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Your Complete Guide to Save as you Earn (SAYE) Scheme

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complete guide to SAYE

SAYE at a glance

An SAYE scheme allows employees to save a fixed amount of their salary for a fixed amount of time in exchange for the opportunity to buy shares in their company at the end of the time period – often at lower than the market price – and receive significant tax benefits compared to regular earnings.

How does an SAYE work? 

An SAYE scheme begins with the company making an offer to all their employees. This offer will include the amount of salary each month you as an employee can save, the time period that you can save for, and the stock price you will be able to buy at when the scheme expires.

If you decide to participate in the SAYE scheme, you choose how much you want to invest (there are limits, in the UK you can invest between £5 – £500 per month for example) and for how long.

At the end of the scheme, you will have two options:

• You can use your savings to buy some, or all of the shares, that you can afford based on the offered stock price.
• Decide to not purchase the shares and have your savings returned as a lump sum.

During the savings period, the money will sit in a qualified savings account, run and managed by an approved savings carrier.

The benefits of an SAYE for an employee

Lower tax rates are a benefit of SAYE

Key Takeaway: An SAYE brings significant benefits for employees, including lower tax rates

SAYE schemes are one of the best, risk-free, methods of building your financial portfolio. The benefits come from two main areas: 

1. Tax advantages

2. Discounted shares 

The tax benefits of SAYE schemes are significant and make it worthy of the investment alone. In some countries, you don’t have to pay any income tax on any gain you make through an SAYE scheme.

That monthly investment you make into your SAYE scheme – which would be subject to normal income tax rates – is also tax free. Savings are deducted from their net salary. Taken together, this makes SAYE schemes both an efficient way to save money in the long term, and a low-risk way to invest.

You can find more details on taxes you may be liable to within an SAYE scheme in the section below. 

On top of the tax savings, many companies will offer their shares at a discounted rate. This means that your investment will be in profit on the day the scheme ends (providing the share price didn’t dip below the discounted rate) and, if the share price has gone up over the agreed period, your financial assets can look very healthy. 

The benefits of an SAYE for an employer

The benefits of an SAYE scheme for an employer are significant enough to wonder why more companies don’t take advantage of them. 

Firstly, an SAYE scheme benefits a company financially by allowing them to deduct the cost of establishing an approved SAYE scheme when calculating their tax liabilities, and no employer PRSI is payable. 

The real advantages for a business though come from the sense of ownership, loyalty and accountability an SAYE scheme can give to an employee. By committing to the scheme, an employee is much more likely to commit themselves to the company itself, both in the length of their service and the quality of that service. 

The Risks of an SAYE for the employee

The financial risks are almost non-existent when it comes to SAYE schemes, particularly for you as an individual employee. If the share price drops below the initial offered price, you can simply ask for your savings back at the end of the agreed period.

If you leave the company during the agreed SAYE period, there are a number of ways it can pan out – depending on whether you are designated as a ‘good leaver’ or ‘bad leaver’. This designation is not a matter of opinion, but rather how the agreement will be laid out from the very beginning. A bad leaver may get only their savings back, while a good leaver will be granted most of the benefits they would expect if they had waited until the options matured.  

The Risks of an SAYE for the employer

SAYE are low risk

Key Takeaway: One of the reasons SAYEs are so attractive is because they are so low-risk 

For the employer themselves, an SAYE scheme again has limited-to-no risks. While there are no financial risks, there is a reputational risk within your workforce if share prices drop to such a degree that it highlights bad performance and effects morale.  

If a company goes out of business during an SAYE scheme, then you may lose a large portion of the investment. While some jurisdictions have excellent protections for people in an SAYE scheme – for example, in the UK the Financial Services Compensation Scheme protects people up to a value of £85,000 – in others if the company goes out of business than you will lose those share options.  

If a company is taken over during an SAYE scheme, then typically the employees will be designated ‘good leavers’. The new owners do, however, have the right to exercise several different options, and those options will be dependent on whether the share options are vested (already transferred to you or you have secured the right to buy shares at a certain price) or unvested (promised to you but not fully earned as of yet, for whatever reasons). 

You can read more about what happens to an employee share plan in a takeover here. 

The tax benefits (and liabilities) of an SAYE

SAYE schemes are not subject to income tax, either when an employee is investing in their scheme on a monthly basis, or when they exercise their option and buy shares at the end of the scheme. 

This doesn’t mean that SAYE schemes are entirely tax free. Depending on the country it is based in, SAYE schemes may be subject to local taxes. In Ireland, for example, any gains will be liable to employee PRSI and USC (universal social charge). 

In the UK, you also do not pay income tax or national insurance on the difference between what you pay for the shares and what they’re worth, although you may be liable to capital gains tax when you sell. However, if you transfer the shares to an ISA (Individual Savings Account) or into a pension within 90 days of the scheme ending, you will no longer be liable for even this capital gains tax. 

The Limitations of an SAYE

SAYE schemes, depending on the country and its laws, will have a number of restrictions on what they can do – typically in the amount an employee can save, the time period they can save for, and the size of the discount an employee can offer on the market share price. 
Under Irish legislation for example, a participant can save a maximum of €500 per month and a minimum of €12 per month. The scheme can either run over 36 months or 60 months (3 or 5 years) and the maximum discount an employer can offer on the market share price is 25%. 
It is similar in the UK, where SAYE schemes are limited to a maximum saving of £500 per month limit and £12 minimum – also over a 3- or 5-year period. The maximum discount a UK employer can offer on the market share price is 20%. 

To SAYE or not to SAYE?

So, what are you waiting for? 

If you don’t need any more convincing and are ready to get going, have a look at our handy checklist.

As an employer, SAYE schemes are a great way to attract great talent, retain and motivate that talent, and improve performance across the board. 

For the employee, SAYE schemes allow you to make a low-risk, low tax investment while becoming a part owner of your company and making a profit on your investment at the same time. 

If you want to learn more about SAYE’s and are thinking about implementing one in your business, give our team a call by filling in the form below.

Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.

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