Employee benefits and share schemes

Employee benefits and employee share schemes can be useful additions to remuneration packages. Offering employee perks can be a more effective way of attracting and retaining employees than an equivalent increase in cash salaries - and may offer tax advantages. Employee benefits and share schemes can also be used as employee incentives, motivating employees and contributing to improved business results.

Employee perks

A wide range of employee benefits can be used as employee incentives. Well-known examples include company cars, private medical insurance and season ticket loans. Life insurance is often provided, typically linked to a pension scheme.

You should take into account how appealing any perks will be to employees – and also how costly it is to provide and administer them. Negotiating discounts at local suppliers – for example, discounted gym membership – can be a relatively simple and cost-effective employee benefit.

You should also consider the tax treatment of any employee benefits you provide directly. While employees are often taxed on the value of benefits, some benefits can offer tax and National Insurance advantages. These include childcare vouchers, small performance or long-service awards and limited employee entertainment such as a staff Christmas party.

Employee share schemes and employee share options

Employee share schemes offer employees shares in your company, or the option to acquire shares in the future, giving them a direct financial interest in the success of the business.

Companies often use share schemes to attract and reward key employees without the cash flow costs of substantial cash salaries. For example, you can use an Enterprise Management Incentive scheme or a Company Share Option Plan (CSOP) to award share options to selected employees.

Employee share schemes can also be used as employee incentives for all employees of the business. A Share Incentive Plan (SIP, formerly known as an All-Employee Share Ownership Plan) allows you to give employees up to £3,000 of shares annually. A SIP can also allow employees to buy up to £1,500 of shares out of pre-tax income with the employer providing up to two free ‘matching’ shares per share purchased. Alternatively, Save As You Earn (SAYE) allows employees to make regular monthly savings with the option to purchase company shares at the end of a three, five or seven year period.

Approved share schemes that meet HM Revenue & Customs (HMRC) requirements offer tax and National Insurance advantages to both employer and employee but can involve a significant administrative burden. You can also tailor your own, unapproved share scheme to meet your particular objectives but without the tax advantages.