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How Can My NZ Start Up Offer an ESOP to Overseas Workers? 

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Attracting and retaining top talent is crucial for the success of New Zealand startups. Often, companies will look to implement strategies such as Employee Share Ownership Plans (ESOPs) to achieve this. As startups then look to expand and tap into global markets, how to offer ESOPs to overseas employees and contractors becomes increasingly essential. This article will take you through key considerations when looking to create ESOP incentives for your overseas employees and contractors.

What is an ESOP?

An ESOP is a compensation program that allows employees to acquire ownership stakes in a company over a period of time. ESOPs aim to increase employee motivation while granting a sense of ownership and “skin in the game”. This is achieved because employees become stakeholders with a vested financial interest in the company’s success.

Benefits of Extending the ESOP to Overseas Employees

ESOPs can assist in attracting top talent worldwide. This is because ownership is appealing and will help attract those seeking opportunities that align with your startup’s vision. Therefore, if your startup is unable to offer market-competitive salaries, ESOPs, as part of an overall package, can be a highly attractive strategy to engage potential employees. Being open to taking on overseas individuals can also help bring diverse perspectives and skill sets into your business.ESOPs also foster a sense of loyalty among your employees, and this extends to overseas employees. It is crucial to inspire a passion that leads to your company’s success. 

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Challenges to Extending ESOPs to Overseas Workers

It is possible to include overseas employees in your ESOP. However, extending ESOPs to them may bring several obstacles. It is vital that you understand some of these challenges, such as: 

1. Navigating Legal and Regulatory Framework

Expanding ESOPs to overseas employees brings with it various legal and regulatory challenges. For example, an overseas employee will need to consider the tax implications of the offer received in both New Zealand and their home country. All countries have different tax rules that apply in regard to ESOPs. This means that some overseas employees may experience greater tax implications than local employees, or vice versa. Therefore, it is essential for both your company and the participant to understand local tax rules. In doing so, equality can be ensured across all participants in the ESOP, regardless of where they are located.

You must also understand the security laws that apply to ESOPs in the country in which the participant is located. As an option or share granted under an ESOP constitutes a “security”, and your offer is made to a participant based in another country, the securities laws of the participant’s ‘home’ country must be complied with. This may mean the offer documentation looks slightly different for each country, even if the underlying plan rules remain the same. 

2. Develop Customised Plans

Flexibility is critical when extending ESOPs to your international staff. Every country has its own regulatory landscape to navigate. Therefore, plans must be customisable and flexible to ensure compliance with local laws and the objectives of your startup. 

You may also wish to consider any cultural customs or norms that may impact compensation and how this will impact your employees’ ability to engage in an ESOP scheme. 

3. Communicate Effectively

Communication is critical to ensuring overseas employees understand the details of the ESOP they are participating in. This requires you to provide clear details of the benefits and risks of joining an ESOP. 

You should also consider the language barriers and time zone differences that may exist between you and your overseas staff. 

Transparency is critical for building trust with your employees, making communication about the ESOP an important step. 

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Including Contractors in the ESOP

While this article refers to “employees”, it is also possible to extend your ESOP to contractors and other stakeholders. Naturally, each region will have different laws surrounding this and who is deemed “eligible” to participate in the ESOP. Therefore, you should seek legal advice on this before proceeding with an offer outside of New Zealand.

When offering ESOP participationto overseas individuals, who may or may not be an employee, you must understand their unique tax statuses and obligations. This enables you to ensure parity across all participants regardless of their location and employment status with your company.

Key Takeaways

Attracting and retaining talent is essential for the success of your New Zealand startup. Some different ways companies approach this is by introducing unique employee share schemes. As your New Zealand startup expands internationally, implementing ESOPs is a strategic step that facilitates overseas talent attraction and engagement. However, this process is not without its challenges, which include:

  • legal complexities;
  • tax considerations; and
  • careful communication.

If you need assistance understanding how your New Zealand startup can offer an ESOP to its overseas workers, you can contact our experienced business lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at  0800 005 570 or visit our membership page

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Emily Young

Emily Young

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