Granting stock options to foreign employees is a great way to show your thanks, boost engagement, and reduce employee churn. Before heading down this path, you should acknowledge and address the challenges surrounding taxes and local regulations. The knowledge you collect upfront will help prevent trouble down the road.
The challenges of granting stock options to international employees
No two companies face the same set of challenges, but there isn’t much variation in how to grant stock options to foreign employees. Here are the three primary challenges to prepare for.
1. Taxes and local regulations
Let’s start with taxes on the employee side. Tax treatment of stock options depends on the worker’s home country. For example, the tax code in the United States is different than it is in France, so an employee in France would need to understand their specific tax implications.
Sticking with the example above, France taxes stock option grants in the current year. However, in the United States, options are not taxable until they’re vested and exercised.
On the employer side—once again depending on the country—there may be tax withholding requirements. Failure to adhere to such requirements can result in costly penalties.
2. The creation of an international employee stock ownership plan (ESOP)
An international employee stock ownership plan is used to grant equity in your business to employees. The structure will vary based on the country where your company is located and the type of stock options you wish to grant.
3. The right type of equity incentive
There are pros and cons to each type of equity incentive. Not only do you have to consider your company’s best interests, but you should also do the same on behalf of your workforce.
The different types of stock options
There are several different types of stock options you can grant. Understanding the finer details, with a focus on the pros and cons, can help you make the right selection. Let’s get you started with a list of the different types of stock options, along with what makes them unique.
- Incentive stock options: Incentive stock options provide a tax break to United States-based employees, but this doesn’t hold true for foreign workers.
- Non-qualified stock options: Non-qualified stock options can be granted to anyone, regardless of location, or employment status.
- Restricted stock options: Restricted stock options are gradually granted to workers, such as over the period of two years. There’s no requirement for holders to purchase their stocks.
Careful consideration of the many different types of stock options is critical to choosing the structure that’s best for both employer and employee.
What’s the difference between stock options and equity?
In basic terms, equity is the ownership of assets after any debt is paid off while stock refers to traded equity.
For example, if you’re an early employee in a tech start-up, the company may offer you part equity in exchange for a higher salary.
Conversely, stock options are more common in established companies. These can be awarded to any employee or independent contractor at the company’s discretion. Also, employees can receive stock options at any time of their employment, not just as a new hire.
Use Oyster’s equity assessment tool to help
Oyster’s equity assessment tool provides information about the cost, tax obligations, and compliance requirements associated with providing stock options, restricted stock units, and cash plans to team members in over 60 countries.
This tool reduces uncertainty and gives you confidence when providing equity to your global team. And with that, your employees will also feel better about the stock options they’re receiving.
Let Oyster be your global workforce and stock option guide
Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
And of course, Oyster makes it easy for you to hire employees around the globe. If you’re ready for this type of guidance, register for an account today.