Granting and managing equity for a global team can be difficult to navigate. From identifying the right equity type 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 local experts work to secure an optimal legal and tax framework for Deel clients, providing guidance around handling all applicable employment taxes and withholdings, and assisting with reporting requirements.
Keep reading to learn more about the different types of equity you can offer through Deel and how to manage the grants on our platform.
What types of equity/token grants can I offer to my team with Deel?
On average, different types of equity make up more than 80% of the total net worth of startup employees. Are you planning to offer stock options to your workers?
Deel lets you offer almost any kind of equity or token plan to employees and contractors, 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.
See also: How to Grant Stock Options to Foreign Employees
How granting equity to EOR employees works
Through Deel’s EOR solution, your team members are employed by our local legal entities in over 100 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, meaning that equity grants to EOR employees will, in most cases, be considered a benefit in kind. 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.
2. 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 benefit in kind, Deel can implement them as incentive bonuses to the person in the scope of their mission.
3. Grants of equity through Deel (NSOs, RSUs, RTUs, Warrants)
Deel integrates the grant as a benefit 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.
🎥 Check out this webinar on building international teams hosted by Carta and Deel.
How Deel helps handle ISO 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. We take care of all things payroll and HR, so you don’t have to.
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’s partner Carta to create and manage your global and local equity plan
How is equity 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.
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 information about their grants during the onboarding process and can view all past and current grants and their details on their dashboards.
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The process of offering stock options on the Deel platform depends on whether your worker is a contractor or an employee. Either way, you will be able to choose the currency, number of shares, and aggregate options, as well as vesting details (vesting schedule and vesting cliff).
See also: How to include an equity grant as a part of an EOR contract and Stock options for independent contractors
Deel's partnership with Carta for seamless equity management
Deel has partnered with Carta, a leading equity management platform that helps businesses streamline cap table management, 409A valuations, total compensation, tax advisory, and LLC plans. Carta caters to businesses of all sizes and across various industries, including tech and healthcare.
Our partnership with Carta allows Deel’s clients, regardless of their location, to sign up for the platform through a unique referral form and receive special perks. Carta provides demos and one-on-one support to ensure a seamless onboarding experience.
Let Deel make sure you're following the correct local requirements
Deel is a global HR solution that centralizes, streamlines, and automates HR and payroll processes for businesses worldwide in one easy-to-use platform.
We can help you grant your global team equity and assist 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 30-minute demo with our experts today to learn more about our equity offering and get a tailored solution for your compensation strategy.
Disclaimer: This article should be used for informational purposes only; this is not a closed list and further conditions may apply according to the local law. Consult a legal or tax professional for advice on your specific case.
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