And here is why we should be careful when construing employment law statutes about attaching too much importance to contrasts between different legislative provisions. I don’t pretend to have spotted this, so hats off to one reader who did and kindly dropped me a line about it.
This stems from the decision in Drossou which we reported last week on the inclusion of pension contributions in the calculation of “week’s pay” in Section 221 Employment Rights Act 1996 for the purposes of certain statutory compensation awards. https://www.employmentlawworldview.com/employer-pension-contributions-count-towards-the-calculation-of-a-weeks-pay/. In that decision much importance was attached by the EAT to the words “payable to the employee” and what meaning could be taken from their inclusion in the definition of “wages” but exclusion from the definition of “week’s pay” in the ERA. Working on the assumption that the distinction was deliberate, the EAT concluded that pension contributions could be included in a week’s pay for those purposes because there was no requirement that they be paid “to the employee”.
But now we must apply that conclusion to other circumstances, in particular to the holiday pay provisions in Regulation 16 of the Working Time Regulations. Surely pension contributions are a total non-issue here, given that you get them whether you are on leave or not? Agreed entirely in practice, but as a result of the decision in Drossou, that may no longer be quite what the law says:
Regulation 16 says that holiday pay should be calculated on the basis of a week’s pay assessed in in line with section 221, therefore including pension contributions. Regulation 16(4) WTR says that the right to holiday pay does not affect the employee’s right to his usual contractual remuneration, and the idea of Regulation 16(5) is that receipt of that contractual remuneration cancels out the holiday entitlement.
However, Regulation 16(5) actually limits the offsetting effect to “sums paid to a worker” which will only be the cash remuneration. Based on Drossou, that will not include the pension contributions since they are paid for the employee rather than to him. So if you read it literally, section 221 requires holiday pay to be salary plus pension contributions, and Regulation 16(5) means that even if the employer pays both, it will still have underpaid holiday pay by the amount of the pension contributions since they have not gone to the employee.
Weirdly, there is also a reverse set-off in Regulation 16(5), such that any payments of holiday pay for a period of leave cancel out one’s normal contractual remuneration for the same period. Here however there is no reference to “paid to a worker“. Applying the EAT’s logic in Drossou, therefore, if I say I pay you normal salary and pension contributions during your leave then I have underpaid holiday pay because the pension contribution element is not off-set. By contrast, if I say I am paying you holiday pay including pension contributions then that does extinguish your right to separate contractual remuneration.
This is clearly a logical nonsense and cannot have been the intention, but it is what can happen if you assume that the wording of statutes and regulations necessarily says what it says for a reason, as opposed to just insufficient thought or due to a failure to anticipate a development, like Drossou, which no-one had any reason to expect when they were nailing the Working Time Regulations and the ERA together 20 years ago.