Employee retention strategies for owner-managed businesses
People are key to the growth of any business. Simply saying “we’re a people business” or installing an office pool table probably won’t be enough to retain the right talent. Employee retention strategies, therefore, should be a high priority for UK business owners keen to see their companies expand.
In this article, Consilium Tax Partner Craig Coyle outlines a range of tax-efficient employee retention strategies for businesses. Craig also provides some practical tips for implementation to help business owners retain the best and brightest talent.
Alongside the more obvious measures such as increased pay and bonuses, there are several tax-efficient ways of retaining and incentivising your most important asset. Indeed, as wage inflation persists and UK tax thresholds remain relatively unchanged, some of these employee retention strategies may be even more appealing to employers and employees.
Employee retention strategies: Employee equity
One method of retaining key personnel – and encouraging them to grow your business – is to offer them a stake in that growth. Employee equity is most efficiently achieved through Enterprise Management Incentives (EMI).
EMI share options are an “approved” share option scheme, which means they come with certain tax advantages. Broadly, a value is agreed now with HMRC, and the employee has the right to buy shares at that price (usually on an exit by the main shareholder) in the next 10 years.
This method provides a reward for the employee at Capital Gains Tax rates, should they stay around until exit and help to grow the value of the business. There is even a tax deduction for the company.
Other share incentives can be considered where EMI options are not available.
For advice on share incentive and EMI schemes, please get in touch with Craig.
Employee retention strategies: Vouchers and salary sacrifice
At the lower end of the scale, vouchers can be a way to provide small rewards to team members, which might help boost employee retention. Trivial benefits of less than £50 per head are not taxable. This can include small gifts such as wine or flowers, but also vouchers or cards for retailers.
Importantly, there is no limit on the number of trivial benefits which can be provided. However, each individual award cannot exceed £50 (and cannot be more than £300 in total for a Director of a close company).
Allowing employees near to tax thresholds (particularly £100,000) to salary sacrifice into a pension is also a way to help lighten the tax burden on your team.
Employee retention strategies: Management buy-out/ Employee Ownership Trust
The ultimate form of employee incentivisation is to sell the business to them. This can be to specific members of the team through a management buyout (MBO), or to a trust looking after the interests of the employees as a whole through a sale to an Employee Ownership Trust(EOT).
As a bonus, the latter even has a tax rate of zero per cent for you as a seller, if properly structured.
Learn more about how Consilium can help your business transition to employee ownership through an MBO or EOT. Please reach out to Craig for an initial discussion if you would like to explore selling to employees.
Helping business owners make tax-efficient decisions since 2013
Consilium Chartered Accountants are trusted Tax advisors to business owners and individuals. We offer the technical expertise needed to handle any UK Tax compliance issue and the proactive insight to help clients plan for and mitigate tax risks.
Consilium also provide comprehensive support and advice for business owners sharing equity through share schemes, Management buy-outs or exiting to an Employee Ownership Trust.
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Craig Coyle has been a qualified Chartered Accountant since 2001 and a Tax specialist for over 20 years. As a Tax partner at Consilium Chartered Accountants, Craig advises business owners and entrepreneurs on all matters relating to Corporate and Personal Tax. Craig is also a member of the Chartered Institute of Taxation.
