Save As You Earn schemes (SAYE) allow employees to invest in the business for whom they work in a way that saves them tax. These employee incentive arrangements aren’t just good for staff, they benefit the employer too. In this article, we unpick SAYE schemes and explain why it may be a good idea for your business to set one up.
How do SAYE schemes work?
Under a SAYE scheme, workers set aside part of their salary every month to save towards shares in their employer and are granted options. At the end of a fixed term (three or five years), they can buy the shares at a pre-agreed discount on the market value at the time of the grant, of up to 20%.
If at the end of the term, they decide they don’t want to purchase shares, they can get their money back. In effect, it’s a risk-free way to save, since the money is paid into a special bank account that’s guaranteed up to £50K per person. Interest is also payable on the funds, and this is tax-free. And if the shares are performing well, they get a bump in terms of the discount on the price of the shares when they exercise their right to buy, and the shares are bought free of income tax and national insurance contributions.
In terms of SAYE scheme rules, the shares must be ordinary, non-redeemable shares that are fully paid up. Your company must tell HMRC about the scheme and confirm that it meets the rules for SAYE schemes. Also, you need to offer the scheme to all employees who have been with you for five years or more (and you can choose to offer the scheme to those with less service).
What’s in it for the employee?
Your employees benefit because whether they choose to exercise their option or not, they will earn interest on the money saved. The amount they choose to save can be as little as £5 per month or as much as £500 per month, so it’s a flexible way to save. If the value of the shares has gone up, they will receive a financial benefit in terms of the discount offered on the value of the shares, and this is tax-free. If they sell the shares, they will be subject to capital gains tax on any gain, but this is likely to be covered by their annual CGT exemption.
How popular are SAYE schemes?
Of all the employee share incentive schemes available to employers, SAYE are the most popular. In the tax year 2018/19, a total value of £1,603m in options were granted, exercised, and allowed income tax and NIC relief.
Why would a SAYE scheme be good for my business?
Smart businesses know that the key to success is attracting the best talent. Getting your team aligned behind your business objectives is one of the best ways to accomplish this, and with a SAYE scheme, workers become shareholders so they’re strongly motivated to work with you to grow the business as the value of their shares will increase.
If you’re keen to hold on to cash to reinvest, you may not have funds available for high salaries and bonuses. In this situation, offering a SAYE scheme can make a career at your company appear an attractive choice. What’s more, because even your lower-paid staff can participate, they are a good way to get all members of your team behind your business goals.
Another reason why it’s a good idea to have a SAYE scheme is that it can free up communications between the company’s shareholders and the board of directors. Employees holding shares may form a significant percentage of the total number of shareholders, and you can use this group as a sounding board when you’re considering new ideas for the business. It can help with employer/employee relations too, as shareholding staff feel more invested in the business and more inclined to freely express their opinions to management, even if these are critical.
Some companies use platforms like Slack or their intranet to create channels where employee shareholders can discuss business matters. They can also ask questions about the SAYE scheme, and engage with each other. This can foster better staff/employer communications overall, with workers feeling consulted and engaged, and more inclined to participate in the success of the business
As well as employees receiving tax benefits under SAYE schemes, you can treat a SAYE scheme as an expense for corporation tax.