Washington Employee Ownership Program (WA-EOP)

• Statutory language – S.B. 5096
• Final Bill summary – 5096-S SBR FBR 23

Employee ownership refers to an arrangement in which no one person has the most shares or control over an organization. Some of the most common forms of employee ownership include Employee Stock Ownership Plans (ESOPs), Employee Ownership Trusts (EOTs), and Cooperatives (Co-Ops).

• Employee Stock Ownership Plans (ESOPs) are recognized under federal tax law as qualified defined contribution retirement plans. An ESOP must be designed to invest primarily in qualifying employer securities and meet certain other requirements. The IRS and the United States Department of Labor share jurisdiction over some ESOP features.
• Cooperatives (Co-ops) are member-owned business entities in which worker-owners have a controlling interest, and who elect the governing body on a one-member-one-vote basis.
• Employee Ownership Trusts (EOTs) are not recognized as retirement plans under federal law. An EOT is a perpetual trust, in which employees may receive certain financial benefits and governance rights.

Qualifications

For this program, Employee-owned business means:

1. An employee cooperative established under chapters 78 RCW, 23.86 RCW, 23.100 RCW, or 24.06 RCW that has at least 50% of its board of directors consisting of, and elected by its employees; or
2. An entity owned in whole or in part by employee stock ownership plans as defined in 26 U.S.C. Sec. 4975(e)(7).
3. “Qualified business” means a person subject to tax under Title 82 RCW, including but not limited to a C corporation, S corporation, limited liability company, partnership, limited liability partnership, sole proprietorship, or other similar pass-through entity, that is not owned in whole or in part by an employee ownership trust, that does not have an employee stock ownership plan, or that is not, in whole or in part, a worker-owned cooperative.
4. Program support shall only be made available to businesses headquartered in Washington State. For the purposes of this section, “headquartered in Washington State” means that Washington State is its principal place of business or the state where it is incorporated.

• According to the most recent data from the U.S. Department of Labor (2022 Employee Ownership by the Numbers report), Washington State has 125 active Employee Stock Ownership Plans (ESOPs.)
  • These 125 ESOPs represent 229,647 participants, with total employer contributions of $1.1B and total distributions of $2.2B per plan year.

• For 2024, the reported gross revenue for the top 20 ESOPs in the state was $2.61 billion.

• Currently, $2 million per year is allocated for tax credits under the Business and Occupation (B&O) tax, available through June 30, 2029.

• The WA-EOP is strategically positioned to impact the business community, especially with business retention, equity support, and a focus on living wage jobs.

• There are 70,000 businesses owned by individuals aged 55 and older.
  • Representing 682,000 employees.
  • Contributing $30 billion in payroll.
  • Generating over $140 billion in revenue.

Program impact in the next 10 years

National standards suggest that one in every 1,000 businesses transitions to an employee ownership structure. Based on this, the potential impact for the state over the next decade is:

• 70 businesses converting to employee ownership structures.
• Affecting 68,200 jobs.
• Contributing $3 billion in payroll.
• Generating $14 billion in revenue.

The year 2024 marked the inaugural year of the Washington Employee Ownership Program (WA-EOP), focusing on establishing a strong foundation for its successful launch. Key efforts included forming the Commission, developing strategic partnerships with national, state, and local organizations and collaborating with the Department of Commerce.  Open and transparent communication with the Governor’s Board of Commissioners Office was also a priority, to ensure alignment and program effectiveness.

• Some of the key highlights from the inaugural year include:
• Established the Washington State Office of Employee Ownership and appointed the inaugural program manager in February 2024.
• Launched the WA-EOP Commission, including drafting bylaws and onboarding procedures for new commissioners, and holding three public meetings to encourage community engagement and participation.
• Built strong relationships with key stakeholders, including state and federal agencies, as well as community partners, to foster long-term program success.
• Introduced an official email communication channel, providing businesses with direct access for support and inquiries. To date, the office has received over 100 inquiries from companies exploring employee ownership options.
• Collaborated with the Washington State Department of Revenue (DOR) to develop and implement the employee ownership tax credit, which became effective on July 1, 2024. Five newly-formed employee-owned companies have already submitted applications for the tax credit.
• Initiated an interagency data-sharing agreement with DOR to streamline communication and improve data collection, enabling measurable tracking of program results.
• Engaged with the Washington Office of the Secretary of State (OSOS) to explore integrating employee-owned companies into the existing business registration system.
• Developed and launched the program’s official website and commission portal, providing a centralized hub for resources, communication, and information.
• Conducted research to establish a baseline of companies in Washington currently operating as ESOPs, cooperatives, or trusts.
• Compiled a comprehensive list of resources, including federal and state agencies, non-profit and for-profit organizations, and community partners offering support for employee ownership entities.
• Presented and facilitated workshops with stakeholders and community partners to promote the program and its benefits.
• Began developing Washington Administrative Code (WAC) regulations for the Employee Ownership Program. The CR-101 notice was filed on October 7, 2024, and we aim to file CR-102 in early December.

In 2025, the Washington Employee Ownership Program (WA-EOP) will prioritize strengthening its foundation and expanding its impact through targeted initiatives that facilitate business transitions to employee ownership. These efforts will focus on enhancing regulatory clarity, streamlining processes, and increasing access to technical assistance for businesses exploring employee ownership models. Additionally, WA-EOP will work to build and deepen strategic partnerships with key stakeholders at the local, state and national levels. Another critical priority will be optimizing financial incentives, ensuring businesses have the necessary resources and support to successfully transition to employee ownership structures.

Establish clear and comprehensive regulations: To ensure the smooth implementation and long-term sustainability of the Employee Ownership Program, the WA-EOP will develop and refine regulations in alignment with state laws. This process includes:

• Drafting, reviewing, and finalizing Washington Administrative Code (WAC) provisions to provide legal clarity and program consistency.
• Defining eligibility criteria, reporting requirements, and compliance guidelines for businesses transitioning to employee ownership.
• Engaging stakeholders, legal experts, and policymakers to refine regulatory frameworks that support sustainable employee ownership structures.

Launch and promote the Employee Ownership Technical Assistance program: The WA-EOP will introduce a statewide technical assistance program to help businesses navigate the transition process. Key components of this initiative include:

• Tailored technical assistance: Offer one-on-one consulting, workshops, and educational resources to business owners, employees, and financial advisors.
• Targeted outreach campaign: Conduct statewide engagement efforts to raise awareness of employee ownership benefits, leveraging digital platforms, industry events, and local business networks.
• Comprehensive market study: Identify opportunities, challenges, and barriers businesses face in transitioning to employee ownership, helping to refine support strategies and program offerings.

Expand and strengthen strategic partnerships: Collaboration is critical to scaling the impact of the Employee Ownership Program. The WA-EOP will:

• Strengthen alliances with national and statewide organizations, including employee ownership advocacy groups, financial institutions, business associations, and workforce development agencies.
• Establish cross-agency partnerships within Washington State government to align efforts and maximize available resources for businesses.
• Leverage insights and best practices from leading organizations in employee ownership to enhance technical assistance, policy development, and funding opportunities.

Optimize the Tax Credit Expense Reimbursement Program: Washington State has allocated $2 million annually for B&O tax credit reimbursements to incentivize business transitions to employee ownership. To maximize utilization and impact, the WA-EOP will:

• Increase awareness: Conduct outreach to educate business owners and financial professionals about eligibility and benefits.
• Provide application guidance: Assist businesses in understanding application procedures, ensuring they can access available reimbursements.
• Ensure efficient fund utilization: Currently, $500,000 in reimbursements is already in the pipeline, with continued efforts to support businesses in securing the remaining available funds.
• Monitor and optimize impact: Evaluate how businesses leverage the tax credit program and adjust strategies to ensure funds are fully utilized to facilitate successful ownership transitions.

There are many things to consider when creating an employee ownership structure, no matter the type of business model you choose. Along with our support, we offer these resources on your journey to learn whether employee ownership is right for you. The website links listed below are for informational purposes only. These resources are not an endorsement by the Washington State Department of Commerce or the Employee Ownership Program.

WA-EOP reference materials

• Download a WA-EOP Tax Credit summary and fact sheet (PDF).
• Download a WA-EOP summary and fact sheet (PDF).

Washington State Agencies

• The Governor’s Office for Regulatory Information and Assistance — ORIA offers comprehensive information on doing business in Washington and linking entrepreneurs and small businesses to Washington state resources
• Department of Revenue — Department of Revenue (DOR) oversees and provides technical assistance to businesses applying for the tax incentive credit.
• Secretary of State — The Secretary of State oversees registering corporations, partnerships, LLCs, and other business entities, as well as managing filings related to trademarks and charities.
• Department of Labor & Industries Small Business Assistance Division — L&I is dedicated to the safety, health, and security of Washington’s 3.3 million workers.

Washington State organizations dedicated to employee-owned businesses

• Washington Center for Employee Ownership – WACEO is a nonprofit organization dedicated to promoting and supporting employee ownership across Washington State. It serves as a resource hub for business owners, employees, and other stakeholders interested in transitioning businesses to employee ownership models, such as Employee Stock Ownership Plans (ESOPs) and worker cooperatives
• Employee Stock Ownership Program Association, NW Chapter – ESOP is a regional branch of the national ESOP Association, a nonprofit organization dedicated to promoting employee ownership through Employee Stock Ownership Plans (ESOPs). The Northwest Chapter serves members in Alaska, Idaho, Montana, Oregon, and Washington, providing support, education, and networking opportunities for companies and professionals involved in ESOPs.
• Northwest Cooperative Development Center – NWCDC is a nonprofit organization dedicated to cooperative businesses in the Pacific Northwest. Based in Olympia, Washington, NWCDC provides a range of services and support to help establish and strengthen cooperatives, including worker-owned cooperatives, and others, such as consumers, housing communities and, agriculture.

Other Washington State business-focused organizations

• Washington Small Business Development Center – WA SBDC is a statewide network that provides no-cost, confidential business advising, training, and resources to entrepreneurs and small business owners. It is a partnership between Washington State University, the U.S. Small Business Administration (SBA), and other local and regional entities.
• SCORE – This is a nonprofit organization dedicated to helping entrepreneurs and business owners start, grow or successfully exit a business. It is supported by the U.S. Small Business Administration (SBA) and is one of the largest networks of volunteer business mentors in the United States.

Federal agencies

• Employee Benefits Security Administration, Division of Employee Ownership – The Division of Employee Ownership is within the Office of Outreach, Education and Assistance at the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA). It supports employee ownership programs across the United States, serving as a clearinghouse on techniques employed by State programs and disseminating information relating to those techniques to the programs. Email the division with any questions.

National employee-owned business organizations

• Employee Ownership Foundation – EOF supports research, education, and outreach initiatives to promote employee ownership. It funds studies on the economic impact of ESOPs and works closely with the ESOP Association to increase awareness of the benefits of EO models. They are the parent organization of the Employee Stock Ownership Foundation.
• National Center for Employee Ownership – NCEO is one of the most comprehensive resources for EO information, offering research, publications, webinars, and conferences. It provides guidance on ESOPs, worker cooperatives, and other forms of employee ownership, making it an essential hub for companies, policymakers, and practitioners.
• Employee Ownership Expansion Network – EOX is dedicated to expanding employee ownership in the United States. EOEN works with business owners, policymakers, and other stakeholders to promote employee ownership and to remove barriers to employee-owned businesses. Their efforts include advocacy, education, and providing resources to businesses looking to transition to employee ownership.
• Employee-Owned S Corporation of America – ESCA represents the interests of S corporation Employee Stock Ownership Plans (S ESOPs) in the United States. Founded in 1998, ESCA advocates for policies that promote and protect the S ESOP business model, which allows employees to collectively own businesses through their retirement plans.
• Project Equity – This organization helps businesses transition to employee ownership, particularly through worker cooperatives and ESOPs. It provides direct support to companies, promotes policy initiatives to encourage EO, and works with communities to foster employee-owned business models
• US Federation of Worker Cooperatives – The USFWC is the only national organization dedicated to promoting worker cooperatives. It provides resources, advocacy, and support for cooperatives and worker-owned businesses, advocating for policies that encourage employee ownership and provide cooperative support services.
• National Cooperative Business Association – NCBA CLUSA represents cooperative business entities, including worker cooperatives. It advocates for cooperative-friendly policies, provides education and training, and works to expand the visibility of cooperatives as a business model.

Other business-focused national organizations

• Rutgers Employee Ownership and Profit Sharing  Online Education Program – Based at Rutgers University, this institute conducts research on the impact of employee ownership and profit-sharing models. It publishes studies, hosts conferences, and provides data that support the employee ownership field.