Your company may offer so-called employee shares. These can come with a number of advantages for the workforce and the company. In this article, you will find out exactly what employee shares are, the forms in which they are issued, the benefits and how they are treated for tax purposes.
What are employee shares?
Employee shares or employee shares are Company shareswhich are issued as securities to the employees of the respective company. Such opportunities occur within certain programs that can bind employees more firmly to the company and give them the opportunity to participate more strongly in the company's success.
This type of share is therefore exclusively to the company's own employees awarded. These company shares can become ordinary shares on the stock exchange if the owners sell them on the stock exchange. They are usually only allowed to do this on condition that the shares have been held for several years before the sale.
- Many large companies such as Google or Microsoft issue employee shares to their staff.
- But employee shares can also be a useful method for smaller companies to retain good employees and tie them to the company.
How are employee shares awarded?
Often Stock options issued to the employees. This gives them the right to purchase a fixed number of company shares at a predetermined price. This is called the exercise price.
This is linked to the granting of options over a certain period of time. Once this period has expired, the employees can decide whether they want to exercise the option and buy the share.
There is also the option for companies, Restricted shares to issue shares. Such shares have certain restrictions that relate to the transfer or sale of the company's shares. There are often certain regulations that allow the restrictions to lapse or decrease over time.
How exactly employee shares are transferred varies from company to company. Some companies sell their shares at the normal price, others offer discounts where employees take advantage of benefits or receive a subsidy. Some companies give away employee shares.
Advantages and disadvantages of employee shares
Employee shares have a number of advantages for the workforce and the company. The following advantages arise from the employees' perspective:
- BenefitsEmployees often receive discounts for buying employee shares compared to buying them on the stock market. There are often programs with bonus shares that give an additional share free of charge when a certain number of shares are purchased.
- Participation: By owning shares, employees are actively involved in the success of their company, which can increase their motivation for their own profession.
- Own depotCreating your own securities account for employee shares also has the advantage that you have the option of buying other securities. This can increase interest in the topic of investments.
To the Nachteilen of employee shares includes the Minimum holding periodwhich must often be adhered to. A holding period of one to four years is common here. Employees may only sell their shares once they have been held for several years. As with other shares, the Success of the course not guaranteed. After expiry of the deadline, a Deposit transfer to an online broker such as CapTrader is usually possible without much effort.
In addition, a portfolio that consists only of shares in one company is not suitable, not diversified. All risks are therefore attached to a single company, as are the profit opportunities.
The issue of employee shares can also bring benefits for companies:
- Retain employeesEmployee loyalty can be fostered if employee shares are issued and employees are given the opportunity to participate in the company's success. In this way, a sense of belonging can be created in which the share owners perceive themselves not just as employees, but as part of the company.
- Promote motivationA direct financial incentive can lead to an increase in employee motivation. They can see from the share price performance that good work contributes to the success of the company.
Taxation of employee shares
When employee shares are issued, this gives rise to a so-called imputed income. This is part of wages and is therefore subject to income tax. Employee shares are therefore taxable. In Germany there is an annual Tax allowance for the purchase of employee shares. Since 2024, this has been 2,000 euros per year.
Taxation takes place at the point in time at which the Transfer of company shares or the employees are not aware of the issued Execute options.
It is useful for employees to know that Claiming losses for tax purposes can be made. If an owner incurs losses when selling the employee shares at a later date, the employee's tax burden can be reduced by declaring this for tax purposes.
Conclusion: How employee shares work
Companies can issue employee shares to their employees. This offers advantages for the companies themselves, as the Employee loyalty to the company. In addition, companies can use this method to Promoting employee motivationwho receive a financial incentive through participation.
Such company shares also have advantages for the employees. They become participate in the success of the company and create their own securities account, which can encourage interest in investing. In addition, they often receive the shares discounted or benefit from Bonus programs like free shares when buying a fixed number.
Such employee shares are often issued in the form of Stock options or restricted shares awarded. The latter are subject to a minimum holding period before they can be resold.