Guidance from the EAT as to the calculation of a week’s pay and profitability bonuses: Econ Engineering Limited (Appellant) v Mr P Dixon and Others (Respondent).
- Firstly, that commission payments do not fall to be included in the amount of week’s pay under Section 221(2) and that there is no material distinction between this type of payment and the profitability bonus.
- Secondly, the phrase “payable...if the employee works throughout his normal working hours in a week” in Section 221(2) contemplates a fixed sum which will invariably be paid for the completion of the required number of working hours in a given week, whereas the profitability bonus may not be paid and/or may fluctuate from month to month.
- Thirdly, the productivity bonus is not solely referable to the fact that the employee has completed the requisite number of working hours in a week.
- Fourthly, there would be practical difficulties if the Tribunal was right given that the profitability bonus was calculated on a monthly basis and paid at different times by reference to different periods to basic pay and other payments received by the Claimants.
- Firstly, Section 221(2) required the Tribunal to identify the Claimants’ contractual entitlements in respect of remuneration as at the calculation date and then to identify which sums were payable under that contract if the employee worked throughout his normal working hours in a week.
- Secondly, it is common ground that profitability bonuses were paid as a matter of contractual right, and that in practice the Respondent did in fact meet its predetermined targets, and there was no evidence that there had ever be an occasion when it did not do so. As the Tribunal had found, the bonus was invariably paid
- Thirdly, there would be no practical difficulties.
“which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.”It was held that the words:
“refer to a sum or sums which are payable by the employer as a matter of legal obligation where that obligation arises simply because the employee has worked their normal working hours in a week. Here, that is true of basic pay, where it is both necessary and sufficient, for the entitlement to arise, that the employee has worked their 39 or their 40 hours in a given week.” As such, as the profitability bonus was “contingent on hitting specified profitability targets and will vary according to how successful the business has been in the month in question” it could not be said to be a payment based on the working of normal hours. It was held therefore that the profitability bonus was not a sum which falls to be included in the calculation under section 221(2) ERA and therefore was not tobe included in the calculation of holiday pay for the purposes of Regulation 13A.
“Putting the matter another way, it is necessary but not sufficient that the employee has worked a given hour in order for him to be entitled to the supplement for that hour: the mere fact that the employee has worked a given hour, or even throughout his normal working hours in a week, will not mean that he is necessarily entitled to be paid any profitability supplement.” Comment The judgment provides a neat and succinct test to apply when determining sums to be included under S.221(2); whether working normal hours is necessary and sufficient to give rise to entitlement. Whilst Econ concerned specifically holiday pay, the judgment plainly has impact on all cases in which entitlement is quantified by reference to the section. Claire Millns represented the successful Appellant. A copy of the judgment can be found here. To view Bethan Davies' profile, visit this page.