It has been long standing practice that when calculating a week’s pay for redundancy payments and certain employment tribunal awards, that employer pension contributions are not included. However, the Employment Appeal Tribunal (EAT) has recently held, in the case of University of Sunderland v Drossou that the calculation of a “week’s pay” under s.221(2) Employment Rights Act 1996 should include employer pension contributions, and not just be the basic pay.

Ms Droussou had made a successful claim for unfair dismissal against the University and had been awarded reinstatement.  When the University did not comply with the order, compensation was awarded instead. The Tribunal considered how to calculate a week’s pay for the purposes of calculating the award.  They were of the view that remuneration means a reward in return for services and pension contributions are no less a reward for service than basic pay.  Accordingly, they included the employer pension contribution when calculating a week’s pay for the purposes of quantifying compensation. The University appealed this decision but the EAT dismissed the appeal and endorsed the Tribunal’s reasoning in relation to the meaning of remuneration.

A week’s pay is currently capped at £489 and this decision does not alter the level of the cap. It will mean though that employees who earn less than £489 per week may receive more than they previously would have due to employer pension contributions also being taken into account.

Whilst the question of whether the employers pension contributions should count towards a week’s pay, has now been answered. Left unaddressed is the question of why the same argument would not extend to the cash value of other benefits e.g. healthcare, provided as part of the employment relationship.

The University has the right to appeal this judgment in the Court of Appeal and we will update you further, should this happen.

If you would like further guidance on calculating redundancy payments or the redundancy process, please call me on 01702 216573 or email fiona@practical-hr.co.uk