Posted by: Angelo Venardos | Date: 13 April 2012
Providing greater incentives to staff in a company may come with hidden consequences for both the company and the employee.
As a company grows, staff may be offered incentives such as shares in a company as well as profit sharing. Payments of shares and profits may be made directly to an employee or into a Trust set up specifically for that purpose.
When entering into these arrangements, employers may or may not enter into written agreements with their staff as to how the shares and profits in a company will be distributed to the employee.
A distribution of company shares or profits in this way is likely to be viewed by the Australian Taxation Office as an employee share scheme, depending on the nature of the agreement. The Australian Taxation Office has specific requirements for this.
For employees, some of the consequences of this arrangement may include the following:
Employers wishing to enter into such transactions would need to be mindful of the following consequences:
With the numerous tax and other consequences of providing employees with a share of the company and company profits, employers and employees need to very carefully consider their agreement and the consequences that follow. Alternate, simple arrangements may also need to be considered. Expert legal and accounting advice should also obtained.
If you have any questions regarding the above, or questions generally regarding employment agreements and taxation, please do not hesitate to contact me.