Shares for employees
Employee Share Purchase Plans and cash-settled share-based awards
Employee Share Purchase Plans (ESPPs)
Many companies, particularly subsidiaries or branches of US corporations, operate an ESPP.
An ESPP enables your employees to purchase shares in your company or your parent company at a discount. The purchase is funded through deductions from the employee’s net salary or wages. The discount allowed is normally 15% of the market value of the shares, on either the first or last day of the offer period, whichever is the lower. The offer period is normally six months.
ESPP schemes are normally treated as share awards and taxed through the Pay as You Earn (PAYE) system. If the ESPP provides the employee with an option to acquire the shares, then the award is treated as an unapproved share option. This will depend on each individual plan.
Cash settled share-based awards
Some employee benefit plans offer cash payments to employees based on the value of shares in a company. The method of calculating the cash sum will vary depending on the scheme. The payment may equal the value of the underlying shares on a particular date, or any increase in their value over a set period.
Examples of such awards include phantom shares, Stock Appreciation Rights (SARs) and cash-settled restricted stock units (RSUs).
Where such awards are paid as cash amounts, the cash payment should be treated as normal pay. You must deduct as appropriate under the PAYE system:
You must not include cash-settled awards as share-based remuneration on the payroll submission.
Cash payments are not exempt from employer PRSI.
Sometimes an employee is entitled to cash payments equivalent to the dividends accruing to the underlying shares. These dividend equivalents are taxable emoluments of the employment and are subject to normal payroll deductions.
You must report details of the ESPP and cash-share awards on the Form ESA.
The Form ESA must be filed by 31 March following the relevant tax year. The return must be completed offline and then uploaded to Revenue Online Service (ROS). The return contains detailed instructions on how to complete and upload it to ROS.
Next: Unapproved share options