Employee stock options (ESOs) are back in the spotlight in Australia, as companies compete for top talent and the government tweaks policy settings to foster innovation. If you’re an employee weighing up a job offer or a founder looking to attract and retain staff, understanding the ins and outs of ESOs in 2025 is crucial.
What Are Employee Stock Options—and Why Are They Hot Again?
ESOs give employees the right to buy shares in their company at a fixed price (the ‘exercise’ or ‘strike’ price) at a future date. The idea? Align the interests of workers and employers, offering a slice of ownership as a reward for loyalty and performance. In 2025, ESOs are a fixture in Australian startups and increasingly common in established firms seeking to stay competitive with global tech giants.
Several factors are driving renewed interest in ESOs:
- Talent wars: Australia’s tech and finance sectors remain fiercely competitive, with candidates expecting equity as part of their compensation package.
- Policy changes: The federal government’s 2022 and 2023 reforms to employee share schemes (ESS) made ESOs more attractive for startups and employees. In 2025, these settings have bedded in, with clearer guidance from the ATO and increased take-up.
- IPO and acquisition boom: More Australian startups are aiming for public listings or high-profile exits, making ESOs potentially lucrative.
Key Policy and Tax Updates for ESOs in 2025
The regulatory landscape for ESOs has shifted considerably over the past three years. Here are the 2025 highlights:
- ESS reform implementation: As of 2022, the $30,000 annual cap on share-based remuneration was replaced with a more generous regime. In 2025, employees can receive up to $50,000 worth of shares/options per year at a discount before triggering upfront tax obligations.
- Deferral of tax: For qualifying startups, employees are generally taxed when they sell their shares, not when they receive the options—helping to avoid ‘dry tax’ events.
- Vesting and forfeiture: New rules clarify that lapsed or forfeited options are not taxed, reducing risk for employees who leave before options vest.
- Reporting obligations: Companies must provide annual ESS statements to employees and the ATO, making compliance a priority for finance teams.
Real-world example: In 2025, Sydney fintech startup Ziply offers ESOs as part of its package to engineers. Under the new regime, employees can access more equity, with the company handling annual reporting through streamlined ATO portals.
How ESOs Work: What Employees Should Watch For
Not all ESOs are created equal. Here’s what to look for if you’re considering an offer:
- Vesting schedule: How long must you stay to earn your options? Typical vesting is four years with a one-year ‘cliff’—leave before a year, and you get nothing.
- Exercise price: The price you’ll pay for each share. Ideally, this is set at today’s market value—if the company grows, your upside grows too.
- Exit opportunities: Can you cash out only at IPO or acquisition, or is there a secondary market?
- Dilution risk: As the company raises more capital, your percentage ownership could shrink. Ask about the company’s future funding plans.
Example: An employee at a Melbourne SaaS company receives 10,000 ESOs at a $2 exercise price. If the company lists on the ASX at $8 per share, those options (after vesting and tax) could be worth a significant windfall.
Tips for Employers: Setting Up a Competitive ESO Scheme
For founders and HR teams, designing an ESO plan that attracts talent while balancing dilution is more art than science. Key considerations in 2025 include:
- Benchmarking: Use market data to set competitive grant sizes. In 2025, Australian tech employees expect between 0.1%–1% of equity, depending on seniority and company stage.
- Clear communication: Many employees over- or underestimate the value of their ESOs. Provide scenario modelling, clear vesting schedules, and tax guidance.
- Compliance: With ATO reporting now digital and mandatory, invest in software or legal support to avoid errors and keep your team focused on growth.
The Bottom Line: ESOs as a Win-Win in 2025
With policy settings now more favourable and Australia’s startup scene maturing, ESOs are set to remain a key part of the employment landscape. Whether you’re considering an offer or rolling out a scheme, understanding the rules—and the real value on offer—has never been more important.
