Employee Shareholder Contract

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On 1st September 2013, a new kind of employment contract was introduced, the employee-shareholder contract. There are tax advantages to being an employee-shareholder however individuals will give up important employment rights. Employers who currently offer shares to employees to aid recruitment, retention and employee engagement will not be automatically using the new employee-shareholder contract. The employer and the individual must agree that he or she will be an employee-shareholder. Employers cannot compel employees to transfer to employee-shareholder contracts and those who are dismissed for refusing to agree to become an employee-shareholder will automatically be unfairly dismissed and won’t need two years service to make a claim. The shares must be worth more that £2,000 when they are given and in return the employee will agree to lose certain employment rights. The employer must set out the employment rights the employee is giving up in a written statement. The employee will get exemptions from income tax and national insurance contributions and they will not have to pay capital gains tax on any profit selling the shares worth up to £50,000. Under the new contract the employee will give up rights in return for shares, such as the right to claim unfair dismissal and to receive statutory redundancy pay. They also give up the right to make a request to work flexibly and will need to give longer notice than other employees if they want to return early from maternity leave for example. Existing employees may transfer over if they agree but employers can require new recruits to accept employee-shareholder status. Not all employment rights are given up under the new contract. Employee-shareholders will still be entitled to not be discriminated against because of race, sex or disability. They will also be entitled to minimum periods of holiday, notice rights, statutory payments such as sick pay and maternity pay and the national minimum wage. Individuals who agree to an employee-shareholder contract may surrender the right to claim unfair dismissal, but they will, however, be able to claim unfair dismissal if it is ‘unlawful discrimination’ or it is ‘automatically unfair’ (such as health and safety rights, family leave, trade union membership or activities or for asserting a statutory right). In summary the new contract will be useful to some employers and employees but it should be entered into carefully and is not suitable for all.

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