A restricted unit agreement, also known as an RSU, is a type of compensation agreement offered to employees by certain companies. RSUs are often a form of equity compensation, which means that they give employees a stake in the company they work for. This can be an attractive benefit, as it incentivizes employees to work harder and to take a long-term view of their employment.

However, RSUs come with certain restrictions that employees need to be aware of. These restrictions are designed to protect the company’s interests and to ensure that the employee stays with the company for a certain amount of time. Here are some of the most important things to know about restricted unit agreements:

Vesting Schedule: The most important restriction on an RSU is the vesting schedule. This is the period of time over which the employee must wait before the RSUs become fully vested and can be sold or transferred. The vesting schedule can be anywhere from one to five years, depending on the company and the specific agreement.

Tax Implications: RSUs are subject to different tax rules than regular stock options or other forms of compensation. When RSUs vest, the employee is considered to have received income equal to the fair market value of the shares at that time. This income is subject to ordinary income tax, as well as Social Security and Medicare taxes.

Transfer Restrictions: RSUs are also subject to transfer restrictions. The employee cannot sell or transfer the RSUs until they have fully vested, and even then they may be subject to additional restrictions. For example, the company may restrict the employee from selling the shares for a certain period of time after they have vested.

Employment Requirements: Most RSU agreements require the employee to remain employed with the company for a certain period of time in order to fully vest the shares. If the employee leaves the company before the end of the vesting period, they may forfeit some or all of their RSUs.

Restricted unit agreements can be a valuable benefit for employees, but they come with certain restrictions and requirements. It’s important to read and understand the terms of the agreement before accepting an RSU offer, and to plan for the tax implications of vesting RSUs. By doing so, employees can make the most of this compensation option and benefit from a stake in their company’s success.