The Employment Appeal Tribunal has recently made some significant decisions which have increased the value of payments to be made to employees, including in insolvency situations. Below, we highlight the key facts you need to know.

(1) Additional elements to be included when calculating holiday pay

On 14 September 2017, the Insolvency Service Redundancy Payments Service (RPS) updated its holiday pay guidance. This now specifies that employers should include contractual commission in the calculation of statutory holiday pay. For people who applied for holiday payments from the Insolvency Service after 31 July 2011, where they indicated on their application that they were entitled to contractual commission, RPS will be contacting them directly about how to apply for an additional payment. Anyone who applied for holiday payments where they were entitled to contractual commission before 1 August 2011 will need to contact RPS directly and provide supporting evidence to show their entitlement.

In addition to the change in RPS’s guidance, there has been a further recent Employment Appeal Tribunal (EAT) case, where it was found that voluntary overtime pay, out-of-hours standby payments, and call-out allowances should all be taken into account when calculating holiday pay, if these are paid with sufficient regularity to be classed as ‘normal’. This is an assessment to be taken into account on a case-by-case basis.

All Insolvency Practitioners should include such payments when calculating the value of holiday pay due to employees. We anticipate the RPS will have to further amend their guidance to also include these payments in their holiday pay calculations.

(2) Employer pension contributions to be included when calculating a ‘week’s pay’

In a change to current practice, the EAT has confirmed that employer pension contributions must be taken into account when calculating a ‘week’s pay’. This is a statutory concept by which several types of payment and remedies are calculated, including:

  • Compensation for failure to inform or consult in a TUPE situation;
  • Protective awards for failure to inform or consult on collective redundancies; and
  • Payment for time off to look for work in a redundancy situation, paid up to a maximum of 40% of a week’s pay.

Where basic salary is below the statutory cap (currently £489 per week) the following payments will also have to be made inclusive of employer pension contributions:

  • Statutory redundancy pay;
  • Notice pay for periods of statutory minimum notice; and
  • Basic awards (including unfair dismissal compensation).

Under auto-enrolment provisions, from 6 April 2019 the minimum contribution to be made by an employer where an employee is auto-enrolled into a pension scheme will be 3%, and many employers (particularly where there is a defined benefit scheme) will be paying more (and possibly significantly more) than this.

Together, these decisions have the potential to significantly increase payments due to employees, and this may become relevant when insolvency practitioners are attempting to sell the business. Where an insolvency practitioner has had to make redundancies, then any amounts owed to employees for holiday pay not met by the RPS will increase the amount of preferential debts to be met by the administrator.