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Save As You Earn Schemes

What is a Save As You Earn (SAYE) scheme?

A SAYE scheme is an ‘all employee’ option based employee share scheme, sometimes called a share-save scheme. Eligible employees are granted options provided that they take out a linked savings arrangement with a bank or building society in order to save between £5-£500 from their salary (after tax) each month. The savings period linked to the savings contract will be for three to five years. SAYE options vest according to time-based conditions. Performance based conditions for vesting are not permitted. At the end of the savings period, participants can use the money saved to exercise their option and buy shares in the company or withdraw their savings. 

Advantages of SAYE schemes

  • A risk-free way for employees to save and benefit from any increase in market value. If the shares haven’t increased in value the employee is under no obligation to acquire the shares.
  • The exercise price can be set at up to a 20% discount to the market value at the time of grant.
  • Engage and motivate existing employees by giving them a vested interest in the success of the company.
  • Attract talented employees as part of a broader package of benefits.

The tax benefits of SAYE schemes

The intended tax advantages of SAYE schemes are:

  • no income tax liability on the grant of the option
  • any savings bonus or interest gained at the end of the savings period is tax free
  • there will be no tax liability on the exercise of the SAYE option if the date of exercise is at least three years after the date of grant
  • a corporation tax deduction will usually be available to the company when SAYE options are exercised.

Relevant statutory conditions

  • In order to qualify for SAYE purposes both the company and the participants have to meet certain statutory criteria.
  • SAYE schemes are ‘all employee’ schemes meaning that all employees and full time directors who meet the criteria must be invited to participate subject to eligibility criteria.

What kind of incentive are SAYE schemes?

SAYE is an indirect form of employee share incentive because the employees who are granted SAYE options will not directly own any shares until those options are exercised.

SAYE options are often used by listed companies where the participant can then realise the value of their option by selling it on an exchange.

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