Is "a week's pay" for employment rights based on the employee's "normal working hours" or "regular working hours"?

Section 1 of the Employment Rights Act 1996 (ERA) requires employees to be given a written "statement of employment particulars" within 8 weeks of starting a new job. Included in that statement must be details of "any terms and conditions relating to hours of work (including any terms and conditions relating to normal working hours". If an employment has "normal working hours", they must be defined in the "contract" - as most employees call their written statement of employment particulars.

An employee's "normal working hours" is a vital piece of information when it comes to determining the value of payments due under the various employment rights set out in the ERA. Correctly identifying an employee's "normal working hours" is essential when calculating statutory redundancy pay, guarantee payments, statutory holiday pay, pay during periods of notice and the various "time off with pay" rights, such as time off to look for work or arrange training in the event of redundancy, time off for ante-natal care, time off for employee representatives, time off for young persons for study or training.

Payment for these employment rights and for employment tribunal awards is calculated using the "week's pay" rules set out in sections 220 to 299 and 234 of the ERA.

In calculating the value of "a week's pay", the starting point is the employee's normal working hours. If an employee is entitled to overtime pay when employed for more than a defined number of hours in a week or other period, the defined number of hours is the employee's "normal working hours". However, in this context, "overtime pay" is pay for hours in excess of the "normal working hours", whether or not they are paid at a premium rate.

Example: An employee's "contract" requires the employee to work 12 hours per week. Full-time employees work 38 hours per week. For this purpose, this employee works overtime when more than 12 hours are worked in the week, even though the extra hours are paid at "plain time" until they exceed 38 hours in the week. The employee's "normal working hours" are 12.

The Court of Appeal, in the 1973 case Tarmac Roadstone Ltd v Peacock, held that "normal working hours" means hours which are fixed and obligatory on both sides. The only circumstances where overtime is included in "normal working hours" is where overtime is a contractual requirement, i.e. the employer is obliged under the contract to provide it, and the employee is required under the contract to work it. Therefore, if the employee's contract fixes a number of hours of employment that exceeds the defined number of hours after which overtime is paid, the higher, fixed number of hours is the "normal working hours". This ensures that guaranteed overtime, extra hours of work that the employer is obliged to provide and the employee to work, is included in the employee's "normal working hours".

Example: An employee's "contract" requires the employee to work 35 hours per week, plus 5 hours guaranteed overtime. The employer is bound by the contract to provide the extra hours and the employee is bound to work them. The employee's "normal working hours" are 40.

These rules can be illustrated by two Employment Appeal Tribunal (EAT) decisions.

The first case, Refrigeration Norwest (Chester) Ltd v R M Unwin, was decided in 2004 in relation to the calculation of statutory redundancy pay. Mrs. Unwin's written statement of employment particulars defined her normal working hours as 20 and stated that overtime was voluntary. However, in seven years working for the employer, there were only 15 weeks in which she worked less than 35 hours. When she was made redundant, should her statutory redundancy pay have been based on 20 hours, her "normal working hours", or on 35 hours, her "regular working hours"?

The second case, Bamsey & Ors v Albon Engineering and Manufacturing plc, is one of the key decisions on how "normal working hours" are to be determined. It also dates back to 2004 and, in this case, the issue was the calculation of holiday pay. Section 16 of the Working Time Regulations 1998 specifies that the ERA's "week's pay" rules are also used in this situation. The employee in this case, a Mr. Sturge, had a contractual 39-hour week and overtime, when provided, was compulsory, although the employer was not obliged to provide it. He averaged 60 hours work per week prior to taking paid holiday leave. Should the holiday pay have been based on 39 hours, his "normal working hours", or on 60 hours, his "regular working hours"?

Section 221 of the ERA states:

"If the employee's remuneration for employment in normal working hours (whether by the hour or week or other period) does not vary with the amount of work done in the period, the amount of a week's pay is the amount 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."

In other words, if Mrs. Unwin's pay for working 20 hours per week, or Mr. Sturge's pay for working 39 hours per week, would always be the same, their "week's pay" is the pay they would receive if they worked the 20 hours or the 39 hours. As the extra 15 hours overtime that Mrs. Unwin worked regularly were not guaranteed, the hours on which her redundancy pay was based were her "normal working hours" of 20, not her "regular working hours" of 35. Similarly, although Mr. Sturge had to work overtime if it was provided, it was not guaranteed. His "normal working hours" were 39, not 60.

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