The latest federal budget in Australia highlighted that employee share schemes from tech companies are set to change. Not only will the update boost prospects for employees, but it will also enhance and prove beneficial for the companies involved. Here, we reveal exactly what the budget’s impact will be on businesses.
A brief introduction
Employee share schemes, which are common amongst tech start-ups in Australia, allow businesses to sell or give shares to their employees at a reduced price. Previously, Australian employees leaving a company were taxed heavily on these shares, which they usually couldn’t sell. However, it was revealed last year that the government would be reviewing the legislation surrounding share schemes.
Start-ups have been historically unable to provide employees with any equity incentives unless they’re on the senior board or a key investor.
For standard employees, the total amount of shares or options available was around $5,000 per year. The government has announced that they’ll be increasing this cap substantially to $30,000 per year.
What’s more, the way in which local companies issue shares and options is also set to change as they’ll be treated in a similar way as those that are issued by overseas companies. Speaking about the reform, which is part of the Budget Measures Bill, Treasurer Josh Frydenberg explained that the changes would allow more companies and employees to access share schemes and that employees would be able to benefit from business growth and more meaningful equity incentives.
These changes are likely to bring Australia’s approach to employee share schemes more in line with what’s available in other countries, including the UK. While stock options explained as giving someone the option to buy shares in the company in the future, companies use employee share schemes to grant employees and non-employees, like consultants, a bit of company ownership and equity. If an individual is granted stocks, they’ll automatically become a shareholder.
The benefits for companies and employees
The traditional approach to share schemes has been a topic of debate since 2018 and was often thought of as a way to discourage small businesses from doing business. However, the chief executive of the Tech Council of Australia, Kate Pounder, says share schemes will actually make it easier for companies to reward and attract crucial talent – something which is more important than ever before. Changes brought about by the Budget Measures Bill mean that many companies now have a better chance of competing to gain international talent.
Not to mention, those employees who do take advantage of employee share schemes have a better chance of eventually setting up their own business with the proceeds from the shares, explained Kate. She went on to say that this would create even more jobs for Australia.
The Department of Industry has confirmed that companies with effective share schemes in place for their employees typically hired and retained better staff, had higher sales, and a boosted value growth. While many are pleased with the news, it seems the next step would be to broaden tax concessions and simplify the approval process for share schemes to make them even more accessible. Hopefully, Australia can gain inspiration from abroad, particularly the UK, which benefits from employee ownership trusts.