Businesses today have many options to compensate employees for their hard work and dedication. They can add additional vacation days, provide daycare, and offer an employee stock purchase plan.

This allows employees to purchase stocks in the company. It provides them with a wonderful new method of compensation and encourages them to make the company more profitable. The better the company does, the more valuable their stock.

We created this handy guide to show businesses why an ESPP plan would make a wonderful addition to their employment package. Your employees will appreciate it and it helps your company.

Creating an ESPP Plan

One of the biggest questions a company has is, “How to Manage Your ESPP Plan”. For employees, it’s the easiest way to purchase stocks. There are no brokerages to go through. They purchase the stocks through a payroll deduction from their paycheck.

There are two types of ESPP plans: qualified and unqualified. Qualified is the most common and adheres to the various policies of the IRS, must be approved by shareholders and everyone is equal.

Unqualified plans don’t have all the restrictions, but also don’t have any tax benefits. Most companies choose qualified plans because of this.

The Offering Date

The company must first provide an offering date and inclusion into the plan only starts after this date. It continues until the offering period is over. Companies can have consecutive or overlapping offering periods.

There is the offering period and the purchasing period. This is when the stocks are actually bought. Once enrolled, the employee determines how much money they want to go towards the ESPP plan. Companies often limit this to about 10 percent of the after-tax income.

The IRS also stipulates that a maximum of $25,000 per year total. The money is taken out of the account on paydays and placed into another account. Once the purchase date rolls around, the money is used to purchase the stock.

Perks of Employees

As another perk for employees, the companies often offer stocks at a 10-15 percent discount. Employees already start the plan at a gain. The company determines if employees can withdraw funds between purchase dates or when to change levels of contribution.

People who own more than percent of the company cannot be part of the plan as well as anyone who works at the company for less than a year.

Employees should talk to their tax preparer about tax implications that change based on how long they have the stock, the price of the stock, closing price at the offering date, and closing price at the purchase date.

Consider an ESPP Plan

In addition to the financial benefits of the ESPP plan, it also motivates employees to make the company more profitable over the long term. It’s an attractive compensation that many companies use to entice employees and it costs little for the company.

If your business is interested in learning more about ESPP plans and what they can do for you, then please explore our site.