An increase in what counts towards a ‘Week’s Pay’

You’re probably familiar with calculating a ‘Week’s Pay’ for employees for example, for redundancy purposes. It’s been a long-standing practice that when you calculate a ‘Week’s Pay’ employers pension contributions were not included as they weren’t being received by the employee but were paid directly into the pension fund.  This was the position adopted by an Employment Tribunal in a 1989 case against the Port of London Authority.  However, the matter has now gone to the Employment Appeals Tribunal in a case involving the University of Sunderland and it has ruled that pension should be included.

Lots of different payments and remedies are calculated using the statutory definition of a ‘Week’s Pay’ including the fifty two-week cap on Compensatory Awards for Unfair Dismissal.

In this case the Employment Appeal Tribunal approved that pension contributions should be included in a ‘Week’s Pay’ before any cap is applied.  For high earners this won’t make any difference to their calculations but for those who earn less than the statutory cap of £489 per week it could make a real difference.  It would also make a difference to cases where there is no cap on the award for compensation in an unfair dismissal case such as whistleblowing case, or things like compensation under TUPE and protective awards for failure to inform and consult on redundancy situations.  It will also particularly effect employers who have employees in defined benefits pension schemes for whom they may be contributing a significant amount of money.  In the particular case concerned the employer was paying 18% of total salary into the University Superannuation Scheme.

It will be interesting to see if there’s further litigation over this issue but in the meantime adjust your calculations of the potential value of claims.