Employee share schemes (ESSs) and employee share option plans (ESOPs) are a type of remuneration that allows employees to acquire an interest in their employer at market value, a discount or at no cost at all. These schemes deliver benefits to both employees and employers. In this article we explain the ongoing reporting and compliance requirements involved with ESS and ESOP, and share some tips to ensure you get it right.
Understanding Employee Share Scheme Reporting Requirements
ESS reporting requirements are your ongoing responsibility to keep the Australian Taxation Office (ATO) informed about all employee share scheme transactions throughout each financial year. ESS statements are the notices given to employee participants, and ESS annual reports are the aggregated information provided to the ATO.
ESS Statements
An ESS statement outlines the details of shares, rights, options, or interests provided according to an employee’s ESS interests. It must be provided to employees no later than 14 July, generally in the financial year in which the benefits are granted and the financial year in which the benefits are taxed.
ESS Annual Reports
Here are some tips for preparing ESS annual reports:
- ESS annual reporting forms are due by 14 August each year.
- Engage finance or accounting teams early to ensure accurate reporting.
- Develop a robust process for data collection and entry.
Why ESS reporting is important:
- For businesses: Compliance with the law, signals credibility to current and potential investors and/or acquirers.
- For employees: Ensures their tax position is correctly recorded and reported to the ATO.
- For the ATO: Monitoring compliance with ESS tax concessions.
Ongoing Employee Share Scheme Compliance
Implementing an employee share or option plan is not a ‘set and forget’ exercise. It requires vigilance to ensure ongoing reporting obligations are met.
Proactive ESS compliance measures:
- Undertake regular audits of internal reporting processes.
- Develop a framework for managing and tracking ESS compliance.
- Stay updated with ATO newsletters and bulletins, and consider professional training for HR and finance teams.
FAQs on Employee Share Scheme Reporting
Here's a few questions our accounting and tax experts get asked by clients with an ESS/ESOP in place.
Q. We missed a reporting deadline. What do we do?
A: Reach out to the ATO immediately, or speak to your accounting advisor to do so on your behalf. Early communication could mitigate penalties.
Q: Do we need a system and process in place for ESS reporting?
A: Yes, and start now. Even small steps towards an ESS reporting structure could save you from future headaches and potential penalties.
The Benefits of Employee Share Schemes
Before we wrap this up, let's take a quick look at the benefits of employee share schemes and ESOPs.
Benefits for Staff
- Ownership and motivation: Employees gain a direct stake in the company's success, fostering a sense of ownership, motivation, and increased productivity.
- Tax advantages: When properly designed, ESSs and ESOPs can offer significant tax benefits to employees.
Benefits for Employers
- Attracting top talent: ESSs can be a powerful incentive to attract and retain top talent .
- Retention strategy: Particularly in early stage and fast-growth sectors, an ESS operates as a powerful employee retention strategy, encouraging employees to stay with your business.
- Ability to remunerate competitively: ESS and ESOPs allow cash poor young businesses to offer a stake to employees instead of trying to compete with higher salaries offered by larger firms
- Alignment of business and employee interests: These plans align the interests of staff with those of shareholders, encouraging employees to think like business owners and ensures everyone is rowing in the same direction.
Get Help With ESS Reporting and Compliance
We've implemented hundreds of ESS and ESOP for businesses of all sizes. While compliance with ESS reporting can be time-consuming and challenging, the schemes themselves come with substantial rewards in terms of staff retention and reduced wage costs. BlueRock’s experts can help with every aspect of implementing and ensuring compliance when it comes to employee share schemes.
