When an employee is on maternity leave, their contract of employment continues and they remain entitled to most of their usual benefits. The exception is anything classed as “wages or salary” (under Regulation 9 of the Maternity and Parental Leave Regulations 1999). Bonuses, which are often only paid once a year, warrant special consideration.

The general rule

Under the Equality Act 2010, it’s unlawful to treat someone unfairly because of pregnancy or maternity. But the law also allows employers to pause pay-related benefits (like bonuses) while someone is on non-compulsory maternity leave.

How bonuses are treated

Bonuses vary by employer – some are one-off and informal, others part of structured, performance-based schemes. How should employers approach bonuses (which are often annual) where the employee is off on maternity leave for part of the year and/or at the time that payment would otherwise be due?

The Equality Act itself provides a partial answer. Under s74, in relation to a woman on maternity leave, any contractual pay or bonus provisions must be interpreted as entitling the employee to the following:

  • pay (including bonus) in respect of the period before statutory maternity leave started;
  • bonus in respect of the period of compulsory maternity leave (the first 2 weeks after the child is born); and
  • bonus in respect of the period after the end of maternity leave.

This provision effectively allows a bonus to be reduced pro rata, based on the time that the employee has been on non-compulsory maternity leave, but no more. Compulsory maternity leave is treated as time worked for bonus purposes.

To give a practical example: Sara is part of a yearly bonus scheme. She goes on maternity leave from 1 March to 31 December, and her baby is born on 11 March. Her employer must calculate her bonus for the year based on:

  • the two months she worked (Jan–Feb)
  • plus the two weeks of compulsory maternity leave after her baby’s birth

Her bonus can only be reduced to reflect the time she was off beyond those periods.

Are all types of bonus covered by this rule?

Performance-related bonuses (whether based on individual, team or company targets) and other regular bonuses such as a Christmas bonus are usually deferred pay for past work, and therefore fall within this rule.

Discretionary bonuses are often stated to be ‘non-contractual’. Although this is often a statement of intent rather than a supportable legal position (where such bonuses are habitually paid), it’s important to note that, contractual or not, they are still, effectively, covered by the same rule (although the relevant legal provision for non-contractual bonuses is paragraph 17, Schedule 9 of the Equality Act rather than s74). A pro rata payment should reflect the portion of the bonus period that the employee worked (and the two-week compulsory maternity leave period).

Paragraph 17 of Schedule 9 applies to benefits consisting of the payment of “wages or salary” which are not regulated by the contract. A bonus entitlement does not need to be formally set out in the contract in order to be “regulated” by it. In Hoyland v Asda Stores the Scottish Court of Session held that a bonus can be regulated by the contract of employment in the loose sense that, but for the existence of the contract of employment, the bonus would not be paid.

Bonuses to incentivise future performance should also be subject to the pro rata principle. A lot will depend on what future period performance is being incentivised for. If the employee will be off for the whole of the period covered by the incentive then, arguably, no bonus is payable. If they will be back at work for part of the time then the bonus should be pro-rata’d to reflect that.

Wider impact

The same pro rata principle is likely to apply to other types of deferred remuneration such as awards under share schemes and other long-term incentives.

Top tips for clarity of position

The legal position is clear and should be reflected in any written bonus scheme to avoid confusion. Employers should:

  • include provision in any written scheme for at least a pro rata apportionment to employees who are, or who have been, on maternity leave;
  • make it clear what the ‘bonus period’ is. This will ensure clarity on any apportionment. In many cases it will be the employer’s financial year, or some other 12-month period, but this may not always be the case; and
  • where a bonus is based (in whole or in part) on individual measurable performance criteria (such as a sales target), set out how each criterion should be adjusted or pro-rated to take account of the effect of maternity leave on the employee’s ability to meet it.