Employee Share Schemes (ESS) Explained

Employee Share Schemes (ESS) are known by many names and can be surrounded in acronyms – Employee Share Ownership Plans (ESOP) are the most common but they are also known as Employee Share Options plans (ESOP), Employee Savings Plans (ESP), Performance Rights Plan (PRP) and Executive Share Plans (ESP). No matter the name they are all put in place to achieve the same outcomes – attract, retain and motivate key employees, fund succession and retirement or founders/owners, provide a pathway for younger employees to take on equity and ultimately improve the performance, productivity and value of the business.

Employee share options and equity plans have been used in start-ups for many years, mainly as a cash preservation/funding strategy, especially where the business was looking to employ someone they really cannot afford (at this stage of development anyway). Start-up share schemes often enable employees to earn less (salary sacrifice) income but earn equity instead. The government recognised this in 2015 and improved the Employee Share Scheme rules to make ESOP’s easier to implement, reduce the regulation and compliance burden, and improve the tax concessions.

Despite the name, Start-up Share Schemes can actually apply to a wide range of businesses. To qualify for a start-up ESS, the business needs to be less than 10 years old, not listed on any exchange, and turnover less than $50mil – many businesses who would not consider themselves start-ups would qualify.

As long as employees are Australian tax residents, hold less than 10% share in the business (each) and are not given more than 15% discount then they qualify for concessional tax treatment – they only pay capital gains on the shares when they sell or exit, no upfront tax and they can still use the normal CGT 50% discount as long as they hold the shares for at least 12 months.

The plans normally produce improvements in performance including productivity, employee retention, reduced sick days and increased employee engagement to list a few. Having employees think and act like business owners will change the way the business operates.

Find out more about Succession Plus Employee Share Plans or watch our successful case study here.

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.