What does an EOT mean for employees?
As employees receive an indirect stake in the business, there are a number of benefits to EOT's for them.
The main things an employee will want to know are:
- An employee will not become a direct shareholder in the trading company or group.
- An individual employee will have an indirect 'ownership' alongside all other eligible employees (broadly most employees), whilst they are an employee of the company or group.
- While employees will not receive dividends, they will potentially be entitled to an annual tax-free bonus of up to £3,600 (the EOT bonus). The bonus is subject to National Insurance contributions (NIC) and is dependent on the financial performance of the group and the terms of the EOT bonus scheme. Any bonuses paid in excess of £3,600 will be subject to income tax and NIC and the possibility of this should increase over time, as the deferred consideration owed to the original vendor(s) is paid down.
- One or more employee representatives will commonly be trustees of the EOT, to ensure the Trust is being governed in accordance with the EOT deed. They don't usually comprise of the majority of the trustees, however.
- While overall strategy, day to day decisions and governance remains with the Board of Directors, there's often scope for increased employee engagement in respect to the strategic decisions of the business. This increased engagement often results in greater employee commitment, drive for innovation and consequently an overall improved business performance.
