What Are the Key Clauses in an Employee Share Scheme to look for as an employee in Australia?

B3GIN Team
07/11/22
What Are the Key Clauses in an Employee Share Scheme to look for as an employee in Australia

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As an employee, it is crucial to familiarise yourself with the key components of an Employee Share Scheme to guarantee that you are receiving the most favorable outcome.

Employee share schemes (ESS) are becoming increasingly popular in Australia as a way for employees to participate in the success of their company. They provide employees with an opportunity to purchase shares in the company at a discounted price, and can also include additional benefits such as options to purchase shares at a later date.

As an employee, it is important to understand the key clauses in an ESS to ensure that you are getting the best deal possible. Here are some of the key clauses to look for when considering an Employee Share Scheme:

Eligibility
The first clause to look for is the eligibility clause. This will specify who is eligible to participate in the ESS, including any restrictions or requirements. For example, some ESSs may only be available to full-time employees, while others may be open to part-time employees as well.

Vesting
The vesting clause specifies when and how the shares will be vested to the employee. Vesting refers to the process of an employee earning the right to keep the shares they have purchased. This is usually done over a period of time, with the employee earning the right to buy a certain percentage of the shares each year.

Purchase price
The purchase price clause specifies the price at which the shares will be sold to the employee. This is usually a discounted price, with the discount being determined by the company. It is important to note that the purchase price may be subject to change, so it is important to understand the terms of the ESS and any potential risks.

Dividends
The dividends clause specifies how and when dividends will be paid to shareholders. Dividends are payments made to shareholders as a percentage of the company’s profits. 

Options
The options clause specifies the terms and conditions of any options that may be included in the ESS. Options are the right to purchase shares at a later date, usually at a discounted price.

Restrictions
The restrictions clause specifies any restrictions on the employee’s ability to sell or transfer the shares. This can include restrictions on when the shares can be sold, and to whom they can be sold. 

Taxation
The taxation clause specifies how the shares will be taxed. It is important to understand how the ESS will be taxed. It is usually very useful to ask a professional to have an advice on taxes.

 

When considering an ESS, it is important to carefully read and understand the terms and conditions of the scheme. It is also important to speak with a financial advisor or accountant to ensure that you are making the best decision for your financial situation.

 

Overall, employee share schemes provide employees with an opportunity to participate in the success of their company and gain financial benefits. However, it is important to understand the key clauses in an ESS and any potential risks before participating in such a scheme. By understanding the terms and conditions of an ESS, employees can make informed decisions and ensure that they are getting the best deal possible.

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