Case law: Employees' daily rate of pay set at 1/365 of their annual salary unless employment contracts say otherwise

Employers should ensure that the contracts of employees on annual salaries, who do not work fixed hours, specify what daily rate of pay applies for various purposes, such as calculating deductions for days on strike, otherwise the law will impose a daily rate which the employer may disagree with.

School teachers were on annual contracts to work 195 days, plus unspecified weekends. When they went on strike, their employer deducted daily pay for days on strike at the rate of 1/260 of their annual salary - the number of days they actually worked. The teachers argued that their pay should (in the absence of any specific provision in their contracts saying otherwise) be treated as accruing by equal amounts each day of the year - which meant their employer should only deduct 1/365 of their annual salary per day. They relied on law from 1870 which established a general principle that monies should be apportioned on the basis that payment accrues daily.

The Court of Appeal agreed with the employer. It said that the natural interpretation of their employment contracts was not that pay would accrue equally on a day-by-day basis. Nor was it relevant that the teachers might theoretically have to work on any day of the year (because unspecified weekend work could fall on any weekend).

It also took into account that part-time teachers' pay was calculated by reference to a 195-day period.

Overall, it found that the deduction of pay calculated at 1/260 of the teachers' annual salary was justified, on the basis there are 260 working days in each year when the teachers could have been working under their terms of employment.

However, the Supreme Court unanimously ruled that any deduction of pay must be at the daily rate of 1/365 of their annual salary, unless their contracts stated otherwise.

Operative date

  • Now

Recommendation

  • Employers should ensure that the contracts of employees on annual salaries who do not work fixed hours specify what daily rate of pay applies for various purposes, unless the employer is happy for a daily rate set by law to apply at the rate of 1/365 of the relevant annual salary

Case law: Hartley & Ors v King Edward VI College [2017] UKSC 39

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