Save As You Earn (SAYE)

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The Save As You Earn (SAYE) scheme is a government-backed arrangement that enables employees of UK companies to set aside a portion of their salary to purchase shares in their respective company at a discounted price.
What are the main aims and objectives?

The primary aims and objectives of SAYE include fostering employee loyalty, encouraging wider employee ownership, and providing financial benefits to employees. By allowing employees to invest in their company's shares in a tax-efficient manner, the program aims to make them stakeholders in the company's success. This is designed to encourage employees to stay with the company longer and also motivate them to work harder, as they stand to gain from the company's prosperity.

How does the program work?

SAYE is a tax advantaged savings-related share scheme which allows employees to convert part of their wage into shares of the company they work for.

Financially, SAYE offers several benefits. Employees can save between £5 and £500 per month, and at the end of the savings contract, they can either buy the shares with a discount of up to 20% of the market value, transfer them to a pension or ISA, or receive their savings back as a lump sum. These savings and the resulting share purchase are free of income tax and National Insurance Contributions (NIC). However, the difference between the market value and exercise price of the shares may be liable to Capital Gains Tax (CGT), subject to exemptions and reliefs.

Employees are given the option to buy shares in the future at a discounted price. They must enter into a savings arrangement for the same period as the option, typically three or five years. At the end of this period, the accumulated savings can be used to acquire the shares. If employees choose not to buy the shares, they can receive their savings back as a lump sum, thereby bearing no risk. They also have the option to transfer the shares into an ISA to sell them free of capital gains tax.

In terms of eligibility, SAYE plans must be offered to all employees with five years' service or more, and may be offered to employees with less service. Employees can choose how much to save and for how long, which offers a level of flexibility to participants.

Enrollment in the SAYE scheme is typically facilitated by the employer, who may seek assistance from companies like BDO for the design and implementation of the SAYE plans.

What is the overall cost?

SAYE costs £100 million per year in lost revenue through income tax and national insurance contributions.

How was it implemented?

SAYE was introduced in 1980 and is administered by Her Majesty’s Revenue and Customs (HMRC) which is a non-ministerial department of the UK Government responsible for the collection of taxes.

SAYE is one of four main tax-advantaged employee share schemes available in the UK. The other schemes are: Company Share Option Plans (CSOP), Share Incentive Plans (SIPs), Enterprise Management Incentives (EMI).

What impact has been measured?

In the tax year ending 2021:

  • £2.59 billion worth of options were granted
  • £210 million worth of relievable gain was exercised
  • To a total cost of £100 million in lost income tax and national insurance revenue

An impact assessment commissioned by HMRC of CSOP, SIP and SAYE in 2021 found that:

  • More than 1,200 companies have operated one of the three schemes since 2015
  • 98 of these companies offer SAYE, making it the least popular scheme
  • Out of all surveyed companies that are aware of being registered for CSOP, SIP or SAYE, 81% indicated an improvement in employment and/or business outcomes
  • 74% of companies surveyed reported a positive impact on recruitment and/or staff retention (69% for staff retention and 48% for recruitment.

While the impact assessment included an econometric assessment of CSOP and SIP, SAYE was not included due to limited sample of companies operating the scheme making it impossible to produce a robust regression analysis. Consequently, we cannot assess the full impact of this program.

What lessons can be learned?

Despite its many advantages, the SAYE scheme does carry some risk. The main risk lies in the company's share price. If the share price falls, employees may end up with shares worth less than the price they paid. However, this risk is mitigated by the fact that employees can choose not to buy the shares and instead receive their savings back as a lump sum.

In addition to this the HMRC evaluation found that:

  • Awareness of the schemes was limited with 55% of firms reporting that they were unaware of having operated one of the schemes in the last 10 years
  • Companies typically opt into share schemes to improve employment outcomes with the most popular motivation being to create a feeling of ownership (50%), help retain staff generally (32%), retain skilled employees (24%), attract skilled employees (21%) and improve staff morale (26%).
  • Employees mostly participated in share schemes in order to save.
  • Non-claimant companies perceived the process of setting up and administering the scheme as complicated and difficult and consequently saw this is a major barrier to participating
  • In particular some small companies felt the scheme was not suited to them due to challenges relating to controlling interest, financial risk to employees, valuing company shares or liquidity issues when buying back shares.

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom