Clawback of employee bonuses

It is a busy time for anyone working in reward and compensation. Many clients will be finalising accounts and calculating the monetary pool they can afford to pay to employees as a discretionary ‘bonus’ on top of salary and benefits. Some clients will have awarded bonuses that are subject to deferral arrangements and perhaps even clawback provisions which allow an employer to demand repayment of a bonus in some circumstances. Employers using clawback will be looking at performance and behaviour in 2020 and deciding whether these provisions should be used. Given some of the business volatility in 2020 it is likely that tax advisers may see more use of clawback in the coming year and beyond and as we shall see some thorny tax issues can arise when these provisions are exercised.

Clawback use

Before we look at the tax issues it is worth considering which employers...