understanding_compliance

Deel Makes Granting Equity to Your Team Easy

With the help of our team, you can offer competitive incentives to your employees and contractors all over the world in various forms of equity or token grants.

Deel Team
Written by Deel Team
June 8, 2022

Granting and managing equity for a global team can be difficult for anyone to navigate. From deciding what the right equity solution is, to ensuring you’re operating compliantly in each market, the process can be a minefield for any legal team.

With the help of our team, you can offer competitive incentives to your employees and contractors all over the world in various forms of equity or token grants. Our team of local experts works to secure an optimal legal and tax framework for Deel customers, providing guidance around handling all applicable employment taxes, withholdings, and assisting with reporting requirements.

What types of equity/token grants can I offer to my team with Deel?

You can offer almost any kind of equity/token plan to employees and contractors with Deel, including:

  • Non-Qualified Stock Options (NSOs): NSOs can be issued to anyone providing services to a company, though they are less favorable when it comes to taxes than Incentive Stock Options (ISOs)
  • Stock Warrants: Similar to stock options, warrants are used to give advisors or executive employees the option to buy shares in the company at a specified price
  • Restricted Stock Units (RSUs): RSUs are a form of compensation where company shares are received subject to a specific vesting period
  • Restricted Token Unit (RTUs): RTUs are similar to RSUs, but they are in the form of digital currency and are essentially the RSU of Crypto 
  • Stock Appreciation Rights (SARs) and Phantom stocks: SARs are bonus plans that don’t grant stock options but set out a bonus in cash based on the value of the company’s stock

Please keep in mind that you can’t offer Incentive Stock Options (ISOs) to contractors or employees hired through our EOR solution, as they can only be granted to direct employees of your company. 

Granting equity to contractors 

Customers hiring contractors or using a Deel Shield contract can easily offer equity or token plans to their contractors, all through the Deel platform. 

Our team provides the right legal framework, and tax assistance, to mitigate tax and misclassification risks, including collecting the tax certificates from workers. Our team of local legal experts from 90+ countries can support you at any stage. We will:

  • Review and adjust your legal documentation 
  • Provide accurate information on local taxation for different types of equity grants
  • Inform and assist with tax withholding and reporting requirements
  • Give access to Deel’s network of preferred tax and employment lawyers

Granting equity to Employer of Record (EOR) Employees 

Through Deel’s EOR solution, your team members are employed by our local legal entities in over 80 countries. We handle the entire local employment process, taking care of all the compliance, payroll, and HR admin, while the employee enjoys working for your business as a member of your team.

Regulators don’t legislate on this particular status as of now. This means that equity grants to EOR employees will, in most cases, be considered a bonus. This also means that regular employment and income taxes apply and will be calculated based on the local laws of the employee and the type of equity granted. 

It’s important to note that an EOR employee's equity grants can be considered a base for “co-employment” re-qualification of the employees, which can eventually lead to a permanent establishment-related risk. Our legal framework helps mitigate this risk. For those who want to offer grant equity to their EOR employees, we offer three options:

  1. Direct grant from the business to the employee

In cases where a business wants to incentivize the employee to perform well, we can propose a legal framework to mitigate the tax and co-employment risk. The EOR employee will eventually pay income tax and/or capital gains, based on local laws and their personal situation. Deel can offer precise information on taxation, reporting, and withholding, in accordance with local laws.

  1. Stock Appreciation Rights (SARs) and Phantom Stocks Through Deel

Stock Appreciation Rights (SARs) and Phantom Stocks are bonus plans that grant the right to receive an award based on the value of the company’s stock, rather than granting stock. Stock Appreciation Rights typically provide the employee with cash or stock payment based on the increase in the value of a stated number of shares over a specific time period. 

Phantom Stocks provide cash or stock bonuses based on the value of a stated number of shares, to be paid out at the end of a specified period of time. SARs may not have a specific settlement date (like options), and the employees may have the flexibility to choose to exercise the SARs. 

Phantom Stock may offer dividend equivalent payments, whereas SARs wouldn’t. When the payout is made, the value of the award is subject to employment tax, like any bonus. The payout will be taxed as ordinary income to the employee and is deductible to the employer. Some phantom plans condition the receipt of the award on meeting specific objectives, such as sales, profits, or other targets. These plans often refer to their phantom stock as "performance units”.

As either of the above is ultimately considered a bonus, Deel can implement them as incentive bonuses to the person in the scope of their mission.

  1. Grants of equity through Deel (NSOs, RSUs, RTUs, Warrants)

Deel integrates the grant as a bonus paid in kind and adjusts the legal documentation to mitigate risks, primarily co-employment. Equity grants will be subject to employment tax and income tax based on the fair market value of the underlying asset. Being a Deel EOR employee means we will withhold and pay income tax as if it was a cash bonus upon grant, vesting, or exercise, depending on the type of equity offered and the jurisdiction.

How is this managed on the Deel platform?

Our platform supports the end-to-end workflow of creating and approving a new grant offer for an employee or contractor.

Our platform supports the entire approval process and tracking of the grant statuses across the approval chain.

You will be able to see all grants in one place and generate a report for all active plans and their compensation schedules. We also support distinct user permissions to access equity data, so you can ensure the right team members can access the relevant information.

Employees and contractors will receive the information about their grants during the onboarding process and can view all past and current grants and their details on their Dashboard.

How can I integrate this data into my equity management platform or HCM?

Integration with equity platforms 

Our integration with Carta is underway. You’ll be able to easily export CSV files to and from Deel to manage your equity grants across equity management platforms very soon. 

Integration with HCMs

Our integrations with popular HCM platforms enable businesses to easily keep stock option details up-to-date across different platforms. Employee equity information will be kept up to date in your employee folders.

How Deel can help handle ISOs grants for employees hired through your own entities

For businesses that have established entities around the world, you can use our Global Payroll solution to handle payroll, taxes, benefits, and more in 80+ countries. We take care of all things payroll and HR, so you don’t have to.

Our legal experts can help secure the best legal and tax cross-border scheme for their employees' ISO equity plans.

Additionally, Deel can provide business with:

  • Assistance in creating a new customer branch or a subsidiary and opening a bank account
  • Select a local accounting and tax firm 
  • Legal, tax, and HR assistance, including equity grants
  • Preferred and package conditions with Deel partners Carta and Orrick to create and manage your global and local equity plan

How Deel can help make sure you’re following the correct local requirements

We can help with all of the additional requirements needed by the local tax authorities. This includes: 

  • Reporting the grant to local authorities
  • Receiving advance approval from local tax authorities, including the valuation of granted equity
  • Submitting the equity for approval prior to grant, where necessary

We’ll work with you to understand the requirements for each employee, guiding you through the entire process to make sure the grant aligns with the local laws. Book a demo to learn more about our equity offering and get a tailored solution for your compensation strategy.

 

Please note that this is not a closed list and further conditions may apply according to the local law.

Deel makes growing remote and international teams effortless. Ready to get started?

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