No tax breaks for employee participation without transparency

start up

Many new employees are motivated to work overtime through profit sharing in the company. But many employers leave them in the dark about how the value of their company shares will develop.

(Photo: AFP)

In fact, employees of German start-ups had to flee in droves. Because the much talked about crisis is likely to hit many of them harder than their businesses. The worst thing is: People are simply silent about it.

Specifically, it is about employees who give up part of their salary and in return must participate in the company’s success. These participation programs are a good thing – as long as it goes well: for both sides.

Without participation programs, start-ups would have little to offer skilled workers. With the programs, the chance to become rich one day beckons.

This prospect motivates “backend engineers”, “customer success managers” and “senior brand designers” for years. Every additional line of code, every happy customer and every creative idea brings the IPO and the rain of money closer. In many start-up offices there are more sleeping bags than overtime complaints.

Today’s top job

Find the best jobs now and
get notified by e-mail.

As soon as things go badly, things look different: It’s okay and everyone involved needs to be aware of it. With the start-up idea, the dream of a house by the lake dies.

However, it becomes unfair when founders allow employees to dream on, even if they already suspect that the house will remain a castle in the air. This lack of transparency is intolerable – but not uncommon.

Especially now in the crisis, financing agreements are made where investors can protect themselves against losses and the employees can get nothing. Every founder has the right to save his business in this way. But it seems fundamentally wrong that they should not inform the employees about it immediately.

Lindner should lower the tax on investments – under smart conditions

Politicians and especially Christian Lindner should reconsider that, who now wants to strengthen the instrument and massively lower the tax on employees’ co-determination.

Founders and investors have long demanded that startup employees pay the lower capital gains tax on their shares instead of income tax. They claim that they use their salary as an investment.

Lindner’s proposal now effectively contains a fixed tax rate that corresponds to capital gains taxation. However, there can hardly be any parallel. With stocks and bonds, investors know the performance and can decide if they want to spend their money differently.

However, it would also be a very good idea for start-up stocks! Every public company must immediately disclose information that could materially affect the value of their shares. The purpose of the rule is to protect other participants in the capital market from being disadvantaged compared to insiders. New employees should also be entitled to this protection.

>> Now also read: Employee stock ownership is riskier than you think

In addition, Lindner could consider where he can get the lost tax money back. Most start-ups with employee participation programs today do not issue real shares, but virtual options on company shares. These are then deductible for the business as soon as profits are made. Lindner could delete this right of deduction.

Germany should really aim to offer the best conditions for start-ups in the world. But it doesn’t hurt to involve the successful start-ups more. On the contrary: it can make the framework conditions for international skilled workers even better.

In the short term, however, all that remains is to appeal to the common sense of the employees and the founders. Anyone who receives part of their salary in company stock should also demand transparency about their performance. And anyone who is seriously interested in Germany as a start-up location should think twice about what example to set.

More: Will these 36 billion German start-ups get through the crisis?

Leave a Comment