Category: Pay

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Anna Denton-Jones Employment Law Holiday Pay Redundancy Settlement Agreements

Pay-in-lieu of notice and holiday

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The most common query I have to deal with relates to holiday calculation and notice/payment-in-lieu of notice.

I’ll set out an example to illustrate:

Today is 15 May 2023. An employee gives their notice of 1 month today, so their employment would end on 15 June 2023. Their holiday will be calculated to 15 June 2023.

However, if the employer decides they don’t want them to work out their notice and agrees instead to make a payment in lieu of (instead of) notice then the end of employment will be 15 May 2023. Holiday will be calculated to today’s date. The employee will be paid 1 months’ salary and benefits including any holiday to today’s date in their final pay.

Anna Denton-Jones
Refreshing Law

 

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Anna Denton-Jones Duty of Care Employment Law Employment Rights Act 1996 HR Mental Health Pay Sick Pay Stress

Are you entitled to withhold SSP?

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You’ve probably noticed wording in your sickness policy that makes it clear if employees don’t comply with your procedure, they risk the payment of Statutory Sick Pay (SSP).

It is not open to an employer to withhold SSP where the employee provides medical evidence from their GP late. For example, you may require the certificate to be given to you on day 8 of absence, and the employee might not get around to giving you a certificate until day 10.

An employer is allowed to not pay SSP if the employee has failed to notify them of the absence, and there is no good reason to cause the delay in notification. For example, the employee is supposed to notify you of their absence on the first day of incapacity – if they didn’t notify you and essentially were absent without leave for the first few days and told you on day 8, then potentially Section 156(2)(a) Social Security Contributions and Benefits Act 1992 applies. So, for example, if the employee had gone AWOL effectively for the first week and then telephoned in, the employer is entitled to withhold for the duration of the delay.

Employers may introduce something more onerous as a matter of contract. For example, that the employee has to report in sick by a particular time on the first day of their absence and thereafter at regular intervals. That cannot override the statutory scheme when it comes to SSP but if more generous contractual sick pay is available, such as payment for the waiting days when SSP doesn’t apply or payment of full pay or something more than SSP, then the employer will be able to follow what they have said in their contract and withhold the extra payment if the employee has not complied with the rules.

Under SSP rules, HMRC in its www.gov.uk page ‘Statutory Sick Pay: employee fitness to work’, states that “if an employer decides to stop payment of SSP, they should explain their decision to the employee”. The employee will be entitled to a written statement from the employer and can seek a formal decision on their entitlement from HMRC Statutory Disputes Payment team. You might like to refer to the ‘Stop Payment of SSP Section’ of that Guidance. There is an example letter to notify the employee that you will not be paying them.

There will be occasions where the employer has real reasons to believe that the person may not have been unfit for work. For example, they may have requested annual leave and that request has been rejected, so the individual then phones in sick. Clearly the employer would have to do as much investigation as they possibly could around the circumstances. For example, if the individual provides a doctors fit note, HMRC advises that that should be accepted as conclusive proof of incapacity for SSP purposes, even if there is very strong evidence to the contrary. The employer might need to get their own medical advice or to ask HMRC to arrange for the employee to be examined by the medical services team. Clearly that only works in the case of a health condition that is likely to be ongoing.

It might be possible to ask, for example, a GP who has provided a backdated sick note when their consultation with the individual was and providing evidence timing that the employee has been covering up them being perfectly well on the days in question. Evidence as to their activity from social media may also be relevant, eg. photographs of the employee swanning around Spain when the employee told the employer they were in bed and that they were so unwell that they couldn’t get up.

Anna Denton-Jones
Refreshing Law

 

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Anna Denton-Jones Employment Law Employment Rights Act 1996 Holiday HR Part-Time Working Pay

Holiday calculations for part year workers

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Given we are in peak holiday season, are you happy you are paying people correctly when they take annual leave? The Supreme Court, i.e. the highest Court in our land has just ruled on the case of a teacher whose employment contract meant that she only worked for a proportion of each year, so 32 weeks in total over 3 terms ie;- part of the year. Others might work part of the year such as a ‘season’ on a farm or on a holiday site.

The employer had calculated the entitlement using the shorthand of 12.07% of annualised hours. This number had become standardised shorthand – 12.07% being the figure obtained using the standard working weeks in a year which is 46.4 (52 weeks less the statutory 5.6 weeks holiday entitlement) and 5.6 weeks being 12.07% of 46.4 weeks).

The employee argued they should have looked at her wages during the 12 week period prior to her taking holiday to calculate her average pay over that period. This was the approach ACAS recommended for workers employed on a casual basis or with irregular hours (they have since removed this from their site).

If you used the calculation favoured by the employee, she would be paid more when she took annual leave, in fact 17.5% of her annual earnings.

Since the date of the case, under the Employment Rights Act, if a worker doesn’t have normal working hours, a week’s pay is taken to be their average pay over a 52 week period and if there are weeks in which there is no remuneration being payable such weeks are excluded from the calculation with earlier weeks brought into the reference period instead. This is since April 2020 but in this particular case, the individual was referring to a period before then when the reference period was 12 weeks, excluding the weeks on which she didn’t work).

I suspect often employers who are looking at average pay just work out average pay over the 52 week period and forget to discount weeks in which there are no earnings?

I won’t bore you with the arguments that went back and forth between the various levels of Tribunal and then the Court of Appeal before the Supreme Court but essentially, the Supreme Court has agreed with the Court of Appeal decision. The percentage method of calculation (12.07 or 17.5%) has been rejected comprehensively and should no longer be relied on. They confirmed the average wage calculation instead This should be followed even if it results in part year workers receiving a higher proportion of their annual earnings as holiday pay.

It also means that there is now a dichotomy between accrual of annual leave which accrues in proportion of the work done and pay in respect of such leave which has to be calculated by reference to remuneration during periods of actual work. When it comes to accrual, in the first and last years of employment, accrual is based purely on the passage of time under the Contract – it doesn’t have any relationship to the amount of work done in that time. Non-working weeks could be included in calculating accrued holiday entitlement but are ignored when calculating holiday pay.

In practical terms, this is likely to be problematic, mainly for schools, where somebody does not have regular working hours rather than if somebody’s salary was annualised and paid in 12 monthly instalments, they are already receiving the correct amount of pay during weeks of holiday as during working time.

For those employers who have casual workers, they need to make sure that they are using the calendar week method. If a worker takes a week’s holiday, they should be paid a week’s pay according to the statutory formula which may produce a different rate of pay each time a holiday is taken depending on what their earnings have been in the 52 weeks that they have last worked prior to the calculation being done (or the period of employment if shorter).

That still leaves us with the difficulty in expressing holiday entitlement in contracts. If a worker does a different number of hours or days each week and sometimes may work no hours at all, what does the employer say in terms of quantifying their annual leave entitlement? Here the Working Time Regulations don’t provide any clues. One possible solution as per the government guidance which sits alongside the regulations is to base it on the number of days in an average week of a representative period, e.g. if the average week is 2.5 days long then a day’s holiday equals 1 divided by 2.5 or 0.4 of a week. If the employee took 2.5 days off it would reduce their holiday entitlement from 5.6 weeks to 5.2 weeks.

It is possible that we may now see a flurry of deductions claims from workers who have had their holiday calculated on the percentage. Those claims generally have to be brought within 3 months of the final pay day or the most recent pay day that they say has been calculated erroneously and can go back for 2 years back pay from the date of the claim.

Anna Denton-Jones
Refreshing Law

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Anna Denton-Jones Compensation Discrimination Law Employment Contract Employment Law Employment Relations (Flexible Working) Act 2023 Employment Rights Act 1996 Equality Act 2010 Pay Remote Working Working from Home

Cutting pay for those who choose remote work

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This week I was happily reading a ‘People Management’ article about an employer who had moved to fully remote working who was extolling the virtues of having done so, particularly around productivity. The next headline that caught my eye was that Stephenson Harwood, a law firm, had announced a 20% pay reduction for employees who choose to continue to work from home on a full-time permanent basis.  

I’ll leave aside the damage that such a move might do to employee relations and just focus on the legal issues.

Firstly, any such manoeuvre would need to be agreed with the employee in writing because it is a change to the current contract of employment.  An employee who moves to full-time homeworking is changing their place of work as well as changing their pay, in this example. Thus any change has to be agreed to. 

The  employee will also become entitled to claim expenses for travelling to the office – in this case, the employer is requiring them to attend once a month.  

One of the interesting points for me is that that the law firm has a hybrid working policy and staff are already permitted to work remotely for 2 days each week, which seems to be the average that many employers are experimenting with.  Given that those employees are not being required to agree a change to their salary, one can immediately see equal pay arguments as there is unlikely to be substantial differences between the kind of work that the employee hybrid working is doing compared to the fully remote one. The firm would have to rely on the material factor defence to justify the difference in pay for employees who are allowed to work 2 days a week and those who are working from home 5 days a week.  This is unchartered territory but if I was a betting person, I would bet that a Judge would be reluctant to find that there was substantial difference, particularly as working from home remotely, the employer saves the cost of having to run a desk in the City, the employee takes on the burden, for example, of electricity during the working day.

All good HR people will instinctively twitch at the potential for discrimination claims.  If those who choose to work fully remotely, on a full-time basis, do so because they are carers, for reasons related to their childcare or disability, they are entitled to launch discrimination claims about the indirectly discriminatory impact this policy has on them.

The spokesperson from the law firm also made a real blunder in admitting that those adopting exclusively remote working practices would be likely to be ruled out of promotion to partner level. Whilst everyone has been talking about hybrid working, we have been worrying about distribution of work so that those who are most visible in the office do not benefit from training opportunities, promotion and opportunities to do certain kinds of work compared to their colleagues who may be less visible as they are not in the room. This bold statement merely highlights the very worst fears that we all had.  Again, this kind of attitude, if followed through into practice, is likely to give grounds for discrimination claims.

I am sure we are going to see the lessons learned as we move forward… it makes me sad when I see other lawyers in my profession setting the worst of examples.  Especially in a week where somebody reported a significant increase in the number of employers reporting increased productivity or efficiency from home and hybrid working arrangements.  This was based on a survey of a 1,000 employers.  What’s interesting about that survey is that they surveyed employers in December 2020 and then again in October and November 2021, with the numbers reporting a negative impact from home working and hybrid working falling and those reporting positive effects increasing, suggesting that as time has gone on through the pandemic, people have become more used to new working arrangements and support it.

Anna Denton-Jones
Refreshing Law

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Anna Denton-Jones Employment Law Holiday HR Pay Video

Video | Shifting sands and holiday pay

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Our latest video is available to view on the Refreshing Law YouTube channel — please click here to watch Anna discussing holiday pay and some interesting developments in this area.

Anna Denton-Jones
Refreshing Law

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Anna Denton-Jones COVID-19 Dispute Management Employment Contract Employment Law Employment Tribunal Pay

Non-payment of commission due to COVID-19

Royal Courts of Justice, London

The Tribunal has recently dealt with a case relating to non-payment of commission due to COVID-19 in Sharma v Lily Communications. The employee concerned had a basic salary and then commission based on 15% of profit that the business made. This was paid upfront and agreed at interview.

The clause in the contract, followed the common wording that “in addition to your salary the Company may pay you commission of such amount as shall from time to time be determined by the Company in its absolute discretion. Any commission payments will be paid at such intervals and subject to such conditions as the Company may in its absolute discretion determine from time to time. Any commission payment to you shall be purely discretionary and there is no contractual entitlement to receive it and it shall not form part of your contractual remuneration or salary for pension purposes or otherwise. If the Company makes a commission payment to you, it shall not be obliged to make subsequent bonus payments in respect of subsequent financial years of the Company. The Company reserves the right in its absolute discretion to terminate or amend any commission scheme without notifying you”. Do you think the employer were keen to make sure the commission scheme was discretionary with their three mentions of it?

Later the employer tried to change the position, imposing a new commission structure but the judge found that this hadn’t been communicated to or agreed with the Claimant. This is the first important point: an employer cannot just move goal posts – any change has to be agreed with the affected employees.

When COVID hit, the employer realised it was at risk of non-payment by its customers so changed to paying commission only when it had been paid not upfront, reducing the earnings of the Claimant. The Claimant was furloughed and challenged why he wasn’t receiving commission on deals he knew had been signed and paid. He was told during furlough commission was deferred. The Claimant didn’t return to work – he was made redundant in August 2020.

The Claimant brought a claim for over £5,000 commission he said he should have been paid during the period April to August 2020 and was successful. The Tribunal found that the scheme was discretionary but noted that even where a scheme is discretionary there is still a contractual obligation to exercise that discretion rationally and in good faith. The judge found that the uncertainty over the pandemic was a paradigm example of a situation where the employer would want to exercise discretion in a different way so deferring payment was OK. However, when his employment was terminated, the accrued commission should have been paid.

Anna Denton-Jones
Refreshing Law

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Anna Denton-Jones Articles Employment Law Pay

Getting money back from an employee when mistakenly overpaid

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Let’s assume that you’ve overpaid somebody either as the result of an administrative error or because they have fraudulently claimed an entitlement to something that is not the case. Ideally you should have a contractual provision expressly allowing deduction from wages in the event of an overpayment. This is so you can rely on it to recover the overpayment where they are still employed by you. If you didn’t have this contractual provision, making the deduction would be a breach of contract.

In the absence of a contractual provision, the employer could rely on a common law remedy called ‘restitution’ based on a mistake of fact to recover the overpayment through the civil courts – this law prevents the unjust enrichment of the worker at your expense. You should act as quickly as possible once an overpayment is discovered because a worker can rely on a ‘change of position’ defence so, for example, if they’ve spent the money they would argue they are no longer able to repay it. An example case where this occurred was County Council of Avon v Howlett 1983 where a teacher was paid more sick pay than he was entitled to. At the time he queried the overpayments but he was told they were correct and by the time the Council had realised its mistake he had spent the money. The Court of Appeal prevented the Council from recovering any of the overpayment clearly taking into account the fact that the Council had confirmed that the payment was correct so the employee, in good faith and without any knowledge of the claim, changed his position (spent the money) so it was not his fault.

The easiest option is usually to recover an overpayment by making deductions from future payments of wages or salary over a period of time. In circumstances where the deduction is to recover an overpayment of wages or an overpayment of expenses, the unlawful deduction from wages regime in Sections 13-27 of the Employment Rights Act is dis-applied (Section 14(1)). Normally it is unlawful for an employer to make a deduction from a worker’s wages unless the deduction is authorised specifically by law or the employee’s contract or the worker has given their prior written consent to the deduction. An example of this applying is the case of SIP (Industrial Products) v Swinn 1994 where the employee had fraudulently obtained around £2,000 from his employer by altering fuel receipts which he then submitted as expenses claims when he was dismissed. The employer withheld the remainder of his wages and holiday pay. Normally this would clearly have been an unlawful deduction from wages, however the Employment Appeal Tribunal found that this fell within the overpayments exception.

It is worth knowing that you cannot make deductions from somebody’s statutory redundancy payment as that is a payment which is specifically excluded from the definition of ‘wages’ in Section 27(2)(d) of the Employment Rights Act 1996. Elsewhere in the redundancy sections the legislation provides that the employer shall pay a redundancy payment to any employee if they are entitled to it. The only way an employee could agree to a reduced statutory redundancy payment would be in a Settlement Agreement. However, if the employee was receiving an enhanced redundancy payment it may be possible for an employer to make a reduction from the enhanced element to recover an overpayment, but this again will depend on the terms of the employee’s contract.

Likewise, you are not able to make a deduction from statutory sick pay. If you have overpaid somebody and you later make a payment in lieu of notice (that is non-contractual) you can make the deduction for an overpayment. If the employee brought a claim in breach of contract for the difference you would be able to defend it on the basis that you were entitled to recover the overpayment from wages and, in the alternative, counter claim for a set-off of the overpayment.

Where you make any deductions it should be clearly stated on an itemised pay statement.

If you’ve any queries relating to this article, do please contact us.

Anna Denton-Jones
Refreshing Law

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Anna Denton-Jones Articles Disability Discrimination Law Employment Law Employment Rights Act 1996 Health and Safety Health Conditions Pay Return to Work Sick Pay

Can you withhold sick pay for staff with sporting injuries?

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You may have come across clauses in a sickness policy or in contracts of employment where the employer reserves the right to review the payment of contractual sick pay (and not pay) if the employee had been injured participating in a sport or leisure activity.

The London Marathon this week got me thinking about this.

I’ve previously always used the example (when explaining the clause to clients) of a keen rugby player. If they get injured on a fairly regular basis why should the employer keep coughing up when this is hardly accidental and is going to keep costing them? There are even City firms who won’t allow you to (for example) play rugby because they don’t want you coming into work on a Monday morning covered in bruises and looking like you’ve been fighting because it creates the wrong impression, but that’s another matter…

None of us go out aiming to get injured, but to what extent can an employer withhold sick pay from someone who (say) breaks a leg running in a marathon, riding a horse or riding a bike?

There is no obligation to pay sick pay over and above SSP in general. If employers choose to pay contractual sick pay they can choose how long they want to pay it for, how it is to be calculated, and any conditions attached to payment. Thus it is permitted for an employer to reserve the right not to make payment in certain circumstances as in the case of the clause we are discussing or when they say nothing will be paid until the employee has passed their probationary period.

As with so many things in employment law, firstly care has to be taken to ensure that any provision by the employer is clear so that entitlement at any given time can be calculated.

Secondly, where the matter is reserved for ‘management discretion’ care needs to be taken to treat similar cases in a similar way to prevent unfairness. When does a ‘leisure activity’ (riding a bike with a friend round the park to go for a coffee) become a sport? Maybe it’s when the activity becomes competitive? Or is it more about the level of risk involved, so high risk pursuits like skiing, white water rafting and taking your horse cross country (which are more likely to result in injury) could result in sick pay being withdrawn but not general sports?

The third consideration the employer will need to make is what signal withdrawal of sick pay will give staff. Will the invoking of the clause to withhold pay come across as harsh? Will it put people off wanting to work in the organisation because it comes across as too uncaring? Most employers are quite sensible about this for this very reason and only use it in the tiny percentage of cases where a staff member is regularly injured – like the semi-professional rugby player.

Anna Denton-Jones
Refreshing Law

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Anna Denton-Jones Articles Compensation Employment Law Employment Rights Act 1996 HR Pay TUPE

Post-TUPE transfer — P45 issues

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One of the niggly little issues that often arises when there is a TUPE transfer is around the issuing of P45s (or not) to those staff whose employment has transferred.  Often the transferor, who has just seen a group of employees depart, or their payroll provider will insist that they are going to issue P45s to the staff. This is the wrong approach and just upsets people.

There are two approaches to take depending on the circumstances. One is for the new employer to just provide HMRC with a spreadsheet of the information that would otherwise have been on the P45s, the other is to argue there has been a succession – which route is right will depend on eg:- whether the employees are being subsumed into a much larger payroll or whether just part of an employer’s employees are transferring.

The succession route is deal with in  the PAYE regulations Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) where Regulation 102 provides that the transfer of a business is deemed to make the transferee or employer who has inherited the employees a successor business. No-one’s employment has ended, so no P45s should be issued.

Under Regulation 102(8) the Transferor has to give the Transferee ‘any particulars’ needed for them to continue processing payroll. Often, if there is a formal document dealing with a transaction, there may also be contractual promises that, for example, the seller of part of a business has made agreeing that they will make available such National Insurance and PAYE records as are necessary for the buyer.

Given that this is quite an esoteric area, if this issue arises it may well be a simple explanation to the Transferor is all it takes to get their co-operation to provide the information that you need and to prevent them from erroneously issuing P45s.

Anna Denton-Jones
Refreshing Law