Labour law in Malta is not rigorously regulated, and employment is essentially based on the agreement entered into between employer and employee. Thus, whereas certain conditions of employment are strictly regulated as a matter of law, other conditions are left entirely to the employer and employee to agree upon. One of the conditions left entirely to the employers’ discretion is the introduction of benefit schemes.
In this day and age, the job market has become increasingly competitive and it is vital for businesses to recruit and retain the right employees. In view of this, businesses have introduced office perks, like parking spaces, extended vacations, health insurance and gym memberships. However, are these perks enough for employees to retain employment with a company?
The loss of key employees has an impact on any business. Apart from the costs of replacement, the disruption involved can also have a disproportionate operational impact. The fallout from a key employee leaving is now widely accepted as a significant issue since turnover is costly for a business. This disruption can also have a material impact from a customer’s perspective, particularly where an employee played a key role.
Employers have found that having an employee benefit scheme in place assisted them in a number of ways, namely in recruitment, employee retention and faster progress towards the company’s business goals.
The most favoured employee benefit schemes include a bonus retention scheme and a share-option or share-award plans, which can take the form of pension or insurance trusts.
A question that may arise from these employee benefit schemes is how the employer may protect these assets, such as shares and monies, during the period whereby these assets are no longer the company’s and not yet the employees’.
Asset protection has become increasingly popular for businesses to protect these assets since each customer, employee may be a potential threat to hard earned assets.
The aim of any successful asset protection plan is ultimately to protect any financial assets from a variety of potentially harmful risks in a comprehensive manner. Left unprotected, assets may be impacted negatively, and in many cases, depleted in their entirety. Placing these assets within the structure of a trust will circumvent all this through the separation of title holding and management. Along with offering protection, a trust also provides a safeguard from misappropriation. Thus ensuring that employees receive the full benefits from the employee benefit schemes.
In simple terms, a trust is a relationship where property is held by one party for the benefit of another. The settlor, in this case the employer, transfers property, such as shares or monies, to a trustee who holds the property for the trust’s beneficiaries, in this case the employees. The trust property shall constitute a separate fund owned by the trustee, distinct and separate from the personal property of the trustee and other property held by the trustee under other trusts, thus separating the property’s legal ownership and control from its equitable ownership.
Maltese legislation places emphasis on the proper and effective segregation of the trust property to the effect that any personal creditors of a trustee are denied access to the property comprised in the trust fund.
A trust thus creates an obligation binding the trustees to take care of property over which they have control for the benefit of beneficiaries.
The structure of a trust provides both employers and employees the security they envisage. Typically, employers are making use of trusts to hold the assets arising from the employee benefit schemes, however, trusts may also be used for pension schemes and insurance.
Trusts used in a commercial context will generally benefit the whole spectrum of financial services, most especially because of the certainty and flexibility they bring.
When considering the taxation of trusts, in certain circumstances, income derived by a trust would not be attributable to the trust itself but deemed to have been derived directly by the beneficiaries of the trust, regardless of the Malta tax residence of the trustee (which would make the trust a resident trust).
In these circumstances, the trust would become transparent for local tax purposes so that no tax would be charged under the local income tax laws in the hands of the trustee. This transparency would be achieved by reference to the nature of the trust property, the source of the income or gains accruing to or derived by the relevant trust and the residence/domicile status of the beneficiaries in Malta.
An employee benefit trust is without a doubt attractive for both employers and employees alike. Benefits of a trust in employment should not be seen not only as incentives and attraction, but also employee retention and asset protection, making a trust a powerful tool for businesses all around. The only question business owners should be asking themselves is, “Why not?”
A training programme called ‘Practical aspects of employment’ – to be delivered by Dr Ann Bugeja, head of the legal department at CSB Group, will take place on Thursday. To book, e-mail sharon.grima@csbgroup.com.
Christina Borg DeBono and Maria Xerri are part of the CSB Group’s legal department.