Employee participation is hot. The labor market is tight and retaining staff is more important than ever. It is therefore essential to motivate and reward employees properly. Research by the ROM shows that many employers who do not grant employee participations do not have a clear picture of the possibilities. What are employee participations and how do you use such a scheme for the company and the employee? This article highlights important aspects and points of attention of employee participations.
What are employee participations?
Employee participations are financial participations of employees in the company for which they work. With employee participation, companies can motivate and bind staff by allowing employees to share financially in the growth of your company. The interests of shareholders and employees are put on the same page. In essence, it means that employees are given the opportunity to become co-owners and/or share in the increase in value of the company.
Different types of employee participations
There are various options for employees to participate in the company. This can be done, for example, by having employees acquire shares, stock options, depositary receipts of shares or Stock Appreciation Rights (SARs). Depending on the option, you can choose whether or not to give voting rights to the employees and vary the level of financial involvement.
Shares give employees direct ownership and can be accompanied by voting rights, giving them influence over important company decisions. Stock options offer the opportunity to buy shares in the future at a predetermined price, which motivates them to contribute to the growth of the company. Depository receipts give economic ownership without voting rights, while Stock Appreciation Rights (SARs) allow employees to benefit from the increase in value of the shares without having to put in a lot of money themselves.
By choosing the right option, employee participations can be flexibly tailored to the needs of both the company and the employees. As a result, the interests of employees are more closely aligned with those of shareholders and management, which often leads to more involvement and loyalty of employees to the company.
Points of attention for employee participations
On September 23, 2024, a letter from the Ministry of Finance was published to the House of Representatives. During discussions with representatives of employees and employers within the Labour Foundation, they discussed four specific practical obstacles in the implementation of employee participation plans that promote ownership. They also referred to the limited information that is available.
- A correct business valuation. This is stated as the biggest bottleneck in shares of unlisted companies. You must value the share in the company upon receipt and then periodically for taxation in box 3.
- Lead time for preliminary consultation. Preliminary consultations are often required about the valuation of unlisted companies. However, there is a long lead time due to a shortage of capacity at the Tax and Customs Administration.
- Uncertainty regarding the Box 3 system. A possible capital gains tax could have a negative effect on employee participations that lead to ownership. This could result in employees having to pay taxes while they have not yet received any cash proceeds;
- Non-deductibility of costs for corporate income tax purposes. Unlike wages, donations of shares or depositary receipts are not deductible for corporate income tax purposes. To prevent you from running into this too, it is important to be informed in advance and to choose the right form of participation for your company and your specific wishes. DTS Duijn’s Tax Solutions can help with this.
Employee participations for your company?
The ‘war on talent’ has meant that just offering a salary is often no longer enough to attract talented employees. This is especially true for millennials, who attach great value to the opportunity to grow with the company, for example by participating in the company. Employee participations therefore give the company a big advantage in the labor market.
Despite the advantages, it appears that employers who do not yet use employee participation do not have a clear picture of it. This is evident from an investigation by the ROM, the results of which were also explained in the aforementioned letter of 23 September 2024. This shows that almost 30% of employers who do not have employee participation know too little about it or simply do not know why it is not used. However, with the current business climate and the knowledge economy, this is no longer an excuse not to use employee participations.
Leveraging employee participation rates
Are you considering an employee participation program for your company? Contact DTS Duijn’s Tax Solutions today to find out how we can support you with the tax and legal challenges, and set up an effective and compliant program for your team.
