Employee Ownership – Types, Timelines, and Benefits
Primary Types and Illustrative Timeline
Employee ownership refers to an umbrella of business structures where the employees have a profit-sharing stake in the business. Many employee-owned businesses also encourage democratic decision-making and shared governance. Wacif’s DC Employee Ownership supports the growth and development of two forms of broad-based employee ownership: worker-owned cooperatives and employee-stock ownership plans.
A worker-owned cooperative is a democratically-run business that is both owned and operated by its employees. Workers own the business and share in the profits based on their labor contribution to the business. Workers make decisions democratically using member-committees and/or by electing a board.
An Employee Stock Ownership Plan (ESOP) is a qualified retirement plan. The business owner(s) sell some, or all, of their shares in a business to an ESOP trust. The trust owns those shares on behalf of employees.
There are many benefits to starting an employee-owned business or converting to employee ownership.
Legacy: In a rapidly changing city, employee ownership leaves a powerful legacy of community and builds employee wealth.
Household wealth: The National Center for Employee Ownership (NCEO) found that employee owners have 20% more financial assets overall compared to workers at non-employee owned companies.
Tax benefits: Certain employee ownership structures carry significant tax benefits. The 1042 rollover option provides tax-deferment for the selling owner(s). S-Corporations that are 100% owned by their employees as an ESOP qualify for federal tax exemption.
Retirement benefits: A 2018 national survey of employee owners found that employees carried an average retirement balance of $170,326, more than twice the national average of $80,339.
Retention: The median job tenure of employee-owners is 5.1 years, 46% greater than the 3.5 years for those at non-employee owned companies.