Employee shareholder status – which came into force on September 1 – could change the way oil and gas firms compete for staff.
It gives employees the opportunity to become owners of a stake in the business they work for. In exchange for relinquishing certain employment rights, staff will be given shares worth between £2,000 and £50,000, which are exempt from Capital Gains Tax (CGT).
Employee shareholder status was proposed as a third form of employment status, alongside ‘employee’ and ‘worker’. David Dowell, Senior Manager in Johnston Carmichael’s Aberdeen office, said that these new incentives will help smaller oil and gas businesses to compete with the significant base salaries offered by the major operators.
Including employee shareholder status offers employees an attractive remuneration package, supporting staff retention and incentivising personnel to work hard to grow the business.
“In the highly-competitive oil and gas job market, more and more staff are opting to switch employers for an increase in their base salary,” he said. “As a result, smaller, growing energy businesses are under increasing pressure to compete by matching or increasing the salary offers in order to retain key staff and, for some businesses, this is not possible.
“Employee share options can give employees an added incentive to remain with their current employer, allowing them to take an interest in the business with the benefit of CGT savings. Should they leave the company, the portfolio of options built up during their employment would be forfeited however, as employee shareholder status gives the individual shares up front, they can still benefit in a tax-efficient manner when the shares are bought back from them.
“Profit on employee shareholder shares not exceeding £50,000 in value at the time of acquisition are exempt from CGT and the first £2,000 of share value received under the new status will be free from income tax and national insurance contributions.
“This will benefit anyone receiving the minimum amount of shares, as it ensures that no tax is due when shares are received.
“Existing employees cannot be forced into taking employee shareholder status and those in this position may not be willing to relinquish their rights to redundancy payments or unfair dismissal protection.
“Some employers may choose to only offer this to new personnel, which can help them to attract high-quality candidates but one of the main drivers behind introducing this new employment status is to engage and motivate staff and unless it’s available to existing staff, they won’t benefit.”
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