Reliefs: employee-ownership trusts: conditions: the 'all-employee benefit requirement': the 'equality requirement': circumstances in which requirement not infringed
In addition to and separately from the situations in CG67840, the ‘equality requirement’ is not infringed where the trusts permit the settled property to be applied for the benefit of all the ‘eligible employees’ by reference to an eligible employee’s
- length of service, or
- hours worked,
where the following conditions are met.
- The trusts do not permit any of the settled property to be applied on terms such that some, but not all, ‘eligible employees’ receive no benefits whatsoever. This condition does not apply where ‘eligible employees’ receive no benefits by virtue of one or more of the second to fourth situations set out in CG67840.
- Where the settled property is applied by reference to more than one of the three factors mentioned above,
- each factor gives rise to a separate entitlement related to the level of remuneration, length of service or hours worked and
- the total entitlement is the sum of those separate entitlements.
Where either of these conditions is not met the ‘equality requirement’ is infringed.
This allows the EOT some flexibility, again within limits, in the way that benefits are allocated amongst ‘eligible employees’.
The trust deed of the Okul Widgets Limited EBT states that the senior managers, which phrase covers a number of employees as well as the company directors, of Okul Widgets Limited are not to benefit from the settled property if certain performance targets are not met by the company. This means that there are circumstances in which some, but not all, ‘eligible employees’ of Okul Widgets Limited can receive no benefits. This infringes the ‘equality requirement’, as the trusts permit the settled property to be applied otherwise than for the benefit of all ‘eligible employees’ on the same terms, and the saving provisions mentioned in CG67840 do not apply.
The trust deed of the Phekda Widgets Limited EOT permits the trustees to apply the settled property for the benefit of all ‘eligible employees’ of Phekda Widgets Limited. The deed states that the property may be applied ‘in proportion to each employee’s hours worked and length of service’. The trustees could, within their powers, decide to allow employees with less than ten years of continuous service to benefit from the trust property by £1 for every hour worked during the previous financial year, while allowing those employees with ten years or more of continuous service to benefit at a different rate. Rather than each factor giving rise to separate entitlements which are then added together, the trust deed permits the existence of a single entitlement based on both criteria and so it infringes the ‘equality requirement’. Again, the saving provisions mentioned in CG67840 do not apply.
The trust deed of Ruchbah Widgets Limited EOT provides for ‘eligible employees’ of Ruchbah Widgets Limited who have over one year of continuous employment with the company to benefit from the settled property. This qualifying period does not infringe the ‘equality requirement’; although it excludes from benefit some ‘eligible employees’, it does so in a manner permitted by one of the provisions mentioned in CG67840. The trust deed provides that each employee who is entitled to benefit will receive ‘qualifying points’ through which their entitlement will be calculated. Under the deed an employee receives 5 qualifying points for each complete year of service and 1 qualifying point for every £1,000 (or part thereof) of salary. Each point is worth £10. This situation differs from that in Example 18 because there are separate entitlements based on remuneration and length of service, and the total entitlement is their sum. An ‘eligible employee’ who has 20 complete years of service and a salary of £31,500 will have an entitlement worth £1,320, while an ‘eligible employee’ with 36 complete years of service and a salary of £19,200 will have an entitlement worth £2,000.