Over the past 10 years, an increasing number of employee-owned businesses (EOBs) have emerged as a result of the Employee Ownership Trust (EOT) scheme. The scheme -introduced in 2014 – states that to qualify as an EOT, the trust must hold over 50% of a company’s total shares, and that any profits must be shared among employees[1]^,[2]. The concept of employee ownership is gaining momentum within the recruitment industry. La Fosse recently announced that it will be increasing staff owned equity from 40% to 50% to qualify as an employee-owned business[3]. Other EOTs include SSQ, Saxton Bampfylde, Better Placed Recruitment, PropTech Recruitment and Rubicon People Partnership.

So why are EOTs increasing in popularity? It comes down to four main reasons: A post pandemic shift in mindset; an opportunity for tax relief; the probable increase in productivity; and the desire to preserve company culture.

The newfound recognition that employees should play a significant role in business growth, marks a notable shift in the mindset of business leaders. Post-pandemic, owners want to reward and include their employees far more and becoming an EOT facilitates this. For example, Roman Motyczak – Director at ProTech Recruitment – said that becoming an EOT gave ‘people that worked with you, particularly over the two years of Covid, a chance to own the business and benefit from it.’[4]

The appeal of tax relief is also a strong driver of this change. Existing shareholders can sell their shares to EOTs without incurring capital gains tax, and companies can provide tax-free annual bonuses to incentivise employee participation[5]^,[6]. For example, SSQ paid bonuses to more than 90% of their employees in January 2023, after transitioning to be an EOT in February 2022[7].

EOTs can also boost employee productivity and engagement. The Employee Ownership Association found that productivity increased by 1.7% once companies became EOTs,[8] indicating that giving employees equity is beneficial to the company as a whole. This was also demonstrated when SSQ became an EOT and Dave Howes – their corporate finance consultant – said their new structure ‘can effectively drive employee engagement and business performance’[9]. Finally, companies work hard to create a positive culture, and becoming an EOT can continue this. Kate Ludlow – Partner and Director at Saxton Bampfylde – emphasised that she was initially attracted to the firm because of its ‘unique culture and values’,[10] and that becoming employee owned was a ‘way of preserving this beyond the lifetime of current leadership’[11]. Similarly, joint CEO of SSQ – Jonathan Field – said ‘the best way to preserve our culture is to pass the business onto those most key to its success, our people across the world.’[12] These testimonies highlight the positive impact that becoming an EOT can have on company culture, which is especially important in recruitment as the industry tends to have a higher staff turnover[13]. 

EOTs were not initially popular among businesses, but as more and more companies prove the scheme successful, the positive feedback loop is getting clearer. The documented benefits of EOTs mean they will undoubtedly continue to grow in popularity in the coming years.

 If you are interested in finding out about options with recruitment firms who have moved ownership to their employees, please get in touch with ed@drydesnearch.com

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References:

Charlton, James (2023) ‘SSQ: a 100% Employee Owned Business,’ SSQ Available at: https://ssq.com/articles/ssq-a-100-employee-owned-business/ [Accessed 23/09/23]

 Diosi, S (2022) ‘Employee Ownership Trusts – a viable ownersgip structure for recruitment companies,’ Mishcon de Reya Available at: https://www.mishcon.com/news/employee-ownership-trusts-a-viable-ownership-structure-for-recruitment-companies [Accessed 15/09/2023]

Employee Ownership Association (2023) ‘What the evidence tells us,’ Employee Ownership Association Available at: https://employeeownership.co.uk/resources/what-the-evidence-tells-us/ [Accessed 15/09/2023]

Field, Jonathan, quoted in Staffing Industry Analysts (2022) ‘UK – Legal Recruiter SSQ transfers ownership to employees,’ Staffing Industry Analysts Available at: https://www2.staffingindustry.com/eng’/Editorial/Daily-News/UK-Legal-recruiter-SSQ-transfers-ownership-to-employees-60654 [Accessed 23/09/23]

Hewlett, C (2022) ‘Sharp increase in businesses transferring ownership to employees – 200% rise in the past two years,’ Boodle Hatfield Available at: https://www.boodlehatfield.com/articles/sharp-increase-in-businesses-transferring-ownership-to-employees-200-rise-in-the-past-two-years/ [Accessed 15/09/2023]

Howes, David, quoted by Zoe Wickens (2022) ‘SSQ transitions to employee ownership,’ employee benefits Available at: https://employeebenefits.co.uk/ssq-transitions-to-employee-ownership/ [Accessed 23/09/23]

La Fosse (2023) ‘La Fosse becomes an Employee Owned Business,’ La Fosse Available at: https://www.lafosse.com/la-fosse-becomes-an-employee-ownership-trust/ [Accessed 15/09/2023]

Ludlow, Kate, quoted in Saxton Bampfylde (ND) ‘We Own This: The Employee-Ownership Advantage,’ Saxton Bampfylde Available at: https://www.saxbam.com/news-post-680-we-own-this-employee-owneership/ [Accessed 23/09/23]

McDougall, M (2022) ‘UK businesses turn to employee-ownership at record rates,’ Financial Times Available at: https://www.ft.com/content/27e25bf9-e1a0-445d-aa90-339eacb0c686 [Accessed 15/09/2023]

Motyczak, Roman, quoted in ProTech (2022) ‘ProTech Recruitment transition to employee ownership,’ OAPSCo Global Available at: https://www.apsco.org/resource/protech-recruitment-transition-to-employee-ownership.html [Accessed 23/09/23]

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[1] Diosi, S (2022)
[2] Diosi, S (2022)
[3] La Fosse (2023)
[4] Roman Motyczak (2022)
[5] Hewlett, C (2022)
[6] Diosi, S (2022)
[7] Charlton (2023)
[8] Employee Ownership Association (2023)
[9] Howes (2022)
[10] Ludlow (ND)
[11] Ludlow (ND)
[12] Field (2022)
[13] Essential Recruitment (2022)