Case update (3): Contracts of employment & wages – Calculation of daily pay rate

Summary:  Do employers need to set out in the employment contract how the daily rate of pay of an employee on an annual salary is to be calculated if it wants to avoid calculation at the default rate of 1/365?

Yes, says the Supreme Court in Hartley v King Edward VI College available here.

Facts: Teachers in a sixth form college were contracted to work up to 195 days a year of “directed” time (primarily teaching), plus an unspecified amount of “undirected” time – the reasonable hours necessary to discharge their duties effectively (for example marking and lesson preparation). They were paid an annual salary on a monthly basis. Their contracts allowed their employer to deduct pay when they went on strike but said nothing about how the strike pay should be calculated.

When they went on strike for one day in 2011, the College deducted pay at a rate of 1/260 of their annual pay – calculated on the basis of a five day working week for 52 weeks a year. The teachers argued that this was incorrect and that, based on the Apportionment Act 1870, the deduction should have been 1/365 of their annual pay. The Apportionment Act says that all payments, including salary, are deemed to accrue from day to day, unless the contract specifies otherwise.

The Supreme Court has now upheld the teachers’ argument. The Apportionment Act applied, meaning that salary accrued “day to day” on the basis of calendar days not working days. Given the amount of undirected work the teachers performed outside the normal working week, it made no sense to use a daily rate of 1/260 of the annual salary. Using a rate of 1/365 of annual salary achieved an overall approach that was broadly fair in the context of an annual contract where pay was received in monthly instalments. Although it is possible effectively to “contract out” of the provisions of the Apportionment Act by appropriate wording in the contract, there was nothing in the teachers’ contracts indicating that the parties had intended to depart from the normal calendar day approach.

Implications:  In light of this decision it would be prudent for employers to set out in the employment contract how the daily rate of pay of an employee on an annual salary is to be calculated for various purposes, particularly if the employee does not have fixed regular hours and the employer wishes to apply a rate other than 1/365.