Employment Case Law – Payment of Wages
Each month we review a number of interesting employment law cases and consider their implications for organisations. This month we are focusing on the area of redundancy, including alternatives to redundancy and associated case studies.
The payment of wages is regulated by the Payment of Wages Act, 1991 and the National Minimum Wage Act, 2000. Although most Employers will be comfortable with many of the requirements set out in this legislation, it is often the case that confusion arises where an Employer wishes to make deductions from an Employees pay in respect of benefits such as the provision of accommodation, or in order to recoup an over payment of salary/wages.
The following legislation should be considered when looking at Payment of Wages:
Payment of Wages Act, 1991
The following payments constitute wages for the purposes of the legislation:
Acceptable Methods of Payment
Wages and salary may legally be paid through the following means:
Requirement to Provide Pay Slip or Statement of Wages
An Employer is required to provide an Employee with a written statement, i.e. a payslip, specifying the following:
The Employer must take steps to ensure that the statement and its content are treated confidentially.
This statement should be provided at the time of payment, or, where payment is made by credit transfer as soon as reasonably practicable thereafter.
Deductions from Pay
An Employer may make deductions from wages without any restrictions being imposed on them in a number of instances. Examples include:
An Employer’s right to make a deduction, or require a payment, from an Employee is restricted in a number of circumstances. This includes instances where the requirement to make a deduction or require payment from the Employee arises due to any act or omission of the Employee e.g. breakages.
An Employer may only make deductions (or require payment) subject to satisfying a number of requirements of the legislation, including that:
National Minimum Wage Act, 2000
The National Minimum Wage Act, 2000, sets out to establish a framework supporting the implementation of a national minimum wage and sub minimum rates applicable to Employees.
The legislation sets out that an experienced worker aged 18 or over will be entitled to the National Minimum Wage as set by regulation. It also sets out rates of pay lower than the national minimum wage which may be paid to under 18’s, inexperienced workers aged over 18 and trainees.
The National Minimum Wage from 1st July 2011 is €8.65 per hour. The legislation details a number of exceptions for certain categories of Employees and does not apply in respect of apprentices or to the employment of certain family members.
The Act permits the Minister to set minimum wage rates agreed by the social partners and/or recommended by the Labour Court. The Act permits Employers to make deductions in respect of board and lodgings where these are provided for Employees; however the Minister may establish maximum allowable deductions.
Calculating the Average Hourly Rate of Pay
Should a query ever arise as to whether an Employee is in receipt of minimum wage or not, it is important that the Employer is in a position to calculate the Employee’s hourly rate to ensure compliance with the legislation.
It is important to understand that certain elements of pay may be considered as contributing to the hourly rate as well as regular wages. For example, an allowance paid in respect of board and/or lodgings may be taken into account, subject to maximum amounts which are set under the associated regulations.
In order to calculate an Employee’s average hourly rate of pay, the Employee’s gross remuneration should be divided by the total working hours of the Employee in the pay reference period.
The hours of work in a pay reference period may be calculated either as the hours of work set out in an agreement between the Employer and Employee (e.g. the contract of employment), or alternatively the actual working hours, whichever is greater. This may include travel time where the travel is a requirement of the position, and/or occasional overtime.
Record Keeping Requirements
Records of payments made must be retained by the Employer at the place of employment of the Employee for a period of 3 years to demonstrate compliance with the National Minimum Wage Act. In any proceedings before a Rights Commissioner or the Labour Court, the burden of proof lies with the Employer to demonstrate compliance with the Act and associated regulations.
Case 1 Payment of Shift Premium (Employee versus Employer; Case No. PW151/2008)
This case relates to payment of a shift premium. The Complainant began working with the Respondent Organisation in November 1997. When he began working with the Respondent he earned 550 per week, worked from 8am – 4pm daily and shift work was not a part of his working week. He worked a 39 hour week. The Complainant received 2 pay increases, one of €5,000 per year.
In 2005, following a merger, the Complainant’s work pattern changed from a 5 day working week to 3 daily shifts of 12 hours in duration. The Complainant described this as a continental shift. He was not paid a shift premium. He received a goodwill payment of €2,000 and agreed to stay with the Organisation.
1 year later the Complainant approached the Managing Director seeking an increase in his wages. The Managing Director again asked him to stick with the Organisation, and paid the Complainant €2,100 over a four week period. Around April 2007 the Complainant approached the Managing Director seeking a shift premium. Around Christmas 2007 the Complainant had a meeting with the Managing Director and was told his performance had decreased. The Claimant advised that it was a very negative meeting and that it was the last occasion the Managing Director spoke to him. The Complainant in reply to questions from the Tribunal accepted that he was paid a higher rate of pay then the rates stipulated in a Registered Employment Agreement.
The Respondent at the time of the merger emphasised that no shift allowance would be paid for a continental shift. The Managing Director of the Respondent Organisation advised that the Complainant’s shift premium issues had no impact on the decision to make him redundant. The Tribunal found that there was no evidence to suggest that the Complainant was entitled to an 18% shift differential and as there was no stipulation around continental shifts in the industry this appeal must fail.
This case highlights the importance of paying an Employee a shift premium when appropriate, or when there is a Registered Employment Agreement in place. In this case there was no requirement for the Organisation to pay a shift premium for the shift that the Complainant was working and it was found that the Complainant was not therefore entitled to compensation.
Case 2 Reductions versus Deductions (Employer against Employees; Case No. PW251 – 255/2011)
This case related to an appeal by the Employer against the recommendation of the Rights Commissioner.
The 5 Employees are all nurses in the Employer’s Organisation. The Employee contended there was an 8% deduction from their pay on a weekly basis from February / March 2010 without prior written consent. The Employees advised they were not consulted prior to the wage cut of 8% and they did not sign anything agreeing to this pay cut. All 5 Employees received letters outlining the pay cut and seeking their consent but none of the 5 Employees signed these letters.
The Employer gave evidence in respect of the Organisation’s financial position and told the Tribunal that the pay cut was necessary in order to ensure the long – term viability of the Organisation. The Employer advised there were two meetings for all Employees before the pay cuts were introduced and presentations were made at these meetings which outlined the reasons for the pay cut. Letters were issued to 145 Employees asking them to sign to say that they agreed to the pay cut. About 30% of these were signed and returned. Nobody returned the letters saying they did not agree with the pay cut, and the Witness on behalf of the Respondent took this to mean everyone, except the 5 Employees involved in this case, had accepted the pay cut.
The Tribunal noted the decision of Edwards J. in the High Court case of McKenzie and other and Ireland and the Attorney General and the Minister for Defence, in particular where the learned Judge stated that the Payment of Wages Act has no application to “reductions” as distinct from “deductions”. The Tribunal stated that it was bound to follow the High Court decision and found that the appeal must succeed and the Rights Commissioner decision must be overturned in its entirety.
This case highlights to Organisations the importance of the difference between “reductions” and “deductions” in relation to wages. The case also confirms that the Payment of Wages Act does not apply to “reductions”, however does apply to “deductions”.
The payment of wages is regulated by the Payment of Wages Act, 1991 and the National Minimum Wage Act, 2000. Although most Employers will be comfortable with many of the requirements set out in this legislation, it is often the case that confusion arises where an Employer wishes to make deductions from an Employees pay in respect of benefits such as the provision of accommodation, or in order to recoup an over payment of salary/wages.
The following legislation should be considered when looking at Payment of Wages:
- Payment of Wages Act, 1991 - sets out the ways in which an Employer may legally pay an Employee their wages/salary and also regulates situations in which an Employer may make deductions from wages, or require payments from an Employee.
- National Minimum Wage Act, 2000 - sets out to establish a framework supporting the implementation of a national minimum wage and sub minimum rates applicable to Employees
Payment of Wages Act, 1991
The following payments constitute wages for the purposes of the legislation:
- Normal basic pay as well as any overtime;
- Shift allowances or other similar payments;
- Any fee, bonus or commission;
- Any holiday, sick or maternity pay;
- Any other return or payment for work;
- Any sum payable to an Employee in lieu of notice of termination of employment.
Acceptable Methods of Payment
Wages and salary may legally be paid through the following means:
- Cheque or draft or other bill of exchange drawn on a commercial bank or a trustee savings bank;
- Postal, money or paying order, or warrant issued by, or drawn on, An Post
- Credit transfer to an account specified by the Employee concerned;
- Cash.
Requirement to Provide Pay Slip or Statement of Wages
An Employer is required to provide an Employee with a written statement, i.e. a payslip, specifying the following:
- The gross amount of the wages payable;
- The nature and amount of any deductions made.
The Employer must take steps to ensure that the statement and its content are treated confidentially.
This statement should be provided at the time of payment, or, where payment is made by credit transfer as soon as reasonably practicable thereafter.
Deductions from Pay
An Employer may make deductions from wages without any restrictions being imposed on them in a number of instances. Examples include:
- Deductions required or authorised by statute or statutory instrument e.g. PRSI and PAYE contributions;
- Deductions required or authorised by virtue of a term of the Employee's contract of employment, e.g. pension contributions;
- Deductions where the Employee has given his/her prior consent in writing to such a deduction being made, e.g. health insurance contributions.
An Employer’s right to make a deduction, or require a payment, from an Employee is restricted in a number of circumstances. This includes instances where the requirement to make a deduction or require payment from the Employee arises due to any act or omission of the Employee e.g. breakages.
An Employer may only make deductions (or require payment) subject to satisfying a number of requirements of the legislation, including that:
- The deduction be required or authorised by virtue of a term of the contract of employment, and this is notified to the Employee in writing in advance of the deduction being made or payment required;
- The deduction is of an amount that is fair and reasonable;
- The Employee is to be furnished with details of the act or omission in respect of which the deduction is made, and the amount of the deduction, at least one week prior to the deduction being made.
National Minimum Wage Act, 2000
The National Minimum Wage Act, 2000, sets out to establish a framework supporting the implementation of a national minimum wage and sub minimum rates applicable to Employees.
The legislation sets out that an experienced worker aged 18 or over will be entitled to the National Minimum Wage as set by regulation. It also sets out rates of pay lower than the national minimum wage which may be paid to under 18’s, inexperienced workers aged over 18 and trainees.
The National Minimum Wage from 1st July 2011 is €8.65 per hour. The legislation details a number of exceptions for certain categories of Employees and does not apply in respect of apprentices or to the employment of certain family members.
The Act permits the Minister to set minimum wage rates agreed by the social partners and/or recommended by the Labour Court. The Act permits Employers to make deductions in respect of board and lodgings where these are provided for Employees; however the Minister may establish maximum allowable deductions.
Calculating the Average Hourly Rate of Pay
Should a query ever arise as to whether an Employee is in receipt of minimum wage or not, it is important that the Employer is in a position to calculate the Employee’s hourly rate to ensure compliance with the legislation.
It is important to understand that certain elements of pay may be considered as contributing to the hourly rate as well as regular wages. For example, an allowance paid in respect of board and/or lodgings may be taken into account, subject to maximum amounts which are set under the associated regulations.
In order to calculate an Employee’s average hourly rate of pay, the Employee’s gross remuneration should be divided by the total working hours of the Employee in the pay reference period.
The hours of work in a pay reference period may be calculated either as the hours of work set out in an agreement between the Employer and Employee (e.g. the contract of employment), or alternatively the actual working hours, whichever is greater. This may include travel time where the travel is a requirement of the position, and/or occasional overtime.
Record Keeping Requirements
Records of payments made must be retained by the Employer at the place of employment of the Employee for a period of 3 years to demonstrate compliance with the National Minimum Wage Act. In any proceedings before a Rights Commissioner or the Labour Court, the burden of proof lies with the Employer to demonstrate compliance with the Act and associated regulations.
Case 1 Payment of Shift Premium (Employee versus Employer; Case No. PW151/2008)
This case relates to payment of a shift premium. The Complainant began working with the Respondent Organisation in November 1997. When he began working with the Respondent he earned 550 per week, worked from 8am – 4pm daily and shift work was not a part of his working week. He worked a 39 hour week. The Complainant received 2 pay increases, one of €5,000 per year.
In 2005, following a merger, the Complainant’s work pattern changed from a 5 day working week to 3 daily shifts of 12 hours in duration. The Complainant described this as a continental shift. He was not paid a shift premium. He received a goodwill payment of €2,000 and agreed to stay with the Organisation.
1 year later the Complainant approached the Managing Director seeking an increase in his wages. The Managing Director again asked him to stick with the Organisation, and paid the Complainant €2,100 over a four week period. Around April 2007 the Complainant approached the Managing Director seeking a shift premium. Around Christmas 2007 the Complainant had a meeting with the Managing Director and was told his performance had decreased. The Claimant advised that it was a very negative meeting and that it was the last occasion the Managing Director spoke to him. The Complainant in reply to questions from the Tribunal accepted that he was paid a higher rate of pay then the rates stipulated in a Registered Employment Agreement.
The Respondent at the time of the merger emphasised that no shift allowance would be paid for a continental shift. The Managing Director of the Respondent Organisation advised that the Complainant’s shift premium issues had no impact on the decision to make him redundant. The Tribunal found that there was no evidence to suggest that the Complainant was entitled to an 18% shift differential and as there was no stipulation around continental shifts in the industry this appeal must fail.
This case highlights the importance of paying an Employee a shift premium when appropriate, or when there is a Registered Employment Agreement in place. In this case there was no requirement for the Organisation to pay a shift premium for the shift that the Complainant was working and it was found that the Complainant was not therefore entitled to compensation.
Case 2 Reductions versus Deductions (Employer against Employees; Case No. PW251 – 255/2011)
This case related to an appeal by the Employer against the recommendation of the Rights Commissioner.
The 5 Employees are all nurses in the Employer’s Organisation. The Employee contended there was an 8% deduction from their pay on a weekly basis from February / March 2010 without prior written consent. The Employees advised they were not consulted prior to the wage cut of 8% and they did not sign anything agreeing to this pay cut. All 5 Employees received letters outlining the pay cut and seeking their consent but none of the 5 Employees signed these letters.
The Employer gave evidence in respect of the Organisation’s financial position and told the Tribunal that the pay cut was necessary in order to ensure the long – term viability of the Organisation. The Employer advised there were two meetings for all Employees before the pay cuts were introduced and presentations were made at these meetings which outlined the reasons for the pay cut. Letters were issued to 145 Employees asking them to sign to say that they agreed to the pay cut. About 30% of these were signed and returned. Nobody returned the letters saying they did not agree with the pay cut, and the Witness on behalf of the Respondent took this to mean everyone, except the 5 Employees involved in this case, had accepted the pay cut.
The Tribunal noted the decision of Edwards J. in the High Court case of McKenzie and other and Ireland and the Attorney General and the Minister for Defence, in particular where the learned Judge stated that the Payment of Wages Act has no application to “reductions” as distinct from “deductions”. The Tribunal stated that it was bound to follow the High Court decision and found that the appeal must succeed and the Rights Commissioner decision must be overturned in its entirety.
This case highlights to Organisations the importance of the difference between “reductions” and “deductions” in relation to wages. The case also confirms that the Payment of Wages Act does not apply to “reductions”, however does apply to “deductions”.
