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Restricted Stock Units (RSUs) – Meaning, Benefits, and Taxation

Explain Restricted Stock Units (RSUs)

Restricted Stock Units (RSUs) are like a “golden handcuff” bonus from your employer—instead of cash, they give you shares of company stock that slowly become yours over time (usually 3-4 years). You can’t sell or cash them in until they “vest” (unlock), which keeps you sticking around to earn the full reward. Once vested, you own the shares, but taxes hit hard the moment they’re yours (the IRS treats it like income). The catch? If the stock tanks, your “bonus” shrinks. If it soars? You’re basically printing money. It’s how companies tie your success to theirs—and keep you from job-hopping too fast.

How do RSUs Work: Grant, Vesting, and Delivery

    • Grant: An RSU grant represents the company’s promise to give an employee an identified number of shares at no cost, provided some conditions are met; the employee does not actually receive any shares on the grant date.
    • Vesting Schedule: This schedule determines the time period during which one can expect to acquire rights to the RSUs. This vesting schedule can be:
      • Time-based: meaning the shares vest over the passage of time; for example, 25% in each year for four annual installments.
      • Performance-based: meaning shares vest based on achieving specific business targets.
      • Cliff vesting: With Cliff Vesting, 100% share in grants at the end of a specified period. For example, after a year.
  • Delivery: At the time the RSUs vest, the company will then issue real shares to the employee. At that moment, they turn from equations into actual stock. These shares may then be either sold or kept, depending on the company’s trading rules or market circumstances.
Example: An employee has been granted 1,000 RSUs with a 4-year vesting schedule at 25% per year. In each of the four years, 250 shares vest. By the end of four years, the employee has gained full title to all 1,000 shares.

Advantages and Disadvantages of RSUs

Advantages:

  • No upfront cost: The employee does not have to pay for RSUs. Shares are given after they have vested, which makes it easy for employees to benefit without any financial risk.
  • Guaranteed value (if vested): Even when the company’s stock price goes down, an RSU will have value unless the stock is completely worthless.
  • Simple for tax purposes: You pay your taxes when the stock vests, and the amount is the easy-to-calculate current market value.
  • Retention advantages: The fact that RSUs provide a strong incentive for employees to remain with the company until their terms of full vesting encourages longer-term engagement on the part of employees.

Disadvantages:

  • Taxed immediately at vesting: The employee has to pay tax on the value of shares at vesting, even if he or she cannot or chooses not to sell such shares at that time.
  • No shareholder rights until vesting: Before the actual delivery of shares, the RSU holder does not have any rights, such as dividends or voting rights.
  • Limited upside: RSUs are not leveraged like stock options; there will be no multiplicative effect with RSU grants in situations where the stock price materially increases.
  • Potential illiquidity: Company rules or blackout periods may prevent the selling of shares immediately after vesting.

RSUs in Private VS Public Companies

Different rules apply to RSUs in private and public companies.

Public Companies:

  • Pricing makes valuing RSUs easier, hence fulfilling tax reporting requirements.
  • Unless restricted by company trading policies or blackout periods, the shares are immediately available for sale once they vest.
  • There are no taxes left unpaid owing to automated methods for withholding, such as sell-to-cover.

Private Companies:

  • Since there is no public market, the stock may be illiquid, and the FMV of shares is determined by internal valuation methods (e.g., 409A valuation).
  • To avoid taxing employees on illiquid shares, many private companies have adopted a dual-trigger concept for RSUs, where vesting occurs only when:
    • Time of service (e.g., 3 years with the company),
    • Liquidity event (e.g., IPO or acquisition).
  • Employees thus avoid paying tax because there won’t be a tax trigger until the event happens (as defined above).
  • Example: An employee of a private startup receives 2,000 double-trigger RSUs. The RSUs will be time-vested after 2 years, but will not be taxable until 3 more years later when the company goes public. The taxable income and liquid shares will only be granted to the employee after the IPO.

Mrs. Manju Diyya

Vice President – Tech
She is a versatile professional with a robust educational foundation spanning both the realms of chemical engineering and physical sciences. She holds degrees from esteemed institutions such as JNTU for Chemical Engineering and Osmania University for Physical Sciences. Additionally, she has expanded her expertise by earning a certification in Data Science from Intellipaat in collaboration with IIT, Chennai. With a solid background in both academia and practical application, she demonstrates a profound understanding of data science, particularly in artificial intelligence (AI) and machine learning (ML). She is a dynamic individual characterized by her analytical mindset and a proven ability to drive meaningful outcomes through data-driven methodologies.

Mrs. Yuhana Hassan

Associate Vice President – Strategic Planning & Business Expansion
With almost a decade of distinguished experience in senior business management, she brings a wealth of expertise in overseeing different divisions within the IT sector. Known for her strategic thinking and deep understanding of global market trends, she has successfully expanded businesses across vibrant markets in South East Asia and the Middle East. As a leader, she has led efforts in brand development and strategic planning, driving organizational growth and positioning the company as a market leader. Beyond her strategic role, her dynamic leadership style and unwavering commitment to excellence continuously boost our company’s performance.

Chandra Babu T

Lead – Business Development
IT professional with 20+ years of experience in program management, product management, delivery management, pre-sales, and process management. Started career as a Java developer from there onwards rose to different positions in companies like Birlasoft and Unisys Global Services. Major projects are involved in GE Money, Angola National ID, United Airlines, SIDBI Bank’s Enterprise Loan Management System, Bayshore Community Healthcare Services & Health Serve, etc.

Jeelani Sheik

Chief Marketing Officer
Jeelani Sheik, a seasoned marketing leader with 20+ years in the IT industry, specializes in digital marketing and product development. His expertise lies in leveraging data-driven insights in digital marketing to produce the best possible results within budget constraints, fueling growth for small enterprises and startups. Beyond marketing, Jeelani’s proficiency extends to delivery management, strategic planning, and process development, evident in his track record of establishing and scaling delivery centers, fostering key relationships, and leading transformative programs during his tenure in TCS and Tech Mahindra. As Spryple’s CMO, he drives innovative marketing strategies, enhancing brand visibility and spearheading growth.

Srinivas Somisetti

Chief Product Officer
Srinivas, an experienced IT leader with over 20+ years of expertise, focuses on product and project/operations management. He ensures top-notch software quality in various sectors such as HRMS, healthcare, ERP, and general insurance, serving major clients in India, Middle East and the USA. Starting his HRMS journey in 2001, Worked for Temple Technologies, 3i Infotech, Saahi Systems and Tetrasoft companies, played SME Role in conceptualizing and Developing HRMS Solutions in his previous companies and also took the ownership of multiple HRMS implementation systems. Proficient in both Waterfall and Agile methodologies, especially Scrum, he has played a key role in establishing quality processes, contributing to achieve CMMI level 3 in multiple organizations. He continues to support startups, offering assistance from their inception. He also excels in developing e-commerce platforms and news portals. Beyond IT, he manages his family’s school business.

Sree Lahari Raavi

Co-Founder SPRYPLE HR
Over the course of the last 10 years, her unwavering dedication and unparalleled expertise have played a pivotal role in transforming our startup’s trajectory. In these 10+ years of her startup journey, she has guided the teams in developing applications in Healthcare Technologies (Sanela Healthcare). In addition to this, she has managed the delivery of client projects like NDTCO and Hibbett. Her tenure at Accenture, serving esteemed clients such as Zurich Financial Services, underscores her depth of experience and her capacity to navigate complex challenges with finesse.

Mr. Sriganesh Sivasubramanian

Sr.Vice President – HR Lead
HR professional with a Master’s Degree in Commerce and an Executive Post Graduate Diploma in HR Management. Had been with IT majors and MNCs, viz. HCL Technologies, Deloitte Consulting, Tech Mahindra, and Sanela Technology for over 35 years in a managerial capacity for Talent Management, Talent Acquisition, Talent Development, and Global Mobility Management. Green belt certified process improvement specialist from Deloitte .

Mr. Venkateswarlu Boora

Chief Executive Officer
Venkateswarlu Boora, as the founder and CEO, being a Techpreneur, has transformed the HRMS & Payroll solutions landscape. Started journey with Healthcare Technology Solutions. He is known for his customer-centric approach followed by relentless innovations in Information Technology. In his 25 years of IT journey, worked for MNCs like TCS, Accenture, and served major clients like Zurich Financial Services, Bank of America, AC Nielsen, CVS Caremark, Ericsson, and HR across North America, Europe, and Asia Pacific. In his journey as a techpreneur, he established teams and provided many IT solutions for both Public and Private sectors in India, Malaysia, and the USA. His ventures, Sanela Healthcare Software and Sreeb Technologies, proudly count ISRO, NDTCO, and Hibbett among their esteemed clients.