One week from today, 5 April 2017, marks the ‘snapshot’ date on which employers who are in scope need to collect the raw data on which to calculate their mean and median gender pay and bonus gaps under the Equality Act (Gender Pay Gap Information) Regulations 2017. We continue our countdown with a brief look at the issues with bonuses.

Bonus pay is defined as remuneration in the form of money, vouchers, securities, securities options or interests in securities that relates to profit sharing, productivity, performance, incentive or commission. Bonus pay comes into play in two different respects under the regulations. If bonus pay is paid in the pay period which includes 5 April, employers need to factor those payments into the calculation of hourly rates of pay. Employers will also need to separately assess all bonus payments made to employees in the 12 months ending on the 5 April (in respect of employees still employed on that date) and report 3 separate metrics: The mean and median bonus gaps, and the proportion of male and female employees who received bonus pay during that 12 month period.

All of these calculations give rise to issues with bonus. The regulations provide for pro-rating of bonuses for the hourly-rate of pay calculation; the hourly rate should include a pro-rated bonus figure which reflects the pay period, where the bonus relates to a longer period. This does limit the extent to which the timing of payments can skew the overall gap, for example where employers pay annual bonuses during the April pay period. However, it will not always be easy to determine what period the bonus payment relates to. In the case of shares and share options, will employers need to pro-rate according to the period prior to vesting/exercise? Commission which is paid on the conclusion of a particular transaction rather than periodically will be similarly difficult to pro-rate. There is also no indication as to how employers should pro-rate, for example, an annual bonus where an employee has been on maternity leave and only eligible for bonus for part of the bonus year.

When calculating the mean and median bonus gap, the regulations do not allow for making full-time or full-year equivalent comparisons for employees whose bonuses are pro-rated for part-time working or maternity leave. As these employees will disproportionately be women, this could have a significant impact on the bonus gap. Unlike for the hourly rate calculation, there is also no mechanism for pro-rating for the period to which the bonus relates. This could again lead to skewed results: An individual receiving shares worth £100 in a particular year (but which vested, and so were earned, over a 2 year period) will seem to be better paid for the purposes of the regulations than someone who received £50 of shares in that year but had already received £50 of shares in the previous year.

Bonus pay in the form of securities, securities options and interests in securities is treated as paid at the time when and in the amounts in respect of which it gives rise to taxable earnings. This means that the amounts relevant for gender pay gap reporting will depend on the type of security or interest in security. Although tax-advantaged securities options (EMI, CSOP and SAYE) will generally not give rise to a tax charge on exercise, it is not clear that the amount of the option gain is not still an amount which is reportable under the regulations. If only taxable gains have to be reported, reporting may be skewed where an employer has a mix of tax-advantaged and non-tax-advantaged share incentive arrangements (given that only some of those may need to be taken into account in reporting).

For private companies, it may be difficult to calculate the value of the shares on exercise of an option, and companies may need to instruct their auditors or a share valuation expert.

For direct share acquisitions, there will be no taxable employment income unless the employee pays less than market value for the shares, so they are not taken into account.

It is important for employers to be proactive in assessing how different payments to employees will be treated under the regulations ahead of the requirement to report. Understanding pay arrangements will help employers manage and present information meaningfully and in context both internally and externally.