When referring to employee share plans, employers cannot give anything resembling financial advice, so†Sonia Speedy shows how to stay on the right side of the law

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Employers can only provide factual information about how share schemes work and what the potential benefits are.

Firms cannot offer any information that could constitute financial advice - you must be authorised by the Financial Services Authority to do that.

Employers can bring in external expertise to help prepare and present the relevant information, provide access to or encourage staff to seek financial advice.

The type and amount of information or financial advice required will vary depending on the type of scheme on offer, along with the personal circumstances of individual employees.

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Providing staff with the right information about employee share schemes is vital if you want them to not only show an interest in the idea, but also to get the best out of the perk. Share schemes can be a useful way of encouraging saving and investment among staff, but just how much can an employer say to help employees make the best financial decision and to ensure they don't end up making mistakes such as over-stretching themselves?

Sue Bartlett, senior consultant at Watson Wyatt, says employers have to be careful what they say to employees. "They must not give advice deemed to be personal financial advice." This means an employer can explain the facts, such as going through what shares are and the tax position of such schemes, but they can't do things like recommend staff participation. "Their hands are really tied by the Financial Services Authority [and the] Financial Services Act - they have to be very careful on that," she says.

Paul Byles, associate director of independent financial advisers (IFAs) Towry Law, says many large corporates have nominated or approved IFAs who will run a series of seminars or money clinics to explain the benefit of share schemes to staff. He believes it is always prudent for employees to take advice on whether or not these types of schemes will actually fit in with their individual circumstances.

Rodger Cairns, an associate at law firm Shepherd & Wedderburn, adds firms tend to take one of two approaches to providing information to employees with regard to larger all employee share schemes such as sharesave or share incentive plans (Sips). Typically, employers will either try to explain the mechanics of a scheme to the individuals themselves, through internal seminars and a scheme summary that they prepare in-house, or they will employ external expertise to do it for them. "That will either be lawyers or accountants or it will be the banks and building societies which effectively administer the schemes on their behalf.

Most people I work with don't tend to get an IFA in," says Cairns. Caveats Most of the literature and explanations issued to employers includes the caveat that joining such a scheme is an investment decision and employees should take external advice if they wish. However, the amount and type of advice needed by staff varies, being dependent on the scheme on offer as well as the individual's particular circumstances.

While some offerings are no-brainers, others are more complicated. As Cairns says, the limit on a Sip of £125 a month may not be "big bucks" but just because somebody earns £15,000 or £20,000, it doesn't mean they necessarily have that kind of money to invest. In many cases firms may be dealing with staff already saddled with debt, whether due to large mortgages or student loans