The gift card is dead. Salary packaging business ownership is a real incentive.

Motivating key staff is an important part of a business owner’s employee retention and engagement strategy. Many methods for incentivising loyalty end up coming straight from the company’s coffers, offering bonuses or rewards for high-performing or long-serving employees. But what if it didn’t cost a business any extra to keep and motivate their best staff – it actually saved money?

It’s estimated to cost up to 45% of a departing employee’s salary to replace them, once you factor in the time to recruit a new candidate, train them, and include lost productivity IP and client relationships, etc., etc.

While there is no panacea for staff retention, there is a way to minimise transition costs by building in a performance-booster, a way to “lock in loyalty” with equity, reward staff with a profit share style plan (which is self-funding) and generate income tax savings as well.

There are several types of Employee Share Ownership Plans in Australia. Well designed salary packaged plans allow employees to have their cake and eat it – without costing the business owner more money. In fact, they can get a tax deduction for the contributions.

The tax law (Div. 83A) provides for a tax-exempt $1,000 ESOP contribution to be made annually. That’s tax-free income which can be reinvested into a capital appreciating asset – shares in the employer company. In addition, employees in an employee remuneration trust (such as our Peak Performance Trust) which can receive tax-deductible contributions from the employer ( based on a profit share plan ) to fund employees purchase of shares.

A structure like the above allows favourable tax treatment for both employer and employee. Employees can also salary sacrifice into a complying ESS plan, reducing taxable income, and further buying into in the company they work with.

If structured correctly to comply with the ATO’s rules, an ESS allows the employee to only pay Capital Gains Tax (CGT) on any gain, not income tax on the initial purchase.

If you’re looking to attract, retain and motivate key staff – consider using salary sacrifice to fund their investment into an ESOP. Having your employees think and behave like business owners will make a substantial difference to your business performance.

See how we can help.

Dr Craig West

Founder & Chairman | Succession Plus

Dr Craig West is a strategic accountant who has over 20 years of experience advising business owners.

With a background as an accountant in practice and two master’s degrees, Craig formed a strong view that the majority of business owners (and often their advisers) were unprepared and unaware of the steps required to prepare for exit. He then designed and documented a unique 21-Step Business Succession and Exit Planning process to assist owners and their advisers in navigating this process.

Craig now acts as a strategic business and financial mentor for mid-market business owners. Craig has written four critically acclaimed books educating business owners on employee incentives, succession planning, asset protection, and exit strategies. Additionally, he has completed doctoral research on Employee Share Ownership Plans (ESOPs) for succession.

Craig is a Member of the Forbes Business Council where he leverages his extensive experience to contribute valuable insights on helping business leaders navigate the complexities of growing and exiting their businesses.

In April 2024, the Exit Planning Institute admitted Craig to the International Exit Planning Circle of Excellence.