When deciding if a worker is entitled to the National Minimum Wage (NMW) for their basic hours, tribunals should focus on the detailed provisions of the legislation rather than make a presumption about what should or should not be included. In Lloyd v Elmhurst School Ltd, the EAT held that tribunals must focus on their contractual entitlement instead of the hours they work to calculate the “basic hours” of a salaried worker.
Basic facts
Ms Lloyd, a learning support assistant, worked 21 hours a week during term time. Her contract stated that she was “entitled to the usual school holidays as holidays with pay”.
She lodged a tribunal claim for unlawful deductions from wages, arguing that when calculated over 52 weeks, her pay was below the level of the NMW. For its part, the school argued that it should be calculated on the basis of 21 hours per week over 40 weeks (36 weeks of term time plus four weeks’ statutory leave), which would mean her pay was above the NMW.
NMW regulations
It was accepted that Ms Lloyd was performing “salaried hours work” for the purpose of regulation 21(3) of the NMW regulations, meaning that she was entitled under her contract “to be paid that salary or salary and performance bonus in respect of several hours in a year, whether those hours are specified in or ascertained in accordance with their contract”. These are known as the “basic hours”.
Tribunal decision
Dismissing her claim, the tribunal held that as the purpose of the NMW legislation was to ensure that workers were paid a minimum amount for the work they do, basic hours must be “ascertained in accordance with the contract”.
However, it then went on to find that although her contract contained the clause “the usual school holidays as holidays with pay”, that did not mean that those hours were working hours for the NMW legislation. It concluded that the 12 weeks of school holiday should not be paid at the same rate as when she was working or on statutory leave and should not be included in her basic hours when calculating the NMW.
Ms Lloyd appealed, arguing (among other things) that the tribunal was wrong to focus on the weeks she worked instead of calculating her basic hours from her contract as required by regulation 21(3).
EAT decision
Allowing the appeal, the EAT agreed with Ms Lloyd that the tribunal was wrong to focus on the hours she actually worked. Instead, it should have ascertained her “basic hours” for the purpose of regulation 21(3) from her contract. So, if a worker is contractually entitled to receive their normal salary for a period of absence such as contractual holidays, the periods of absence from work must count towards the “basic hours” of salaried hours work even if they are not absences during periods when a worker would otherwise be working.
For instance, if a contract provides for a 40-hour week and seven weeks’ annual leave, the worker’s total annual basic hours would be 52 x 40, regardless of whether, under the contract, the seven weeks’ leave could be taken at any time of the year or had to be taken during a fallow period such as a factory shut down, during which they might not be obliged to work.
The EAT concluded, therefore, that the periods of absence which count towards basic hours under regulation 21(3) are not restricted to absences from a period which would otherwise be work, not least because “if that were the intention of the legislation, it would say so”.
Comment
This case considered, for the first time, how the statute should be interpreted when assessing the basic hours of a salaried hours worker. In doing so, the EAT held this was by reference to the worker’s contract and not the periods the worker actually worked. As the terms of Ms Lloyd’s contract specified that she was contractually entitled to the “usual school holidays” as paid holiday, her basic hours for the purpose of calculating the NMW were 21 hours over 52 weeks and not 21 hours over 40 weeks.