1 May 2013
Carol Smith
Job Title
In the latest article for VBJ, Carol Smith looks at the small print and practicalities of the new owner-employee employment contract to be introduced in September.
THE BRITISH GOVERNMENT wants to give companies more choice in how they take on certain employees. At the Conservative Party Conference last October, the chancellor of the exchequer, George Osborne, announced a new type of employment contract – the owneremployee. After a period of consultation, further details were published in the form of draft legislation.
The Government also announced a change to the name of this new employment status – it is now known as employee shareholder. It is likely the new law will be brought into effect in September this year. According to the Government, the proposed legislation gives companies greater choice about the contracts they can offer to individuals, while ensuring appropriate levels of protection are maintained.
The Government believes this employee shareholder scheme will be particularly appropriate for senior managers in small to medium-sized enterprises (SMEs) and unlisted companies, providing taxefficient equity in return for employment rights that it believes such managers may “neither value nor need”. The scheme is principally intended for fast-growing companies, but the new employment status will be available to companies of any size that want to benefit from the additional flexibilities offered.
The employee shareholder will have different employment rights compared to an employee. These can be summarised as follows.
• An employee shareholder will give up a large proportion of his or her UK employment rights. For example, unfair dismissal, except where this is automatically unfair or relates to anti-discrimination law; the right to statutory redundancy pay; and the right to request flexible learning and time off for training. This will be in return for a shareholding in the company.
• This shareholding will be between £2,000 and £50,000 and will be exempt from capital gains tax. Thus, any profit on those shares will be exempt from capital gains tax when the shares are sold. The chancellor has the right to amend these upper and lower thresholds.
• Non-UK-registered companies are allowed to benefit from the new status.
• Shares can be issued by both the employing company and its parent company to ensure the scheme is sufficiently flexible to encourage “widespread appeal”.
• The Government will provide guidance for use by businesses. The advice will cover the three employment statuses: employee owner; employee; and worker. The Government believes that with appropriate guidance, employers will be better informed and better equipped to determine the right status for their company and how to implement it.
• An employee shareholder will also be required to provide 16 weeks’ notice of return from maternity leave, adoption leave and additional paternity leave, rather than the present eight weeks.
• The new contract will be voluntary.
The draft legislation was published last year, with relevant changes made to the Growth and Infrastructure Bill. A clause in the bill establishes a new employment status by amending the Employment Rights Act 1996, and sets out the terms of this new status.
It remains to be seen whether the employee shareholder employment status will contribute effectively to a main thrust of the Government’s employment law policy – to cut red tape for SMEs and ensure they are not put off recruiting new staff for fear of a costly employment tribunal brought by an employee with an “axe to grind”. The proof of this particular pudding will be in how many employers actually sign up for the scheme and how it works in practice.
