Today is Employee Ownership Day in the UK, celebrating the growing numbers of firms using employee ownership structures to drive employee engagement, raise productivity and saving money through generous tax breaks for the company, employees and owners.
Employee ownership describes a business model where employees - often all employees - have both a financial stake in the business, and also a say in how it is run.
In the UK, employee owned companies, including successful businesses such as John Lewis, are making an increasing contribution to the UK economy with figures from the Employee Ownership Association showing it to be as high as four per cent of UK GDP annually.The benefits to business by adopting employee ownership are:
employees that have a stake in a business are more likely to be fully engaged in their work, and this is likely to lead to higher productivity;
improved long-term business continuity as decisions are reached through proper consultation and consideration by a wider population of workers; and
opportunities for the majority owners to sell their stake in the business and benefit from statutory tax advantages, by selling all or some of it to the employees, as an alternative to the more traditional exit routes such as a trade sale or a flotation.
Last year, two new tax reliefs were introduced to benefit companies that are majority employee-owned, their employees and exiting shareholders.
The first allows companies to pay their employees bonuses free of income tax and the second allows shareholders selling a controlling interest to an employee ownership trust to claim a complete exemption from capital gains tax.
But despite the attraction of employee ownership, business owners need to do their homework before adopting the structure to ensure that the interests of employees, majority owners and third-party funders are all taken into consideration. There are also a range of different business structures that can be used, and owners need to weigh up the pros and cons of these, including their tax and company law implications before considering offering ownership to employees.
Fiona Bell, Partner in Baker Tilly’s Employment Consulting Group, said:
‘We know that employee ownership has a positive effect on companies and employees, and now the government has made it even more attractive to those considering adopting the structure with the introduction of a range of tax reliefs.
The way that businesses are thinking about their long-term future is changing, and I think this is a very exciting time for companies that are looking for alternative and innovative ways to engage and motivate their employees.’