The government has announced it will go ahead with its plans for an employee-owner scheme.
The scheme, which was announced by Chancellor George Osborne on 8 October, would require employees to give up employment rights, such as wrongful dismissal, the right to redundancy pay and the right to ask for flexible working, to receive between £2,000 and £50,000 worth of shares in the company they work for.
In a consultation, the government sought views on the practicalities of implementing employee-owner status. It received 209 completed responses during the consultation from a wide variety of organisations.
A very small number of responses welcomed the scheme or suggested they would be taking it up. Issues raised included the potential impact on individuals and how the shares would work. There was also concern that employee-owner status would be misused by organisations, and that the tax advantages could be abused.
The government will make a range of amendments to the scheme using feedback from the consultation, including:
- Explicitly state that the shares should be fully paid up and be issued free of charge to the employee owner: The current draft would allow companies to issue shares that are not fully paid up. If an employee owner is given shares that are not fully paid up, they could be left with a financial liability if the organisation becomes insolvent. The employee owner should give no payment or consideration for the shares other than by entering into the agreement.
- Enable an increase in the minimum value of the shares (currently £2,000). Over time, inflation will erode the value of the lower limit. The government intends to create a power for the secretary of state to increase, but not decrease, the minimum value of the shares that must be offered to the employee owner. This change will be made as the economic circumstances or other factors require.
- Remove the share range upper limit (£50,000). As currently drafted, the scheme specifies that a person must be issued with shares worth between £2,000 to £50,000. However, a person issued with £50,001 shares would not qualify. It is not the policy intention for employment law purposes to exclude a person with more than £50,000 from the new employment status. The £50,000 cap relates only to the capital gains tax (CGT) exemption.
- Allow non-UK registered organisations to use the employee-owner status. Currently, the draft restricts the use of the status to UK-registered employers. It is the policy intention to allow European Union and overseas companies to use the new status.
- Change additional paternity leave notice period to be in line with maternity and adoption leave. The amendment will make the additional paternity leave notice period for those fathers returning early in line with maternity and adoption leave for employee owners.
- Allow shares to be issued in both the employing company and its parent. The government wanted to allow employee owners to be able to receive shares in parent companies rather than just in the immediate employing company. However, it will not allow qualifying shares to be issued in a subsidiary company, thereby restricting scope for abuse.
The government has also reflected on the employee-owner name, and considered it should be changed to better describe the status. It intends to re-name the scheme employee shareholder.