Employee Ownership Trust (EOT) Bonus Initiative
Currently, a growing number of companies that transitioned to EOT ownership a few years ago are reaching this pivotal point and are beginning to explore the practical aspects of offering bonus payments to their employees.
If your company is under the ownership of an Employee Ownership Trust (EOT), you have the opportunity to provide your employees with an income tax-free bonus annually, with each employee eligible to receive up to £3,600.
Many companies typically wait until any outstanding debts from the acquisition of the business have been settled before implementing bonus programs.
Currently, a growing number of companies that transitioned to EOT ownership a few years ago are reaching this pivotal point and are beginning to explore the practical aspects of offering bonus payments to their employees.
Before proceeding, the following factors should be considered:
- Bonuses vs. Salary: It’s essential to categorise these payments as bonuses and refrain from using the tax-free allocation to substitute regular salary payments.
- Inclusivity: All employees should be included in the bonus program, though you can establish a minimum continuous service requirement of no more than 12 months.
- Disciplinary Proceedings: There are circumstances where employees under disciplinary proceedings can be excluded. However, such exclusions are generally limited to cases of gross misconduct. If contemplating exclusion, it is wise to seek professional advice.
- Varied Bonus Amounts: It is permissible to calculate individual bonuses based on factors like hours worked, length of service, and salary. However, exercise caution to ensure that high earners or directors do not receive disproportionately more than junior or lower-paid staff. Be mindful not to provide higher benefits to employees based solely on their job roles or industry sectors.
- Fair Distribution: When calculating bonuses using these factors, it is crucial to ensure that no employees are left without any bonus at all.
- Whichever approach you choose, it is imperative to formally document the process and secure agreement from your trustees and the board of directors.
- If you require further guidance on managing your EOT bonus arrangements, please don’t hesitate to reach out to us.