Complainant

Respondent

Anonymised Parties

An Employee

A University

Representatives

Paul Henry SIPTU

Act

Complaint/Dispute Reference No.

Date of Receipt

Complaint seeking adjudication by the Workplace Relations Commission under section 6 of the Payment of Wages Act, 1991

CA-00028541-001

17/05/2019

By agreement of all parties, The Claimants, The Respondent and the Director of the Workplace Relations Commission, the cases will be presented by SIPTU in the name of complainant above.

This case is before the adjudication service under Section 6 of the Payment of Wages Act 1991 as amended;

The date of the unlawful deduction was 18th December 2018.

The redress being sought is an award under the Payment of Wages Act for breach of section 5 of the Act. The amount of the deduction is €48,458 (gross).

Background

The claimant commenced work at University on a 1-year contract with a fixed salary and was placed on PRSI Class A1 on 4th November 1991. The contract was renewed in 1992. The claimant was made permanent on 1st May 1993 and was appointed to the position of Environmental Test Engineer, where he continued to make Class A1 PRSI contributions. (Appendix 1)

The claimant’s salary was £14,000 which, as defined in his contract of employment, was “subject to review from time to time.”   At no point was he on a salary scale, increases were by way of annual performance assessments only. National wage agreement-related increases were not applied, the Public Service Benchmarking adjustments were not applied, however all FEMPI-related deductions were applied.

In 2017, the claimant along with his other colleagues sought a review from the Scope section of the Department of Social Protection under section 300 of the Social Welfare (Consolidation) Act, 2005 in respect of the insurability of his employment.

The outcome of the Scope review was that the Claimant’s employment with the Respondent is covered by the modified regulations paragraph 83 (1) (b) of S.I. 312 of 1996 and is therefore insurable under the Social Welfare Acts at the modified rate of PRSI Class D. This Scope decision applied from 1st May 1993, the date on which the Claimant’s employment became permanent.

As the PRSI class D contribution rate is lower than the A1 rate, this meant that the claimant had paid a significantly greater amount of PRSI that he should have over the period 1993 to 2017). A lower pension contribution rate also applies to Public Servants on the PRSI class D contribution rate. This also meant that the claimant had paid a significantly greater amount towards pension contributions over the same period. These PRSI & pension contributions are the genesis of this dispute.

Prior to 1st April 1995

Public servants who were appointed prior to this date contributed PRSI at the class D rate (0.9% up to €1,443 per week and 4% on the balance above this amount).

A pension contribution of 1.5% of pensionable salary applies.

Salary Scale A applies.

Post 1st April 1995

Public servants who were appointed after this date contributed PRSI at the class A rate (4% of gross weekly earnings, subject to credits and personal circumstances).

New entrants after this date were placed on an integrated pension scheme which required pension contributions of 3% of pensionable salary plus 3.5% of net pensionable salary.

Salary Scale B applies. This is higher than scale A (it is calculated as 20/19 X Scale A).

In 2018, the Respondent engaged an external consulting company to calculate the refund of PRSI and pension contributions due. At the time, the Respondent also decided to retrospectively recalculate without agreement the claimant’s gross salary back to 1st May 1993 and reduce it by 1/19th. This led to a deduction of €48,458 (gross) from the refunded amount. This retrospective reduction of gross salary was implemented in December 2018.

Our Position

The decision to deduct the monies is unlawful. The Scope decision related to the correction of PRSI classification, and had no relevance to the claimant’s contractually-defined salary.  

The claimant by contract was not on a salary scale during the period in question. In fact, prior to 1995, there was no “Scale A” or “Scale B” in effect. The Scale B salaries were introduced in April 1995, while the Salary Scales which had applied prior to then were thereafter referred to as “Scale A” salaries.

The claimant was remunerated on what the Respondent management have continually referred to as a “personal rate” that was subject only to performance-related increases.

In fact the claimant was not on any formal salary scale (normally referred to as “off-scale”) from May 1993 until late 2016. The only changes to his “personal rate” over this period resulted from performance reviews and the FEMPI legislation.

The claimant’s salary was never increased in line with national pay agreements and there was no adjustment on 1st April 1995 to align it with the introduction of the Scale B salaries.

To justify the approach taken, the Respondent has made references to DES guidelines, methodologies applied across the public sector, and have cited previous exercises in other Universities. However, the Respondent has not supplied any practical evidence to support its position on the retrospective recalculation and reduction of the claimant gross salary.

These monies are wages properly payable and were never overpayments.

The Law

Payment of Wage Act 1991 as amended.

The definition of wages under the Act is as follows

“ wages”, in relation to an employee, means any sums payable to the employee by the employer in connection with his employment, including—

( a) any fee, bonus or commission, or any holiday, sick or maternity pay, or any other emolument, referable to his employment, whether payable under his contract of employment or otherwise, and

( b) any sum payable to the employee upon the termination by the employer of his contract of employment without his having given to the employee the appropriate prior notice of the termination, being a sum paid in lieu of the giving of such notice:

5.— (1) An employer shall not make a deduction from the wages of an employee (or receive any payment from an employee) unless—

( a) the deduction (or payment) is required or authorised to be made by virtue of any statute or any instrument made under statute,

There is no statutory requirement for the Respondent to deduct monies from the Claimants wages.

( b) the deduction (or payment) is required or authorised to be made by virtue of a term of the employee's contract of employment included in the contract before, and in force at the time of, the deduction or payment, or

There is no contractual term that allows for this deduction to be made

( c) in the case of a deduction, the employee has given his prior consent in writing to it.

(2) An employer shall not make a deduction from the wages of an employee in respect of—

( a) any act or omission of the employee, or

( b) any goods or services supplied to or provided for the employee by the employer the supply or provision of which is necessary to the employment,

We can clearly state here today that the Claimant did not give consent in writing or otherwise to make a deduction from his wages, which is a requirement in 5 (c) above.

Arising from a breach of 5 (2) (iv), we are seeking an order in favour of the Claimant for the sum of €48,458.

We are seeking compensation that is just and equitable for the infringements to the Claimant/s individual rights this should not only compensate adequately for economic loss sustained but must provide a real deterrent against future infractions

The complainant commenced employment as an Environmental Test Research Engineer in November 1991. In May 1993 he received a contract of indefinite duration.

Following a pay parity claim by IFUT and SIPTU with established the Respondent salary scales and a consequent Job Evaluation Exercise the Labour Court decided in 2017 – LCR21419 – that all staff including the Complainant should be placed on the Respondent salary scales effective 12 September 2016.

Further to this Labour Court Recommendation effective 12 September 2016 the Complainant was placed on the University’s Administrative Grade 7 salary scale - the higher ‘Personal Pension Contribution’(PPC) rate equivalent to 20/19ths of the lower salary rate - as he was paying a personal pension contribution and the Class A PRSI contribution rate.

Following the implementation of the Recommendation some of the staff concerned applied to the Scope section of the Department of Social Protection & Family Affairs with a view to having their PRSI class investigated.

In October 2017, the University received notification from the SCOPE section of the Department of Social Protection & Family Affairs of a change to the PRSI status of the Complainant. the Complainant was one of 38 staff who referred their PRSI status to SCOPE for assessment.

The SCOPE decision determined that the Complainant was a Class D employee for PRSI status purposes effective 1 April 1993. As indicated above the Complainant had been paying Class A contributions. On foot of this decision the Complainant was placed on the lower non PPC salary scale effective 12 September 2016 as he was no longer required to pay a Personal Pension Contribution and would be on a lower rate of PRSI. The Complainant’s current salary is €87,027 per annum.

Under relevant legislation the Department of Social Protection & Family Affairs refunded the overpaid employee PRSI contributions for the ‘statutory 4 year period’. The University was committed to refunding the PRSI contributions for the relevant years prior to the 4 year statutory period (i.e. the non statutory years) together with the overpayment of pension contributions in respect of the full period.

With 38 staff involved and with SCOPE decisions going back in some instances over 30 years, the University engaged external support in early 2018, from a company (MAPS) who had experience in this complex and technical area having previously done similar exercises for other Universities when they also had multiple SCOPE decisions to address.

In January 2018 all staff where the University had been notified of a SCOPE determination, were advised of the process that would be used to assess the impact on their net pay.

Essentially, it involved comparing pay records for actual pay paid for each year of the determination versus what should have been paid by virtue of the SCOPE decision, and then refunding any difference to the employee.

The exercise was complex and time consuming as it had to adjust for differing personalised tax arrangements, moving from the Punt to the Euro, as well as the introduction of FEMPI and Income levy’s in latter years. Similarly, personal schemes such as AVC purchases, BIK, unpaid absences, e.g. availing of career breaks etc. all had to form part of the calculation to arrive at the corrected personalised individual payroll for each year for each staff member.

In November 2018, staff were provided with a detailed calculation of the amount due for each year of the SCOPE decision, taking account of statutory deductions such as USC, Pension, PRSI, Tax as well as Gross Pay changes for FEMPI. Individual personal arrangements for sick leave, maternity leave and AVC’s were also adjusted where appropriate.

In addition, the University Pension and XX HR staff together with the external advisor engaged by the University to do the exercise offered to meet on a one to one basis with all staff to take them through the calculations and clarify and individual concerns they may had had on exercise. Payment was then made to salaries in December 2018.

For the Complainant, a total net pay refund to an amount of €36,788 was paid in 2018, to reflect the period of the determination retrospective decision date to 2016. the Respondent paid €29,568 with the balance of €7,220 paid by DSCFA reflecting the most recent 4 years of over payment.

The Complainant’s pay record since 2017 is since revised to reflect the SCOPE decision with the adjustment to PRSI and pension contributions now being applied on a monthly basis to the Complainant. Approximately a further €10,000 has been added to net pay for the years 2017, 2018 and 2019 to date.

In approaching the exercise the University contacted colleagues across the sector as well as consulting with the external advisor on the impact of the revised PRSI status on Gross Pay. In all instances, Gross Pay was adjusted downwards to reflect the differing pay that is associated with Class D PRSI that exists in the Public Sector and the associated nil personal pension contribution that arises. This was also consistent with previous exercises the University had done.

This gross pay adjustment would appear to be the core issue of the Complainant referral.

The specific arguments put forward by the University in support of its position are now set out in more detail over the following pages.

Payment of Wages Act - Alleged Unlawful deduction – the Respondent position

The University contends that the adjustment made to Gross pay is not a breach of the Payment of Wages legislation.

Differing rates of pay exist across the Public Service associated with differing PRSI status and associated pension contribution that exist within the Public Sector.

In this instance, it is the referral to SCOPE and associated PRSI decision that has resulted in the appropriate adjustment to Gross Pay to match the revised PRSI and Pension status.

The University has on multiple occasions changed the pay of staff following a change in tenure or PRSI status etc.

It is therefore not a reduction to pay – rather an alignment to the correct pay that is associated with the SCOPE determination of the appropriate tenure status.

The University has not unilaterally made a deduction to the Complainant’s pay, but has been adjusted it to the appropriate pay rate reflecting the SCOPE decision.

External Advisors Guidance and Views

I quote from the University External advisors, who have the expertise in this area –

“The reconciliation exercise applied the rule of 95% of salary but also reduced the pension contribution deductions to1.5%. The two actions effectively cancel each other out. They should not be separated as the PRSI class determines the pension scheme, the pension scheme determines the contribution deduction formula and the contribution deduction formula determines the salary (therefore by transitive logic the PRSI class determines the salary)”

In effect where there is a lower PRSI Class D rate and no personal pension contribution applies (as in the Complainant’s case) the lower adjusted rate of salary also applies.

Pension Arrangement

Uniquely in this instance, and unlike the rest of the Public Sector and other the Respondent staff in an unestablished post, Tenure B staff in TNI at the Respondent who paid Class A PRSI pre 1995 also paid a Defined Contribution (DC) pension contribution of  6.5%.

Effectively the salary paid at that time was determined in the knowledge that the individual would pay a 6.5% pension contribution.

Following the closure of the DC scheme in 2008, in anticipation of the transfer to the state of the the Respondent pension funds in 2010, such staff were transferred to the Respondent Defined Benefit Scheme and given year for year credit on a Class A basis in the Respondent Defined Benefit Scheme.

As such on retirement – they would receive pension from both the Respondent on a state pension abated DB basis in respect of all pensionable service and from the state in respect of Class A contributions.

The SCOPE determination has resulted in a retrospective correction of the entire pension and PRSI record.

As such all of the pension that will become payable, will be from the Respondent scheme only.

A full refund of the 6.5 % deduction of the higher salary has now also been made to the Complainant and his colleagues, and the pension record has been corrected to reflect a revised contribution of 1.5% of the lower salary (reflecting the Class D PRSI contribution).

The correction to the salary record arises by virtue of the correction to the pension contribution record which arises out of the retrospective Scope decision and is necessitated by the fact that the original salary anticipated the higher pension contribution rate payable (rather uniquely in the context of public sector norms) by the Complainant and his colleagues.

On this basis it would follow that a retrospective change in the PRSI and pension contribution rate correlates to a retrospective revision in the pensionable salary.

Pay arrangements

The salary record for the Complainant employment is set in the appendix to this submission.

Key points to note are:

·       the Complainant paid a personal pension contribution up until the SCOPE decision

·       The record would indicate that the Complainant, on an aggregate basis was paid a greater amount than the comparable the Respondent Grade staff reflecting the Complainant tenure and pension arrangements.

·       The annual increases paid to the Complainant (exclusive of promotions) were in excess of national wage agreements

·       There was no ceiling on the annual pay adjustments unlike in the Respondent

The Complainant was already compensated at a higher salary rate for the Class A PRSI and associated pension contribution he made throughout his career. Now that he no longer has to pay this rate of PRSI and Pension, it is appropriate the salary is adjusted to match the reduced contributions as is the norm in the Public Sector.

1995 Full PRSI and Pension Contribution Arrangements – Appropriateness & Implications

The 1995 revised arrangements meant that all new joiners to the Public sector would pay full Class A PRSI and a full personal pension contribution. However differing PRSI and pension arrangements such as this always existed in the PS.

The crucial point in 1995, was that even for permanent new staff, post April 1995, a full PRSI Class A contribution and personal pension contribution would apply, with an associated adjustment to gross pay.

The introduction of full Class A PRSI contributions was on the basis that such new staff would be treated no differently from existing staff. In effect the higher Personal Pension Contribution, that was now in place, was compensated by higher gross pay.

Similarly, circular E109/37/95 issued by the Personnel & Remuneration Division of the Department of Finance is instructive in this regard. “Staff recruited in a temporary capacity prior to being made permanent who do not make a personal pension contribution ( as now in this case post SCOPE determination) should be placed on the modified scale.

Only where staff pay the full PRSI contribution, should they be on the “Full PRSI” rate of pay.

Essentially, for those staff paying Class D PRSI and not paying a personal pension contribution, as now given the SCOPE decision in this case – a corresponding lower rate of pay applies.

Summary University Position

In this case, the Complainant has benefited from the lower PRSI Class D and Pension contributions with a refund of PRSI and Pension Contribution arrears of €46,788 and an annual net increase in salary of €3,400 on an ongoing basis following adjustment to his salary for the SCOPE decision.

However, the Complainant is seeking to retain his former salary that is associated with a Class A PRSI employee, despite the SCOPE decision to determine him as Class D.

The University has not unilaterally reduced his salary but has matched the Complainant’s salary to reflect the SCOPE decision in line with the differing salary arrangements in the Respondent and across the Public sector for those on Class D PRSI with a zero Personal Pension contribution. The norm for such salaries is that they are 1/20 lower than those staff who pay a full PRSI and Pension contribution

The corollary of the Complainant’s position, is that the only logical conclusion for the University in any SCOPE decision that may change an employee status from Class D to Class A ( i.e. going in the other direction ) resulting in a higher Employee PRSI and Pension contribution, is that the University, should then not increase the staff members salary to the higher rate that is associated with Class A PRSI staff for their increased PRSI and pension contributions.

The relief sought here is totally contrary to the Public Sector pay directives that have been in place historically across the Public Service where no staff member was to be advantaged or disadvantaged as a result of the changes to PRSI and Pension status.

The issue to be decided by me is a very net one. I must decide whether the net salary should have been adjusted to make allowances for the change in the statutory PRSI contribution and pension deductions.

The complainant’s salary is determined by his contract. The complainant’s PRSI deductions are determined by statute.

Section 5(1) of the Payment of Wages Act, 1991 provides that “An employer shall not make a deduction from the wages of an employee (or receive any payment from an employee) unless:

a)           The deduction (or payment) is required or authorised to be made by virtue of statute or any instrument under statute, or

b)           The deduction (or payment) is required or authorised to be made by virtue of a term in the employee’s contract of employment included in the contract before, and in force at the time of, the deduction or payment, or

c)           In the case of a deduction, the employee has given his prior consent in writing to it.

Clearly the PRSI and Pension deductions where made pursuant Section 5(1) (a). There is no issue between the parties in relation to those deductions.

In order for the Respondent to make deductions to the complainant’s net salary either Section 5(1) (b) or Section 5 (1) (c) have to be complied with. The complainant did not give his consent, written or otherwise in relation to the salary deduction, therefore Section 5(1) (c) has not been satisfied. The complainant’s contract of employment is silent on the topic of deductions, therefore, Section 5(1)(b) has not been satisfied. On that basis, I can find no legal basis to justify the deductions.

I find that the Respondent is in breach of Section 5 of the Act and that the deductions made are unlawful. The sums deducted from the complainant’s salary should be returned to him.

I find that the Respondent is in breach of Section 5 of the Act and that the deductions made are unlawful. The sums deducted from the complainant’s salary should be returned to him.