal Budget, the Treasury Laws Amendment (Cost of Living Support and Other Measures) Bill 2022 has been passed which, amongst other things, includes legislative amendments in relation to ESS. These reforms have been designed to make ESS more accessible and affordable for SMEs.

Summary of the ESS reforms

There are currently limitations imposed on ESS unless the company facilitating the ESS meets certain requirements, such as issuing disclosure documents and holding an Australian financial services licence. There is relief available for these requirements, but only for companies offering shares under ESS to executives, or where the value of shares offered to non-executive employees is capped at $5,000 per annum. The new ESS legislation will see this relief extended to all ESS where employees do not have to pay or borrow to participate in an ESS, regardless of the value of shares or options acquired.

Further, where employees do have to purchase shares or options under an ESS, the new ESS legislation will allow employers to offer an unlimited value of shares to employees, provided an employee does not pay more than $30,000 per year for those shares. This monetary cap also applies to options received under an ESS.  Employees will be able to acquire securities at a rate of $30,000 per year for a maximum of 5 years, or $150,000. Where an employee pays for shares or options within the monetary cap, the employer will only be required to provide simplified disclosure in respect of the ESS. Simplified disclosure requirements for unlisted body corporates will be limited to:

  1.  certain warnings;
  2.  certain financial information about the body corporate;
  3.  a valuation of the interests; and
  4.  a statement that the company is solvent.

Ultimately, the regulatory relief allows ESS to be implemented with less restrictions and at a significantly reduced cost. This in turn will assist SMEs to offer employees huge incentives and bonuses to assist with business growth.

Get in touch

If you would like further information on how the new ESS regime can benefit your company or to discuss whether an ESS is suitable, get in contact via our contact us page.

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