‘Owner-Employee’ status

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The Chancellor of the Exchequer, George Osborne, has announced plans for a new kind of ‘owner-employee’ employment contract. While this new status will be optional for existing employees, new employees may be required to waive employment rights such as unfair dismissal and redundancy for ‘owner-employee’ status. In return for giving up these employment rights, any gains on the shares will be exempt from capital gains tax.

Under the new owner-employee contracts employees will be given between GBP2,000 and GBP50,000 worth of shares that are exempt from capital gains tax.  In exchange, they will lose their rights to claim unfair dismissal, redundancy, request flexible working or time off for training, and will be required provide 16 weeks’ notice of their date of return from maternity leave, instead of the usual 8.

Owner-employee status will be optional for existing employees, but both established companies and new start-ups will be able to choose to require new employees to enter into this new type of contract. Companies recruiting owner-employees will be able to insert more generous employment conditions into the employment contract if they want to. Although the Government states that the new contract is ‘principally’ intended for fast growing small and medium sized companies, companies of any size will be able to use the contracts.

The Government will legislate later this year to enable companies to use the new owner-employee contracts from April 2013 – presumably via the Enterprise and Regulatory Reform Bill.  Later this month the Government will consult on, among other things, the details of restrictions on forfeiture provisions to ensure that the company can buy back the shares at a reasonable price if an owner-employee leaves or is dismissed.