Complainant

Respondent

Anonymised Parties

An Assistant Manager

A Shipping Company

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-00031153-001

26/09/2019

In July 2019, the complainant had a motorcycle accident, with the result that she was absent for 11 days and five hours. Her complaint is that the method used by her employer to calculate her deduction in pay is unfair and resulted in a loss to her of €117.54.

When she had the accident in July 2019, the complainant had used up seven out of 10 days of paid sick leave to which she was entitled at that time. She explained to me that her solicitor advised her not to use up her remaining sick leave, but to take unpaid leave for the 11 days and five hours that she was out of work due to the accident. The complainant also said that she wanted to save the remaining three days for a medical procedure that she was due to have in August 2019.

As a result of her accident, the complainant only worked for 11 days and two hours in July 2019.   She said that she expected to receive about half her salary, as she had worked just 2.5 hours less than half the month. As her gross monthly pay is €3,719, she expected a deduction of around €1,900.   However, the actual deduction was €2,056.54. This includes a deduction of €53.85 from a monthly lunch allowance of €100. Taking account of the slight difference between the hours worked and the hours of unpaid leave, the complainant claims that she received €117.54 less than she expected in her July wages.

The complainant has based this argument on the fact that her contract provides that she is paid monthly and her wages should be calculated in accordance with the number of working days in each month.

The complainant submitted a copy of her correspondence with her employer’s Human Resources (HR) Department in which she questioned the method of calculation of her unpaid leave. She received the following explanation:

“As you mentioned you took a total of 11 days and 5 hours’ personal leave in July which equals 11.667 days. Basic salary: (3719 x 12) / 260 x 11.667 = €2,002.64. Lunch allowance: (100 x 12) / 260 x 11.667 = €53.85.”

The complainant raised a further query about how her unpaid leave was calculated and she received the following reply:

“Please understand that the number of working days in each month can be different. However, it is HRS responsibility to ensure that we apply the same rule / practice consistently to all (The Respondent) employees. Therefore, we deduct the days / hours / minutes that you are absent on a pro-rata basis, instead of paying by the number of days that you work.   This payroll deduction calculation has been implemented to all the employees in (The Respondent) for years.   If you have any further queries, please do not hesitate to contact us.”

The complainant said that she sent a further email on September 20th, asking for a more detailed explanation about how the deduction was calculated and when she got no reply, on September 26th, she submitted this complaint to the WRC.

The Relevant Law

Section 5(6) of the Payment of Wages Act 1991 addresses the issue of wages that are properly payable:

Where –

(a) the total amount of any wages that are paid on any occasion by an employer to an employee is less than the total amount of wages that is properly payable by him to the employee on that occasion (after making any deductions therefore that fall to be made and are in accordance with this Act), or

(b) none of the wages that are properly payable to an employee by an employer on any occasion (after making any deductions as aforesaid) are paid to the employee,

then, except insofar as the deficiency or non-payment is attributable to an error of computation, the amount of the deficiency or non-payment shall be treated as a deduction made by the employer from the wages of the employee on that occasion.

From this complainant’s perspective, she argues that an illegal deduction was made from her wages in July 2019, when her employer deducted €2,002.64, rather than the amount she expected to be deducted of around €1,900.

Method of Calculation 1: 260 Days Per Year Method

This complaint arises from the respondent’s payroll policy which calculates wages based on what is known as the “260 days per year method.” The effect of this is to give equal value to every working day and every month of the year, regardless of the number of working days in any month.   To get a daily rate for the complainant, the respondent took her monthly pay and multiplied it by 12, then divided that sum by 260 as follows:

Monthly pay: €3,719 x 12 months = €44,628

Annual pay: €44,628 ÷ 260 working days = €171.64

Daily rate: €171.64 x 11.667 days of unpaid leave = €2,002.64

Based on this approach, the complainant’s wages in July was reduced by €2,002.64 to account for her absence of 11.667 days.

Method of Calculation 2: Calendar Month Method

The alternative is to use the calendar month method, which calculates the value of a working day based on the number of days in a month. In respect of the complainant’s absence in July 2019, this method would have had the following effect:

Monthly pay: €3,719 ÷ 23 working days = €161.69

Daily rate in July:   €161.69 x 11.667 days of unpaid leave = €1,886.50

If the respondent had used this approach, the complainant’s wages in July would have been reduced by €1,886.50, or €116 less than the amount deducted under the first method above.

Findings

My understanding is that the 260 days per year method is the most widely used method for calculating the wages of employees who, like the complainant, are paid an annual salary and work five days every week, or 260 days per year, including holidays and public holidays. It ensures a consistent approach to every month of the year in which an employee is paid less than a full month’s wages, due to starting or finishing work in the middle of a month, or because of absence for part of the month. The same value is given to every working day, regardless of the number of working days in a month.

When an employee is not at work for a full month, the use of the alternative calendar month method results in a variation in wages, depending on the number of working days in a month. For example, if the complainant had been absent in June 2019, when there were just 19 working days and, if the respondent had used the calendar month method, the following calculation would have applied:

Monthly pay: €3,719 ÷ 19 working days = €195.74

Daily rate in June:   €195.75 x 11.667 days of unpaid leave = €2,283.66

The 260 day method remains consistent for the month of June and July (and every month of the year) at €2,002.60, which was deducted from the complainant’s wages in July 2019.

The complainant’s payslip for July 2019 shows that, due to the calculation of tax, PRSI and USC, her net pay in July 2019 was €1,653.42 net, which is €297.77 more than half her normal net pay.  

For an employee who remains working with an employer for a reasonable length of time, the application of the 260 day method is fair and consistent, as it does not result in penalisation when an employee is absent in a month that has fewer working days.   In the long run, the 260 day method results in a more consistent approach that balances out across the year.

Conclusion

Having considered this matter and having listened to the evidence of the complainant at the hearing, it is my view that she did not suffer an illegal deduction from her wages in July 2019. I have reached this conclusion because the respondent’s method of calculating wages is based on the 260 day method which ascribes a consistent value to a day’s pay, regardless of the number of working days in a month. While the application of the alternative calendar month method may have been more beneficial to the complainant in July 2019, this would not have been the case in other months, where there were fewer working days.

It is regrettable that the company’s handbook does not set out clearly the method of calculating the deduction of wages when an employee is absent on unpaid leave for part of a month. A clear explanation of the policy could have avoided the need for this inquiry.

As I have concluded that the respondent has not infringed section 5 of the Payment of Wages Act 1991, I decide that this complaint is not well founded.

Unpaid leave, calculation of wages for part of a month