Employer pension contributions count towards a week’s pay under the ERA 1996 (EAT)

James Williams

In the case of University of Sunderland v Drossou (EAT), the facts are Ms Drossou worked for the University of Sunderland and was dismissed as a result of an irretrievable breakdown in working relationships for which she was considered to be the primary cause. The employment tribunal found that she had been unfairly dismissed.

Chapter II of Part XIV of the Employment Rights Act 1996 (ERA 1996) stipulates the method of calculation of a week’s pay. For employees with normal working hours, it is as follows:
“… if the employee’s remuneration for employment in normal working hours … does not vary with the amount of work done in the period, the amount of a week’s pay is the amount which is payable by the employer under the contract of employment …” (section 221(2), ERA 1996).

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.

Numerous payments and remedies are calculated based on the statutory definition of a week’s pay under the ERA 1996. This includes the statutory cap on the compensatory award for unfair dismissal. That award cannot exceed the lower of the following amounts:

  • A fixed statutory amount (currently £105,707).
  • 52 multiplied by the amount of the claimant’s week’s pay (sections 124(1) and (1ZA), ERA 1996).

One aspect of the ERA 1996 which does not rely on the statutory calculation method for a week’s pay is the definition of wages for the purposes of the right not to suffer unlawful deductions from wages. Section 27(1) of the ERA 1996 states “… wages … means any sums payable to the worker in connection with his employment …”.

This increases the potential value of a week’s pay as follows:
 Consider the example of an employee for whom a week’s pay (not including employer pension contributions) is £1,000 and whose employer makes pension contributions of, say, 5% of that amount:

Compensatory award:
Established practice would say that the maximum possible compensatory award the employee could recover was £52,000 (52 x £1,000).

Now, following the EAT’s decision in Drossou, the maximum amount increases to £54,600. (Adding the 5% pension contributions increases the amount of the week’s pay to £1,050. This multiplied by 52 totals £54,600.)

Case: Microsoft Word – EAT 0341 16 RN – Sunderland Uni – Judge.doc (publishing.service.gov.uk)

James Williams – Solicitor

James Williams

I am a qualified Employment Law and HR Solicitor. I specialise in acting for schools and advise on all aspects of employment law and HR including attending employee meetings, advising senior leaders, conducting redundancy consultations, drafting contracts of employment, advising on policies and procedures and negotiating settlement agreements.