Think hard before giving shares to new employee

TE writes: I recently recruited someone who is proving to be a key person in my business and I’m considering giving them shares. Can I give them some of my own, or should I issue new ones?

If you give shares to your employee, a tax charge will arise on you or them, writes Jon Dawson, partner at Kingston Smith LLP. Gifting your own shares will be seen as a disposal for capital gains tax purposes and you will be taxed on the market value of the stock. Issuing new shares will result in an income tax charge on the employee, based on the value.

• A number of other issues need to be considered before going ahead:

• There could be a detrimental effect on other staff, who may feel less valued;

• You could be restricted in how you extract profits from the company if you have to pay dividends to all shareholders;

• Issuing new shares could dilute the shareholdings of other investors;

The employee has not been with you for long and you do not know if they will be committed and successful in the long term.

You could issue share options instead. These can have performance conditions attached to them or they can be linked to an event, such as you selling the business. They would allow you to assess the worker over a longer period. Most options cancel if the employee leaves.

A share option scheme set up as an enterprise management incentive, approved by HM Revenue & Customs, has advantages for the worker and employer, is relatively easy to establish and can be expanded to a wider range of staff.

I want my investment in training to pay dividends
CK writes:
I have an employee coming to the end of an apprenticeship. She is keen to move on to further education, which I have offered to help fund. I obviously want to ensure I receive a commitment in return, or at least partial reimbursement if she decides to leave the company within a certain time. Where do I stand legally?

Once apprentices finish their recognised training, companies usually offer a full contract of employment, writes Peter Done, managing director of Peninsula. There is no legal requirement to do so, however, unless contractually agreed.

Funding for further training should be provided on the same terms as are offered to any other employee. Training agreements are commonly used by businesses to cover, for example, gaining professional qualifications. These set out the terms and conditions regarding payment for training. An agreement should be signed in advance of any training by the employee, as an express written agreement or contractual agreement.

Training agreements usually state that all or part of the costs paid by the employer are recoverable if the worker leaves the business within a set time. A sliding scale is often used so that the longer the employee stays, the lower the costs that can be recouped.

While funding is an important part of education, additional support, such as allowing time off for revision or being flexible with the employee during their assessment periods, has lower costs and gives the same result in terms of loyalty. Staff are likely to stay with a business that is encouraging them in a career.