Australia’s big tech companies aren’t overly impressed by the Federal Government’s proposed employee share scheme legislation.
Freelancer CEO Matt Barrie said in their current state the proposed changes were “tricky” policy and he would prefer a complete “rollback to pre-2009 or adopt a similar deferred regime like the US”.
He told Business Insider while the changes haven’t come too late they are “certainly a massive drag on the technology industry,” and that “clarification is needed over whether the explanatory memorandum is correct because it seems to contradict the intention of the reforms.”
“The bulk of the industry misses out and the bulk of people employed in real companies miss out,” he said.
While many early stage startups are happy with the draft legislation changes, the caps it imposes leaves out big tech companies like Barrie’s Freelancer, Scott Farquhar and Mike Cannon-Brooke’s Atlassian, as well as and Dave Greiner and Ben Richardson’s Campaign Monitor.
The proposed law would cover companies with less than $50 million turnover that have been operating for less than 10 years and aren’t listed on the Australian stock exchange. Those three rules would cut Atlassian, Campaign Monitor, Kogan, Envato, Freelancer and Invoice2Go out straightaway.
“The employee share option scheme is a good idea and a good move in the right direction but I don’t understand why they have capped that,” Cannon-Brookes told Smart Company in a recent interview.
“That doesn’t make sense to say ‘We believe options are a good way to incentivise employees but as soon as you create a certain amount of jobs you can’t give options’.”
The former Labor government introduced up-front taxation on employee share options back in 2009. It was a change which was aimed at big companies but small tech companies, which relied on options to attract and retain talent, got caught in the web.
In December Campaign Monitor dished out options to its employees.
One of the best weeks I’ve ever had in my decade at Campaign Monitor. Every team member is now also an owner. Stoked. pic.twitter.com/aDHW90YOHm
— Dave Greiner (@davegreiner) December 18, 2014
Greiner told Business Insider: “While we’re disappointed we won’t qualify at our scale, we very likely would have implemented this earlier if the more favourable tax treatment was in place.”
He has previously said it would be “extremely disappointing” if the scheme was capped on revenue. But today told Business Insider the company welcomes the changes and said: “it’s fantastic for the local industry.”
“Being available to early stage tech businesses, especially those that are cash poor and can use equity to attract the best talent is a great thing,” he said.
Campaign Monitor covered the entire tax bill on behalf of its staff when shares were issued late last year.
“We’re fortunate that we run a profitable business though, and there is certainly cases where a fast growing tech company won’t be in a position to do this,” he said.
Barrie has taken the government to task in a series of LinkedIn posts and videos labelling the ESS changes “tricky”. The full 24 minute video explaining his case is here.
In one post Barrie writes: “I disagree with the premise that more advanced companies can pay more and therefore should not be eligible for the concessions. The technology industry is globalised, and companies like mine need to compete for talent with the likes of Google, Uber, Palantir and Facebook. US companies are hoovering up as much talent as they can in Australia to take back to Silicon Valley… Equity is the primary remuneration scheme and it’s an unfair playing field for Australia’s up and coming technology industry to be penalised for operating in this country.”
Barrie goes on to argue capping the ESS on turnover is “sloppy policy” and doesn’t take into account the various business models the tech sector operates on where turnover might be huge but margins are “wafer thin”.
“An online payments business with $50 million in turnover might have only $500,000 in revenue because it operates on a 1% margin. A marketplace with 10% commission might have only $5 million revenue,” he said.
Invoice2Go founder Strode told Business Insider the proposed legislation doesn’t “go near far enough to support Australia’s tech startups”.
“Offering employees shares is a great way to create a successful startup – it means everyone is focused on growing the business,” he said.
“Restricting companies who have been in business longer than 10 years just doesn’t recognise that it’s a long, hard road to get to the point when you’re ready to start hiring top talent.
“I started Invoice2go in 2002 – and built the business up without any employees until I was 8 years into it. It’s only been in the recent couple of years that we’ve started searching Australia and beyond for top talent.
“The government really needs to provide a flexible, globally competitive scheme to help startups to springboard at the point they need to. It doesn’t always happen in the first five minutes.”