Busting the cap?
The Employment Appeal Tribunal has confirmed that employer pension contributions should be included when calculating “a week’s pay”. This is because “remuneration” means a “reward in return for services”. Employer pension contributions are as much a part of this reward as basic pay is.
So when a compensatory award is made in an unfair dismissal case, the statutory cap will still be either (1) £80,541 or (2) 52 x a week’s pay, whichever is lower. However “a week’s pay” will now include employer pension contributions. The cap for an employee earning say, £60,000 with a 5% employer pension contribution, will now be £63,000 (£60,000 + £3,000).
Here are some other practical effects of the decision:-
- The employer pension contribution for a final salary pension scheme may be in the region of 20% of salary. In the £60,000 example above, potentially the cap could increase from £60,000 to £72,000.
- Presumably other non-cash benefits also amount to a “reward in return for services”. Is the next step to include the entire value of the employee’s package in the calculation of “a week’s pay”?
- Redundancy payment calculations for lower paid employees (earning less than the current cap of £489 per week) will be affected.
- Protective awards for a failure to inform and consult are also affected. The maximum award of thirteen weeks’ pay for each affected employee will increase to include the value of employer pension contributions.
- Unlawful deductions claims are not affected. These rely on a different definition of “sums payable” and not “a week’s pay”.
If you are an employer currently in ongoing negotiations, defending a claim or calculating redundancy payments, be prepared for a recalculation of any figures which rely on this definition of “a week’s pay”.