Many employment rights depend upon the calculation of “a week’s pay”, using the rules set out in sections 221 to 227 of the Employment Rights Act 1996. It has long been accepted practice that employer pension contributions should be excluded from the calculation of a week’s pay, but in the recent case of University of Sunderland v Drossou, the EAT ruled that pension contributions should be included.
The most immediate impact will be on redundancy costs, which will now be more expensive for employers. Although higher earners are unlikely to be affected (as there is an overall cap on a week’s pay of £489 for redundancy purposes), lower earners will benefit from higher severance pay.