By Ben Chernoff, Director at Davis Grant
According to the new Digital Leadership Report, produced by the Harvey Nash Group, the UK tech sector’s growth is at risk of slowing due to a significant skills shortage.
The new study showed that 66 per cent of tech companies intend to boost their headcount.
However, with eight in 10 digital leaders saying that new life priorities among staff are making retention more challenging and that the sector faces a struggle to find and retain the best people.
Regular job switches in tech are not unheard of, but with four in 10 tech leaders concerned that employees are not remaining with their companies as long as they would like, there is clearly worry in the industry.
Add to this the loss of many talented tech experts, due to career changes, retirement or a return to their home countries due to Brexit and it is easy to see why the nation is experiencing a skills shortage.
Despite this challenge, only 38 per cent of organisations have redesigned their employment offer to make their company more attractive to new recruits.
So, what steps can businesses take to find and retain the most talented people?
Higher pay
It may seem obvious, but a big factor within recruitment is pay. Although it may not be as important as it once was, businesses can often secure the best staff by simply paying more.
Of course, employment costs can have a big impact on a company’s profitability and may limit growth in other areas such as investment in innovation, so pay scales need to be carefully balanced to beat the competition without breaking the bank.
Equally, it is important to ensure current staff enjoy pay rises that ensure you retain their skills and services.
It is sometimes easy to ignore this, but the average cost of hiring a new employee in the UK is between £3,000 – £5,000, so you simply cannot afford to let your best people resign due to the cost of replacement.
Share schemes
Many employees feel distant or unconnected to their employer’s company. One way to resolve this and give employees an effective pay rise, without hampering cash flow, is offering shares to your team.
An Enterprise Management Incentive (EMI) scheme is one such way that a business can reward employees in a tax-efficient manner.
The EMI scheme is a Government-approved, tax-advantageous share option scheme that is predominantly used by small to mid-sized UK businesses.
When a company establishes a scheme, it selects employees and gives them the option of acquiring shares over a prescribed period, subject to qualifying conditions being met.
This brings with it the following tax benefits:
- There is no Income Tax or National Insurance charge on the exercise of an EMI option for an individual as long as it was initially granted at market value.
- Where the shares increase in value between the time of grant and when the options are exercised, the uplift is not charged to Income Tax or National Insurance.
- There will be a Capital Gains Tax (CGT) charge when the employee disposes of their shares if the sale price exceeds the value per share at the time of granting the options – CGT is at a lower rate than Income Tax.
An employee may qualify for Business Asset Disposal Relief on up to £1 million of Capital Gains and pay Capital Gains Tax at a fixed rate of 10 per cent if the following conditions are met:
- The option was granted at least two years before disposal of shares;
- The company was a trading company or holding company of a trading group for the two years immediately before disposal;
- The employee is still working for the company when the shares are sold.
There is no requirement for the employee to hold five per cent of the share capital of the company for Business Asset Disposal Relief purposes, providing the option is exercised within 10 days of the cessation of employment.
However, all of these tax advantages may be lost if the company:
- Fails to establish its EMI scheme within the terms of the legislation;
- Does not notify HM Revenue & Customs (HMRC) within 92 days of the grant of an EMI option, or
- A disqualifying event occurs and option holders fail to exercise their share options within 90 days.
A business can utilise an EMI scheme if it meets various conditions including the following:
- 249 or fewer employees.
- Gross Assets of less than £30 million.
- Not majority-owned or controlled by another company.
- Having a UK permanent establishment.
- Be a qualifying trading company or holding company of a trading group.
- Have qualifying subsidiaries if it is a holding company.
- Not in an excluded industry (banking, farming, property development, provision of legal services, shipbuilding, or leasing.)
- There is also a £3 million limit to the total value of share options held by all employees.
Employees must also meet certain eligibility criteria to obtain shares, which include:
- Work at least 25 hours per week or 75 per cent of total working time as an employee of the company.
- Must not hold more than 30 per cent of the company’s shares.
- Cannot hold share options worth more than £250,000 at the time of grant.
New work approaches
Increasingly, many workers are placing a heavier emphasis on benefits beyond pay, with a particular focus on improving the work-life balance.
Tech is one sector where remote working was already popular pre-pandemic. However, alongside remote working, employers need to consider how they can make the roles in their business more flexible.
A growing number of companies are taking radical steps in allowing employees to set their own work hours and offering unlimited paid holidays.
Recent research suggests this approach may be far more effective than increasing pay or offering other benefits, like gym memberships, that fewer employees value.
Seek help
These are just some of the ways businesses can help to retain employees. Often a business will have specific needs or criteria, which may make these approaches more or less effective.
It is important that you discuss your options with experts to put together a remuneration package that secures the best talent, without drastically affecting a business’s profitability or ability to grow.
To find out how we can help you with your pay and benefits, as well as the tax reliefs associated with share schemes, please contact us.