We have received a number of inquiries from clients related to cost allowability for Employee Stock Ownership Plans (ESOPs). In this Part II, we focus on the cost allowability rules and regulations for government contractors (Part I provided a more general description of ESOPs).
Many small and medium sized companies wonder if having an Employee Stock Ownership Plan (ESOP) is right for their company’s compensation and ownership structure. Studies show that employee-owned companies benefit from higher worker productivity and certain tax advantages which ultimately result in improved cash flow. These and other potential advantages could apply to government contractors; however, if you are considering implementing an ESOP, consider engaging someone (or an entity) familiar with ESOPs, as well as someone familiar with the cost allowability (regulations) and DCAA interpretations.