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19 December 2012

Implementing employee owner status

The Government has issued its response to the recent consultation on its plans to introduce a new ‘employee owner’ status.

A consultation was issued back in October on the Government’s proposed introduction of a new type of employee ownership arrangement, whereby employees would forgo certain employment rights (including the right to claim unfair dismissal and the right to a statutory redundancy payment) in exchange for receiving shares in their employer company.

The Government’s consultation response has now been published.  It acknowledges that only a “very small number” of respondents welcomed the proposed status and anticipated using it, but the Government nevertheless plans to proceed with the necessary legislative measures to implement the new status.

Instead of “employee owner”, the new status will now be known as “employee shareholder”.  Non UK-registered companies will be permitted to use employee shareholder status, and it will be possible to issue parent company shares rather than employer shares, where the employer company is a subsidiary.

Shares issued to the employee must be worth a minimum of £2,000. There will be no upper limit on the value of the shares, although the Capital Gains Tax exemption will only apply up to the limit of £50,000.

In addition, the Government has confirmed its intention to revise its guidance on employee, worker and employee shareholder status to assist businesses in using them appropriately and to ensure that individuals understand the implications of entering into an employee shareholder contract.  Guidance will also deal with the complex issue of the valuation and forfeiture of shares.

The new employee shareholder status will be implemented under the Growth and Infrastructure Bill, which is likely to take effect in April 2013. A copy of the Government’s consultation response with further details of the proposal is available here

For any employment enquiries please contact the Steeles Law employment team on employment@steeleslaw.co.uk or 01603 598000.