Employment related shares

Unapproved share scheme: Employee Share Purchase Plans

Many companies, particularly subsidiaries or branches of US corporations, operate Employee Share Purchase Plans (ESPPS). It is an unapporved share scheme.

An ESPP is a way for you to purchase shares in your company through payroll deductions, sometimes at a discounted price. Once you have enrolled in the plan, your company will collect your payroll contributions to purchase shares on a specific date.

The discount allowed is normally 15% of the market value of the shares on either the:

  • first day of the offer period
  • last day of the offer period.

The discount is applied to the market value on whichever day had the lower value. The offer period is normally six months.

How does the plan operate?

The company may make an offer to you under the plan to purchase shares in the company. 

Generally there will be a maximum percentage of salary that you can invest in the plan. You decide how much net salary or wages you wish to contribute to the plan. You contribute the same amount each month for the six-month period. Your contributions are held on your behalf by the company, usually in a non-interest bearing account. At the end of the six months the contributions are used to purchase shares for you. 

Income Tax (IT)

The discount allowed by the company is chargeable to IT as a benefit derived from your employment.  The amount chargeable is the difference between the:

  • market value of the shares when they are purchased on your behalf 
  • amount you pay for those shares.

You will pay IT, Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the amount of the discount. All deductions will be through payroll through the Pay as You Earn (PAYE) System. 

Some ESPPs might be drafted in such a manner that would make them share option plans. This will depend on each individual plan.

Next: Unapproved share options