Salary Sacrifice Matching Plan

5 January 2021 | Tom Bloomfield

The Salary Sacrifice Matching Plan (SSMP) is a common share plan used by listed companies in Australia to reward employees. Key features of the share plan are described below.

Summary

Under the Plan:

An employee can salary sacrifice up to AUD $5,000 per annum, post tax. These monies are then used by a company to buy shares on market for the employee.
Employees receive a matching right for every share they purchase (assuming the plan carries a 1:1 ratio).
The employee can choose to sell their shares at any time, however, if they do so before the vesting date applied under the plan rules, the corresponding matching right will be forfeited.
If the employee remains employed up until the vesting date, then the matching rights are converted into shares (meaning their shareholding doubles, assuming the plan carries a 1:1 ratio).

Conditions

As with any employee equity plan, there are certain obligations and conditions under the plan rules. With a SSMP, these are commonly:

Vesting – employees must remain employed and hold purchased shares at the vesting date to allow for the matching rights to convert into shares.
Dividends and voting privileges - full dividend and voting privileges apply to the purchased shares.
Leavers - For a good leaver (employee leaving due to reasonable circumstances), matching rights are exercised into shares as at their termination date. With bad leavers (employee exiting as a result of misconduct or breach of employment contract), matching rights are forfeited. In both instances the employee retains their purchased shares as post tax dollars were used.

Taxation Considerations

It is important with any employee equity plan to obtain professional tax advice. Broadly, tax points to note under a SSMP include:

All companies are required to issue annual employee share scheme tax statements for Australian employees.
Withholding tax is to be withheld when rights convert into shares for most international jurisdictions.
After receiving their employee share scheme tax statement, employees are required to meet personal tax requirements with respect to their equity.
Company tax deductions may apply under the plan, including the use of an Employee Share Scheme Trust to claim a tax deduction for the value of exercised rights.

BoardRoom’s market-leading Employee Equity Plan team has vast experience managing SSMPs for multiple listed companies. If you would like to learn more about how this share plan works and how we can help, please do not hesitate to contact us.