Employee Stock Purchase Plans are an easy way for employers to provide an increase in total compensation to employees without incurring a cash outlay. In fact, the program provides a net cash flow into the company, since most employees exercise and sell their options immediately. The only downside is a small dilution of stock value for regular shareholders.
ESPP may be qualified or unqualified. Non-qualified plans have few restrictions but offer no tax benefits of any kind. Qualified plans must offer the same plan to all employees, but may allow certain restrictions, such as excluding highly compensated employees or requiring a certain length of service for eligibility.
An ESPP allows employees to purchase company shares at a discounted price of up to 15% below the fair market value. The employee authorizes a deduction of 1% to 10% of earnings beginning on the offer date, and the accumulated deductions are used to purchase shares on the purchase date. In the U.S., the discount is taxed as ordinary income, but the purchase amount is taxable as capital gains if the shares are held long enough to qualify, usually two years.
For international companies, the taxation and reporting rules can be very complex, but those administrative complexities are handled by a third party administrator (TPA) or a software application operated by an in-house administrator.
Simple Integration
For Workday® integrators, the complexities of the plans are nearly invisible. The integration consists of sending simple eligibility, termination, and address files to your vendor depending on the schedule. The data required can be extracted using Workday® Core Connector Worker and apply required transformations for the vendor required format. Depending upon the payroll provider your organization uses, you can send the payroll inputs using a connector or an EIB load.
Considerations
- You can create the outbound integration using a custom report and the Workday® Core Connector Worker. The plan administrator will provide the requirements for the input file. You can configure the integration to run periodically, such as weekly or bi-weekly.
- Use calculated fields to control eligibility requirements like length of service. Your custom report should omit excluded employees like highly compensated employees.
- Employees must enroll after the plan offer date, so we recommend sending an ad hoc eligibility file at the end of the day before the offer date to make sure all eligible employees are included.
- Since plan eligibility stops immediately on termination of employment, send the termination file daily.
- You should also send the address file daily to make sure communications from the administrator have the most recent address.
- Some plan admins do not accept special characters as part of their inputs, please validate with your administrator and try to apply this requirement as part of your logic.
- If your enterprise has global operations there would be high chance that all the employees globally are not eligible for ESPP, consider separating employees eligible for ESPP and not eligible for ESPP.
- As this integration uses personal identifiable information, make sure you follow the appropriate encryption technique that is mutually acceptable between your administrator.
ESPP integration is just one of the many ways you can use Workday® Cloud Connect to enhance your business processes. We encourage you to use Workday® integrations whenever you can to streamline your operations, reduce errors, and mold your business processes into a unified ecosystem.
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