Closure of the New Zealand Border has created new challenges for employers seeking to recruit and retain key staff. Offering a key staff member, or new employee, a stake in the business is therefore increasingly common particularly in industries such as hospitality.
The common ways employers now incentivise staff to stay in their role, include:
- Bonus Schemes, usually paid later in time, to encourage employees to stay in their current role, and also have more of a reason to achieve more; and
- Giving that employee a shareholding in the business and/ or making them a director. An ownership stake and/ or a measure of control not only makes that employee less likely to take up another role, it motivates them. That motivation does not just come from financial rewards, it may include being seen by customers and other staff as being valued.
For bonus schemes, they need to factored in:
- How the bonus is measured – personal performance, based on company profits during that period, or a mixture of both;
- Who determines the bonus if there is a dispute;
- The employer paying tax on that bonus; and
- When a bonus will not be payable, such as if the employee works for the competition or is dismissed for good cause.
Transferring shares to an employee has all of the issues above as well as the following:
- The entry and exit price to be paid for a shareholding, or if the purchase price is loaned to that employee;
- Requiring that employee to sell their shares back if they leave the company, or if the majority owner wants to sell the business; and
- Preventing that employee from working for a competitor while they are a shareholder and often also for a period after they leave.
When an employer provides benefits to an employee, there can be tax implications for both. Accounting and legal advice should be sought for all bonus or shareholder employee schemes.