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Government announces proposal for “owner-employee” scheme

15th October, 2012

This week the Coalition Government announced its proposals for a new “owner-employee” employment contract. This contract would mean employees giving up some of their employment rights in exchange for tax-free shares up to the value of £50,000 in the company for which they work. The scheme will be optional for existing employees and could be offered as a condition of an offer of employment to new employees from April 2013.

The Chancellor of the Exchequer, George Osborne, in his speech to the Conservative Party conference described this proposal as a “voluntary three-way deal” which would mean employees losing the right to protection from:

• Unfair dismissal;
• Redundancy;
• The right to request flexible working
• Time off for training; and
• Women to give 16 weeks’ notice of their proposed return to work following maternity leave (rather than the usual 8 weeks).

In return for this agreement, employees would get a £2,000 to £50,000 share in the business and would also not have to pay capital gains tax on any profit made on the shares. Businesses will also have the option of inserting more favourable employment terms into the contract if they so wish.

The Government has confirmed that this proposed new scheme is primarily targeted at fast growing small and medium sized companies that want to create a flexible workforce. The Government plans to consult on the contract details later this month (such as the process of buying back shares on termination of employment), and the relevant legislation is due to be implemented by the end of 2012.

We can see the proposals being of particular interest to owner-managed small and medium-sized enterprises that have a number of key employees who they have already considered incentivising with shares in the company. The new scheme should allow the interests of those employees being better aligned with the existing owners of the business in return for very significant tax advantages for the shares received. We look forward to seeing the detail of the proposals to establish what flexibility there will be regarding the types of shares that can be used and the contractual arrangements that can be put in place to protect and balance the interests of the company, its shareholders and the employees concerned.

For more information, please contact Helen Watson on 01244 405565 or send an e-mail to [email protected].

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