A Beginner's Guide to Employee Share Schemes


Employee Share Schemes (ESS) have gained traction in recent years, due to an increasingly competitive business landscape, roaring entrepreneurship, and recent tax reform.

But is it the right option for your business? Here's a basic guide to understanding Employee Share Schemes in Australia. 


What is an ESS?

An ESS is an agreement whereby an employer sells a portion of their company’s ownership, or the right to obtain ownership, to employees. In most cases, this is provided to employees at a discount, or free of charge.

Types of ESS

Understanding how to implement well-balanced ESS starts with understanding the facts and your commercial objectives. 

  1. What are Share-based ESSs?
    Shared-based ESSs give employees shares in the company they work for, usually at a discounted price to their market value
  2. What are Option-based ESSs?

    Option-based ESSs are options given to employee that the employee can “exercise” and convert into shares at some point in the future. There are certain rules and obligations employers must meet if providing ESS interests to employees at a discount.

Why offer an ESS? 

The key for all growth business founders is to attract top talent and retain them in order to grow their business.

Ownership (shares) or a path to ownership (options) in a start-up company excite new and potential employees and incentivises them to align their efforts to the company’s success.

The implementation of an ESS could improve productivity, commitment, and work ethic, which will contribute to the success of any business. 

Not only this, but ESS sets the foundation for building teams. It is a method that acts as a vital tool in unifying a team to share the same motives, values, passions, and goals, which will enhance teamwork capabilities.

Establishing a good ESS policy will be particularly helpful for start-ups, which are empowered to attract top talent, build a strong established team, compensate for typically lower cash, and utilise tax-effective solutions.

Pros and Cons of Employee Share Schemes Australia

Advantages of Employee Share Schemes Australia Disadvantages of Employee Share Schemes Australia
Compete with higher cash salaries  Demotivation if the value of shares fall 
Retain talent  Employee shares in an unlisted company can be difficult to value and sell 
Shift mindset from employee to business owner  Dilution of share ownership 
Enjoy benefit of tax concessions  Administration costs 


4 Steps to consider when implementing ESS

Step 1: Ask for expert advice  

Deciding whether ESS is suitable for your business, or which ESS scheme will deliver the best outcomes from both a tax effective and employee retention point-of-view, will differ depending on your business’s unique requirements. It is imperative that you engage an ESS expert who will discuss the strategy of your business, succession planning, key stakeholder priorities, business valuation, tax and any other considerations that may be relevant when determining the best policy for you. 

Step 2: Consider legal requirements 

There are several legal requirements to be aware of when considering the implementation of an ESS. Namely, the provisions of the Corporations Act 2001, ASX listing rules, provisions that may restrict companies from dealing with their own shares, taxation laws, privacy legislation and accounting standards.

Visit the ATO to find out more or get in touch with Azure Group to be referred to one of our trusted partners who can take care of your legal consulting needs.
Our partnerships have been formed over many years and are all trusted relationships that we would be pleased to recommend to our network of clients and associates.

Step 3: Fulfil employee and shareholder requirements 

You must maintain transparent and open communication with your employees by explaining how ESS works and why it is valuable, as required by the Australian Taxation Office (ATO) and/or Australian Securities and Investments Commission (ASIC).

Step 4: Report to the ATO/ASIC 

The ATO and/or ASIC require companies to adhere to regular ESS reporting requirements. 

ESS Guide_Azure Group Sydney-1ESS Tax

An ESS is an attractive tool to compensate, reward and incentivise employees, but you need to be aware of their tax implications, as well as restrictions and limitations.
It is important to know how an ESS works so you understand the eligibility conditions that apply to you.

Get in Touch

Azure Group is a strong advocate for Employee Share Schemes. As a strategic advisor and growth-minded firm, we believe it's the power of a team that builds a successful business and not capital alone. 

Azure Group have designed and structured many ESSs that have delivered significant financial success for Founders, Executives and Staff, creating millions of dollars of wealth. Our ESS have also protected founders when the executives or staff have failed to hit their predetermined targets or left the business.

Get in touch with our team to discuss your ESS needs. 


Have you noticed our #FridayExpertTips... here's one that relates to Employee Share Schemes

“Start-up Employee Share Scheme concessions allow young companies to offer their staff equity simply and with generous Tax benefits."


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About Author

Azure Group
Azure Group

Azure Group is the leading Chartered Accounting, Business Advisory and Strategic Advisory firm supporting the growth & success of fast growing entrepreneurial businesses.

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