What It Means
Employee Quota is the portion of an IPO reserved for a company's own eligible employees, allotted separately from the retail, NII, and QIB pools and usually offered at a discount to the price the general public pays.
How It Works
SEBI caps this quota at 5% of the company's post-issue paid-up capital. Companies commonly set the employee discount somewhere between 5% and 10% off the cap price, though the exact figure is decided issue by issue, so check the specific IPO's terms rather than assuming a number. Employees apply through their own dedicated pool, so they aren't competing against the much larger retail or HNI applicant base for the same shares.
Example
Say an IPO's cap price is ₹500 and the company sets a 5% employee discount. An eligible employee applying through the employee quota pays ₹475 a share, while a retail investor applying the same day pays the full ₹500.
Warning
It's tempting to assume employee quota shares carry the same lock-in as ESOP shares. Shares allotted through the employee quota in the IPO itself have no lock-in and can be sold from the day of listing, unlike promoter or pre-IPO investor shares, which do face separate lock-in rules.