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From 1 September 2013, a new status called "employee shareholder" will be available to employers as an alternative to traditional employees. However it seems unlikely that many employers will make use of the new status, given the administrative hurdles and other potential difficulties.
In order to make use of employee shareholder status, the employer will need to give the individual fully paid up shares in the employing company or its parent company worth at least £2,000.
It will be unlawful for an employer to require an existing employee to convert to an employee shareholder or to subject them to detriment if they refuse. However, it will be permissible for an employer to recruit new staff as employee shareholders on a "take it or leave it" basis without offering the option of becoming a traditional employee.
In theory, the employer benefits because the employee gives up right to:
The employee would also have to give additional notice (a total of 16 weeks) to return early from statutory maternity, adoption or additional paternity leave. Some employers may see potential value in aligning the interests of staff with those of shareholders.
In order to appease parliamentary opposition to the proposals and ensure they became law, the Government had to make various concessions, as follows:
In addition to the administrative hurdles above, there are a number of other problems.
Overall, it seems unlikely that most employers will view the potential benefits of creating employee shareholders as worth the time, hassle and cost of working through the various obstacles. After all, it would take at least 3 years for a new recruit's statutory redundancy payment to exceed £2,000 and the odd "ordinary" unfair dismissal claim is normally relatively straightforward to deal with. Perhaps the biggest use of employee shareholder status will be as a tax saving device for those owning a relatively large (but, broadly, under 25%) stake in the company.
For more information please contact Christopher Bushnell, Associate
T: +44 (0)20 7427 6427