In a radical departure from accepted wisdom and practice, the EAT has held that employees...
Employer pension contributions and a 'week's pay'
University of Sunderland v Drossou
Contrary to long-established practice, employer pension contributions do count towards the calculation of a ‘week’s pay’ says the EAT.
Many employment law entitlements and awards by an employment tribunal make reference to a week’s pay, including statutory redundancy payments, the basic award and compensation for not providing a written statement of terms and conditions. A ‘week’s pay’ is defined in s. 221 (2) of the Employment Rights Act 1996 (ERA) as ‘the amount which is payable by the employer under the contract of employment’ and is capped, currently at £489. It has been longstanding practice to exclude employer pension contributions from the calculation of a week’s pay - on the basis that they are not received directly by the employee but paid into the pension fund.
Here a tribunal found that Ms Drossou had been unfairly dismissed and ordered her reinstatement. Her employer didn’t comply so the tribunal ordered she be paid compensation instead. This included a basic, compensatory and additional award – all of which are calculated by reference to a ‘week’s pay’. Her employer appealed against the tribunal’s interpretation of a ‘week’s pay’ which included the employer’s pension contributions.
The EAT dismissed the appeal and confirmed that a ‘week’s pay’ should include employer pension contributions. Section 221 (2) does not refer to sums being received by, or paid to, the employee. It simply refers to ‘the amount which is payable by the employer under the contract of employment’. The tribunal, endorsed by the EAT, therefore considered that this included employer pension contributions.
Link to judgment: http://www.bailii.org/uk/cases/UKEAT/2017/0341_16_1306.html
Because of the statutory cap, this case is likely to be of limited assistance to many employees but it will be very helpful to those earning less than £489 per week, who can now factor in their employer pension contributions when calculating a week’s pay.