Income Tax (Earnings and Pensions) Act 2003 section 312C

Section 312B: the participation and equality requirements

Section 312C sets out the detailed participation and equality requirements that a qualifying bonus scheme must satisfy under section 312B, including the permitted exceptions and the rules governing how award amounts may be determined.

• All persons in relevant employment must be eligible to participate in bonus awards (the participation requirement), though directors of the company may be excluded, and employees with fewer than 12 months' continuous service or those subject to gross misconduct findings or summary dismissal may also be excluded without breaching this requirement.
• Every employee who participates in an award must do so on the same terms (the equality requirement), but the actual amounts may differ provided they are determined solely by reference to remuneration, length of service or hours worked.
• Where more than one of those permitted factors is used, each must generate a separate entitlement and the total bonus must be the simple sum of those separate amounts — they cannot be multiplied together or combined in any other formula.
• The equality requirement is breached if any feature of the scheme disproportionately benefits directors, former directors, higher-paid employees, or employees in particular parts of the business or carrying out particular activities, and it is also breached if some participating employees receive nothing at all.