Legal Guidelines for HR Professionals on Implementing Employee Share Plans in Australia

Empowering employees through ownership is a tempting strategy, but dive into the world of Employee Share Plans (ESPs) unprepared, and you could find yourself lost in a labyrinth of legal complexities.

Fear not, fellow HR professionals! This blog serves as your compass, guiding you through the key legal considerations that can make or break your ESP’s success. Here is a roadmap of key legal considerations to ensure HR compliance and smooth plan administration.

 1. Regulatory Compliance

• Securities Laws: Compliance with securities and corporate laws is paramount. This includes adhering to disclosure requirements and ensuring that the offer of shares or options does not constitute an unregistered offer to the public under the Corporations Act.
• Australian Securities and Investments Commission (ASIC) Regulations: ASIC provides guidelines for employee incentive schemes. The ESP must comply with these regulations to qualify for exemptions from certain provisions of the Corporations Act.

 2. Tax Implications

• Income Tax: The taxation of benefits received under an ESP can be complex. The Australian Taxation Office (ATO) has specific rules regarding when and how benefits from ESPs are taxed. This may impact payroll processes.
• Fringe Benefits Tax (FBT): Depending on the structure of the ESP, there may be FBT implications that HR needs to consider.

3. Employement Contracts and Policies

• Contractual Terms: The terms of the ESP need to be clearly outlined in employment contracts or separate share plan agreements.
• Policy Integration: HR policies should be updated to include information about the ESP, such as eligibility, vesting periods, and the treatment of shares upon termination of employment.

 4. Disclosure and Confidentiality

• Information Disclosure: There may be legal requirements regarding the information that must be provided to employees, both at the time of offering the ESP and on an ongoing basis.
• Confidentiality Agreements: Employees participating in an ESP may have access to sensitive financial information, necessitating confidentiality agreements.

5. Anti-Discrimination Laws

• Fairness and Equity: The ESP must be designed and implemented in a way that does not discriminate against certain groups of employees. This is to comply with anti-discrimination laws.

6. Corporate Governance

• Board Approval: Implementing an ESP often requires board approval and may need to be reported in corporate governance statements.
• Shareholder Approval: In some cases, shareholder approval may be necessary, especially when creating new shares.

7. Employee Relations

• Communication and Education: Clear communication about how the ESP works is crucial to avoid misunderstandings. HR may need to provide or arrange training sessions on financial literacy for employees.
• Grievance Procedures: Procedures for addressing employee grievances related to the ESP should be established.

8. Record Keeping and Administration

• Documentation: Meticulous record-keeping is essential for compliance. This includes records of share allocations, vesting periods, and employee agreements.
• Reporting Requirements: There may be reporting requirements to regulatory bodies regarding the ESP.

9. Exit Scenarios

• Leaver Provisions: The ESP needs clear rules about what happens to employees’ shares or options when they leave the company, whether due to resignation, retirement, or termination.

10. Change in Company Status

Mergers, Acquisitions, and IPOs: In events like mergers or public listings, the ESP may need to be re-evaluated or restructured, with significant HR involvement.

Integrating an Employee Share Plan into a company’s HR framework requires careful planning, clear communication, and strict adherence to legal and regulatory requirements. ESOP plans are not a DIY project and if implemented incorrectly, you risk losing employees and the productivity of the incentive plan. HR professionals should work closely with an experienced adviser (like our team at Succession Plus) to ensure effective and compliant implementation of such plans.

At Succession Plus, we’re more than just advisers, we’re your Employee Share Plans architects. With more than 126 successful plans under our belt, we’ve helped over 807 employees realise the power of ownership, unlocking $38 million in collective equity value. This isn’t just about numbers, it’s about tangible impact.

We partner with companies like yours to craft customised ESPs that seamlessly integrate into your HR framework, fueling engagement, retention, and success. Book a free consultation today and discover how we can turn your employee share plan dream into a thriving reality.

Get in touch

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.