Employee incentivisation

Posted on: October 9th, 2015

In the current market, recruitment of high caliber candidates for placement is one of the biggest challenges. The same issue of talent attraction and retention flows straight through to the recruitment and retention of your own staff.

Good recruiters are often highly motivated sales people with a strong focus on commission and linking their performance to financial reward.  Different sector members will provide all sorts of bonus schemes, depending on where they want their recruiters to focus their efforts.

However, this can be quite expensive from a tax and NIC perspective.

It can also mean staff can be short sighted in a bonus/commission environment; we have all seen where this has gone badly wrong in the banking sector.

The longer term retention and performance, particularly for Tier 1 managers, business owners may want to think about incentivising them by share options; these are very flexible and often extremely efficient from a tax perspective.  They can be structured so that employees earn shares as they go along, and can then receive dividends rather than commission – no National Insurance Contributions and a lower rate of tax.

Alternatively, they can build up a right to shares as their performance or the performance of the business improves, and then on a sale of that business, they exercise their options, receive shares just before the company is sold, and then share in the sale proceeds. The share schemes are often approved with HMRC, and in some circumstances mean that staff sharing in the sale proceeds from the sale of the business can be taxed at 10% (rather than their marginal PAYE rate of up 45%), and the company will also get a corporation tax benefit at the same time.

Options can be set up in a very flexible way and tailored to the businesses specific commercial requirements. 

Business owners should seriously consider this as a way of the long term retention of key members of staff – “employee ownership” is something supported, at the moment, by all political parties, and the tax incentives are there for all to benefit from.