Delete owner-employee plans, Lords urged

Official plans to offer workers tax-friendly shares in exchange for employment rights have been criticised by legal experts as flawed and counter to the government’s approach to small and medium-sized enterprises (SMEs).

The Law Society has written to the House of Lords to ask that it delete the employee-shareholder status from the Growth and Infrastructure Bill currently being considered, to avoid creating more red tape for firms that have come to expect a lightening of their administrative and legal burdens.

Under the proposals, new members of staff will be given at least £2,000 of shares in the company in exchange for giving up their rights relating to unfair dismissal, redundancy, and requests for flexible working and time off for training.

The shares will not attract capital gains tax, but they will be liable to income tax and National Insurance: a situation the chancellor, George Osborne, pledged in his recent autumn statement to address.

Fast-growing businesses will benefit from employee-shareholder contracts – originally called owner-employee – by being able to create a flexible and engaged workforce, claimed Osborne, but the Law Society warned that SMEs will be put off by the complexities of tax and company law.

The organisation’s president, Lucy Scott-Moncrieff, claimed the termination of an individual’s contract would be a particular cause for confusion.

“There is potential for costly litigation on a range of complex issues that are likely to arise when an employee leaves, which runs counter to the government’s stated aim of supporting small and medium-sized enterprises through simpler regulation,” said the human rights specialist, a managing partner with the firm Scott-Moncrieff and Associates.

She added that the planned employment status also conflicts with the government’s commitment to family friendly policies by restricting rights to flexible working and demanding 16 weeks’ notice of the intention to return from maternity leave, adoption leave or additional paternity leave, eight weeks earlier than the current standard.

“The proposals are likely to have a discriminatory impact because employers may not be aware of the interaction between the rights being sacrificed and those rights governed by domestic legislation, which still apply to them. Employers would have to take this into consideration in order to avoid allegations of indirect sex discrimination,” said Scott-Moncrieff.

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