Save As You Earn (SAYE) schemes are back

What is an SAYE scheme?

This is a Revenue-approved, tax-efficient employee share scheme offering tax savings for employees and their employers.

Under an SAYE scheme, a company grants employees the option – right – to acquire shares at a fixed price in the future. Separately, the SAYE scheme is linked to a formal savings contract between employee participants and a third-party financial institution.

At the end of the savings period, participants can exercise their option to acquire the shares. The purchase is funded by the proceeds of the SAYE certified contractual savings scheme. The option price, which is fixed at time of grant, may be at the full market value or at a discount of up to 25% of the market value.

Tax treatment and other conditions

Any gains made by participants when exercising SAYE options are exempt from income tax (up to 40%). The employer social tax (PRSI) exemption is also available, subject to certain conditions.

An approved SAYE scheme must be open to all employees and full-time directors of the company, all of whom must participate on similar terms.

Eligible participants must enter into a savings contract with an approved carrier, making monthly payments from their net income (after tax, USC and PRSI) of between €12 and €500 per month. Any interest or bonus payable through the savings contract at maturity is exempt from income tax and isn’t subject to deposit interest retention tax (DIRT).

What are the benefits of SAYE schemes?

• SAYE schemes help employers to attract and retain talent. Participants cannot exercise their option before the third anniversary of grant if they want to enjoy the income tax relief.

• The income tax relief for participants of up to 40% allows employers to provide more value to their employees, benefiting their bottom line.

• The scheme offers flexibility for employees. They are not required to exercise and they can instead take back their savings if needed.

• The employer can avail of the employer PRSI exemption.

• The costs of establishing the scheme are tax-deductible.

Which other tax-efficient schemes should you consider?

Another tax-efficient share scheme is an Approved Profit Sharing Scheme (APSS). Typically, employees are offered a choice of receiving shares free of income tax (up to 40%) up to a total value of €12,700 per year as an alternative to cash bonuses from which income tax, the USC and full PRSI are withheld. The shares are beneficially owned by individual employees, though they must be held in a trust for at least three years for the income tax exemption to apply. The approved scheme must be open to all eligible employees and full-time directors with at least three years' service.

Companies commonly use a restricted share plan to retain key personnel. It allows for an income tax discount on the acquisition of the shares (including shares acquired on exercise of a share option), by an employee/director of the company, provided there is an absolute restriction (‘clog’) imposed on their ability to sell the shares for at least one full year after they acquire them. Depending on the restriction period, the amount chargeable to income tax is reduced by between 10% and 60%.

We are here to help you

Our Workforce team designs innovative remuneration strategies that not only promote loyalty, but also enhance your employer brand. In this context, we advise many Irish-owned and multinational companies on all aspects of equity-based reward, including the effective administration of share plans.

Find out more about how SAYE schemes or other approved share schemes can benefit your business and your employees — contact us today.