CALCULATING A WEEK’S PAY
In University of Sunderland v Drossou the Employment Appeal Tribunal (EAT) considered whether the long-established practice of excluding employer pension contributions for the purposes of calculating a week’s pay was the correct approach.
Under the Employment Rights Act 1996 (ERA), the amount of a week’s pay is the remuneration ‘which is payable under the contract of employment’.
It has been longstanding practice to exclude employer pension contributions on the basis that they are not received directly by the employee but paid into the pension fund.
Numerous payments and remedies are calculated based on the statutory definition of a week’s pay, which includes unfair dismissal compensation and a statutory redundancy payment. In some cases a week’s pay is capped; in others it is uncapped.
Ms Drossou worked for the University of Sunderland until her dismissal as a result of an irretrievable breakdown in working relationships which she had contributed to. She successfully brought an unfair dismissal claim. The employment tribunal ordered the University to reinstate her. They failed to comply with that order, therefore had to pay her compensation. The tribunal took into account the pension contributions made by the University when working out the value of a week’s pay. The University appealed against this decision.
The EAT upheld the tribunal’s decision. The EAT looked at the definition of a week’s pay under the ERA, which does not refer to sums being payable to the employee, but instead refers to sums being payable by the employer. Further, the ERA refers to the employee’s “remuneration for employment”. That meant a reward in return for services provided by the individual to the employer. The EAT found that pension contributions are no less a reward for service than basic pay.
In some situations the ruling in this case will be limited; particularly where an employee’s basic weekly pay is already above the statutory cap. However, the decision is significant for those payments and remedies where a ‘week’s pay’ is uncapped, or where the employee’s pay is below the statutory cap. It remains to be seen whether this decision will be appealed.