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Employee Benefit Trust (EBT): The Ultimate Guide

3 min read

An Employee Benefit Trust (EBT) is a great way for an organisation to reward and engage their team members. They can benefit both employers and their teams, whether it’s by attracting and retaining top talent or increasing employee ownership and engagement. Read on to discover the essentials of EBTs.

the ultimate guide to employee benefits trust to reward employees

What is an EBT?  

An Employee Benefit Trust (EBT) is a type of trust set up by an organisation to provide workers with benefits. The trust is funded by the organisation and is designed to hold and manage assets used to provide benefits. These benefits include pensions, life insurance, health insurance, bonuses and share ownership schemes. 

How Does an EBT Work?

When an organisation sets up an EBT, it transfers assets such as cash, shares or property into the trust. The trustees of the EBT are then responsible for managing these assets and using them to provide benefits. The organisation can contribute to the trust regularly, and the trustees can use the assets to pay for benefits as and when required.

One of the key benefits of an Employment Benefit Trust is that the assets held in the trust are separate from the organisation’s assets. This means that the assets held in the trust are protected if the organisation goes into administration or liquidation. It also means that benefits are protected, as they are held separately from the organisation’s assets.

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Employee Benefit Trusts in the UK

In the UK, there are specific rules and regulations governing EBTs. One of the main reasons companies in the UK set up EBTs is to provide tax-efficient bonuses, share schemes and other benefits to team members. However, the tax benefits of EBTs are subject to certain conditions, and it is important to ensure that the EBT is set up and managed in compliance with these conditions.

There are also specific rules that apply to the management of EBTs in the UK. For example, EBTs are subject to the Trustee Act 2000, which sets out the duties and responsibilities of trustees. Trustees of EBTs must act in the best interests of the beneficiaries of the trust and must exercise reasonable care and skill when managing the trust. In addition, there are certain tax implications that companies should be aware of when setting up and managing EBTs in the UK.

Nonetheless, it’s well worth going through the arduous task of implementing such a structure.  Research by the Employee Ownership Association shows how people who work in employee-owned companies are happier, healthier, and feel safer than people who don’t have a stake in their company.

the ultimate guide to employee benefits trust to reward employees

Employee Benefit Trust and Employee Ownership Trust

An Employee Ownership Trust (EOT) is a type of ownership structure allowing people to own company shares. EOTs were introduced for UK workers in 2014 to encourage greater organisation ownership. Under this model, the shares in the organisation are held by a trust on your behalf.

EBTs are typically funded by the organisation, while EOTs are funded through the sale of shares to the trust. In any case, employers should seek professional advice when setting up an EBT or EOT and carefully consider the advantages and disadvantages of each option before making a decision.

Setting Up an Employee Benefit Trust

Setting up an EBT is complex, but the results can significantly benefit your organisation and team members. Here are some of the key steps to keep in mind when considering an EBT:

  1. Determine the purpose of the EBT.
  2. Choose a trustee with the necessary expertise and experience.
  3. Develop a trust deed that outlines the terms and conditions of the EBT.
  4. Fund the EBT with cash contributions, the transfer of shares or assets or a combination of both.
  5. Manage the EBT per the trust deed and applicable laws and regulations.
  6. Communicate with your team about the EBT and its benefits.

By following these steps, you can establish an EBT that meets everyone’s needs while complying with applicable laws and regulations.

Potential Risks of Employee Benefit Trusts

While EBTs can provide significant benefits, it is essential to be aware of the potential risks and to take steps to mitigate them. Some of the risks associated with EBTs include the following:

  1. Legal and Regulatory Risks: EBTs are subject to legal and regulatory requirements, and non-compliance can result in penalties, fines and reputational damage.
  2. Financial Risks: EBTs involve the transfer of assets from the organisation to the trust, and any mismanagement of these assets can result in financial losses.
  3. Managing an EBT: Managing an EBT can be complex, requiring specialised skills and expertise.

the ultimate guide to employee benefits trust to reward employees

Deciding if an EBT is the Right Choice

An Employment Benefit Trust can offer several benefits for companies looking to provide additional schemes for their team members. However, setting up an EBT can involve legal and financial considerations that require careful management. Companies might consider an Employee Ownership Trust (EOT) as an alternative. Although ultimately, the decision to implement an EBT or EOT should be based on the specific goals and needs of the organisation. 

Employers, HR professionals and company leaders should carefully evaluate each option and seek professional guidance before deciding. By taking the time to weigh the pros and cons, companies can create a benefits program that is both effective and sustainable while demonstrating a commitment to their staff and the community.

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Sergio is a seasoned copy and content writer who has worked directly with company founders, CMOs, brand executives, and marketing directors from multiple industries. He's an HR geek and humble terpsichorean.

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