Group calls for Government backing for shares-for-salary scheme

SMEs can survive Covid-19 by letting staff take shares in lieu of salary, says IPSA

Just 6 per cent of Irish employees are shareholders in the companies they work for, compared to an EU average of 21.7 per cent. Photograph: iStock

Just 6 per cent of Irish employees are shareholders in the companies they work for, compared to an EU average of 21.7 per cent. Photograph: iStock

 

A representative organisation for companies that have some form of employee share ownership has called on Government to allow changes to Revenue rules so that more employees could take shares instead of some of their salary to help companies cope with cash flow during the Covid-19 pandemic.

The Irish ProShare Association (IPSA) is seeking Government backing for a shares-for-salary scheme to help “struggling businesses protect jobs and withstand the impact of the Covid-19 economic crisis”.

Specifically, the organisation is advocating that companies offer shares in lieu for part of their salary, a solution which could be an alternative to redundancies for some businesses, it says.

But it’s not suggesting that a shares-for-salary scheme would work for all businesses. Speaking to The Irish Times, IPSA chairwoman Eleanor Cunningham noted that many businesses interested in the scheme would have at least 20 to 30 employees.

And for private companies that are not listed, Ms Cunningham noted that an internal market for shares whereby, for example, a company agreed to buy back shares at a certain date would have to be created.

Despite some of those complications, the IPSA is seeking concessions from Government to the salary sacrifice rules where salary is swapped for any form of shares due to Covid-19 pressures. Though it’s not advocating for salary reductions, it is conscious that that is already happening.

Salary sacrifice

Under the existing salary sacrifice tax rules, employees who forego salary for a benefit such as shares in the company they work for are liable to pay tax on both the salary they have sacrificed and any benefit they accrue from their shares.

“A shares-for-salary scheme which allowed a portion of remuneration to be directed into shares in a temporary, tax-efficient manner would provide SMEs with a very viable cash consolidation option which could ultimately help them survive this crisis. It would also provide a financial commitment to employees suffering a loss of income that they will benefit directly when the business recovers,” Ms Cunningham said.

That, and other proposals, were contained in a submission the IPSA made to Government, but the organisation is urgently seeking cross-party support for its proposals.

“Increased employee share ownership can aid our economic recovery. Studies show that businesses that have some form of employee ownership are more resilient in times of uncertainty. They weather recessions with fewer jobs lost, and they bounce back better, quicker and stronger than other companies because their employees are more invested in the success of the company,” Ms Cunningham said.

More than 500 companies in the Republic have approved employee profit sharing schemes while 6 per cent of Irish employees are shareholders in the companies they work for, compared to an EU average of 21.7 per cent.