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

ESOP

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

By , August 8, 2018
Bringing positive energy to the workplace

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.

Craig West

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.

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