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Guarantee payments: guidance

URN No: 07/1483

Contents

Introduction

Outline of Provisions

• The statutory right to a guarantee payment 
• Those not covered by the provisions 
• Continuous employment 
• Limit on entitlement to guarantee payments 
• Amount of payment 
• Normal working hours 
• Guaranteed hourly rate 
• Effect of contractual guarantee payments 
• Effect on Jobseekers Allowance 
• Dismissal for seeking to enforce the right to a guarantee payment 
• Complaint to an employment tribunal 
• Conciliation 
• Tribunal hearing 
• Decision of tribunal
• Exemption from the guarantee pay provisions  
• Entitlement to a redundancy payment 
• Entitlement to wages

Appendix 1

• Example of Calculating Entitlement to guarantee payment in respect of a day of lay-off 
   

Introduction

This document outlines the law on guarantee payments provisions and explains how a complaint is settled. It gives general guidance and should not be regarded as a complete or authoritative statement of the law. Readers should be alert to the possibility of developments in case law which may affect the rights of employees.

The contents of this document apply equally to men and women. For simplicity, however, the masculine pronoun is used throughout.

Further information about the conciliation process can be obtained from any regional office of the Advisory, Conciliation and Arbitration Service (Acas).

Outline of Provisions

The statutory right to a guarantee payment

An employee who is not provided with work throughout a day during which he would normally be required to work under his contract of employment is entitled to be paid a guarantee payment by his employer if:

• there is a reduction in the requirements of the employer's business for work of the kind which the employee is employed to do; or
• there is any other occurrence which affects the normal working of the business in relation to this type of work.

However, the entitlement to a guarantee payment is also subject to the following provisos:

• guarantee payments can be made only in respect of a complete working day lost 1 - they are not required to be made in respect of a day in which some work is provided, even if that work is provided outside normal working hours;
• an employee must comply with any reasonable requirements imposed by an employer to ensure that his services are available;
• an employee must not unreasonably refuse an offer from an employer of suitable alternative work (which need not be work he is under his contract employed to perform) ;
• an employee will not be entitled to a guarantee payment if the failure to provide him with work is a result of a strike, lock-out or other industrial action involving any other employee of his employer or of an associated employer. 2

These provisions do not affect the question of whether or not an employer is entitled to put an employee on short time or temporary lay-off which is unpaid or at lower than average levels of pay. Such entitlement is determined by individual contracts of employment.

Those not covered by the provisions

The provisions do not cover:

• anyone who is not an employee - for example, self-employed or freelance workers;
• an employee who ordinarily works outside Great Britain under his contract of employment - but most employees on offshore oil and gas installations in British sectors of the Continental Shelf are covered by the provisions; 
• anyone who has not been continuously employed (see Continuous employment below) by his employer for at least one month before a day for which a guarantee payment would otherwise be payable;
• an employee who has no normal working hours prescribed by a contract of employment, for example some insurance agents and sales representatives;
• masters and crew members engaged in share fishing who are paid solely by a share in the profits or gross earnings of a fishing vessel; and
• members of the police service and armed forces.

Continuous employment

A period of continuous employment forms the basic qualification for most individual rights under the employment protection legislation, including the right to receive a guarantee payment. The rules for reckoning a period of continuous employment are set out in 

The statutory entitlement to a guarantee payment is limited to five days in any period of three months, except where under the contract of employment an employee is normally required to work less than five days in a week. (In that case the entitlement cannot exceed the number of days the employee is required to work by that contract).

To establish whether or not an employee is entitled to a guarantee payment in respect of a day of lay-off it must be determined how many days of guarantee pay (if any) have been allowed in the three month period ending with the day in question.

Only if the employee had received fewer than five days of guarantee pay in that period would a payment be due. If the days of the lay-off are not consecutive, the three-month period must be calculated separately for each day. (An example of how to calculate days for which a guarantee payment is payable is given in Appendix 1.)

Where the number of days worked varies from week to week, the average number of days worked over the preceding 12 complete working weeks should be determined. The calculation should be based on the contract of employment in force on the day for which guarantee payment is due, unless a new contact has been entered into as a result of short-time working. In that case, the contract in force before short-time working began should be used for the purpose of calculation.

The Secretary of State may vary by order the limits applicable to the specified number of days and of the period to which they relate.

Amount of payment

The amount of guarantee payment for any day is calculated by multiplying the number of normal working hours for the day in question by the guaranteed hourly rate. However, this amount is subject to an upper limit for any one day. The limit is varied annually in line with Retail Prices Index. For details of current limits on payments see:

Normal working hours

The normal working hours should be clear from an employee's written statement of employment particulars ³ taken together with any relevant collective agreement. They may include overtime hours, where the contract of employment requires both the employee to work them and the employer to provide and pay for overtime work.

Guaranteed hourly rate

The guaranteed hourly rate is the amount of one week's pay divided by the number of normal working hours in a week. If either the hours or the pay (or both) vary from week to week, they are averaged over the preceding 12 complete working weeks. If an employee with variable hours or pay has not been employed for 12 complete weeks the averages are estimated in the light of what could reasonably have been expected from the contract of employment and by reference to the work pattern of fellow employees in comparable jobs. Further details of the calculation of a week's pay are given in 

Effect of contractual guarantee payments

Any payment already made under an employee's contract of employment, for example, as a result of a collective agreement on guarantee pay, will be offset against the employer's liability under the law. Conversely, if a statutory payment has been made by an employer for a workless day, this will reduce any liability there may be under the employee's contract of employment.

If the contractual guarantee pay for a workless period is not directly related to a particular day (for example it is on a weekly rather than a daily basis) the proportion of the contractual guarantee pay which is attributable to each day is the proportion which that day bears to the workless period.

If an employee receives payment for a week covering both work actually done and contractual guarantee pay, the amount paid in respect of periods in which work was done should be identified and subtracted from the total. The remainder will represent guaranteed remuneration and, for purposes of comparison with statutory amounts due, should be divided proportionately over the workless period as outlined above.

Effect on Jobseekers Allowance

Under Jobseekers Allowance guarantee payments payable under:

• the statutory provisions on guarantee pay; or
• an exempted collective agreement on guarantee pay; or
• any other collective agreement on guarantee pay which obliges employees to make their services available on the day in question

are taken into account as earnings. This applies to both contributory and income-based Jobseekers Allowance. To find out more contact your Benefits Agency local office.

Dismissal for seeking to enforce the right to a guarantee payment

Dismissal of an employee for seeking to enforce the rights outlined in this document, either by making a complaint to an employment tribunal or by alleging that the employer has infringed those rights, is unlawful. An employee dismissed in these circumstances is entitled to make a complaint of unfair dismissal to an employment tribunal, regardless of length of service. This applies whether or not the employee did in fact qualify for the rights in question and whether or not they had in fact been infringed, provided that the individual acted in good faith.

Complaint to an employment tribunal

An employee who does not receive guarantee pay to which he considers he is entitled can complain to an employment tribunal. A complaint should be made within three months of the day for which the employer has not made a guarantee payment, but employment tribunals have discretion to accept complaints made after the three-month period if they consider that it was not reasonably practicable for the employee to have made a complaint earlier. An employee who wishes to complain to a tribunal should obtain from any Job Centre an application form IT1 (IT1 (Scot) in Scotland) and an explanatory leaflet "How to apply to an employment tribunal" which gives guidance on making an application to a tribunal).

Conciliation

The tribunal will send a copy of the completed application form to a conciliator of the Advisory, Conciliation and Arbitration Service (Acas), who will attempt to promote a settlement of the complaint without the need for a tribunal hearing. In the absence of a formal complaint the services of a conciliator will also be available where an individual believes that his employment rights have been infringed. Either the employee or employer can request such involvement through one of the regional offices of Acas.

Information given to conciliators in the course of their duties will be treated as confidential. It may not be divulged to the tribunal without the consent of the person who gave it.

Tribunal hearing

Where conciliation does not take place or fails, the tribunal will hear the complaint. Both parties should attend and may claim travelling and other expenses, including loss of earnings. Tribunal proceedings are conducted informally and in such a way as to make it easy for individuals to conduct their own cases if they wish. The parties may be represented by anyone they wish, including a representative of a trade union or employers' association. Where a tribunal finds the complaint justified it will order the employer to pay the employee the amount of guarantee payment due.

Decision of tribunal

Where an employment tribunal finds in favour of the employee, it will normally order the employer to pay the amount of guarantee payment due. Before doing so, the employer must deduct any Jobseekers Allowance paid to the employee for any part of the period covered by the award. The amount that is deducted is to be repaid to the Benefits Agency. Details of the amount of Jobseekers Allowance/income support paid during the period will be sent to the employer on a document called a "recoupment notice", copies of which will be sent to the employee. Only when this notice (or a letter from the Benefits Agency stating that there will be no recoupment) has been received can the employer pay the award, or part of the award, to the employee.

Exemption from the guarantee pay provisions

Exemption from the statutory provisions for employers and employees who have their own collective agreement covering guaranteed pay may be granted by the appropriate Minister, provided that:

• the application for exemption is made by all parties to the agreement;
• the appropriate Minister is satisfied that the relevant statutory provisions should not apply to them, in the light of the terms of their agreement;
• the agreement either provides complaints procedures which include a right to independent arbitration in the event of deadlock or indicates that employees may present complaints under it to an employment tribunal - in which case the tribunal would have jurisdiction over the agreement.

NB: In practice this means that the agreement must contain guarantee pay provisions which are at least as favourable overall to the employees concerned as the relevant statutory provisions.

If each provision of the agreement is at least as favourable as the corresponding statutory provision there is no need for exemption, but if, for example, employers and employees would prefer to employ their own complaints procedure (including a right to independent arbitration) rather than an employment tribunal, then an exemption order would still be required.

Entitlement to a redundancy payment

In certain circumstances an employee who is laid off or put on short time may be entitled to claim a redundancy payment. For fuller details on this point see: 

Entitlement to wages

If you believe that you have not received all of the wages due to you under your contract of employment you may be able to make a complaint to an employment tribunal under Part II of the Employment Rights Act 1996. For fuller details see: 

<sup>1 A day is defined as the period of 24 hours from midnight to midnight. Where a period of employment normally extends over midnight, for example in the case of shift work, it is treated as falling wholly on the first day if more hours are normally worked on the first day than the second day; otherwise it is treated as falling wholly on the second day. 

2 Any two employers are to be treated as associated if one is a company of which the other, directly or indirectly, has control, or if both are companies of which a third person, directly or indirectly, has control. 

3 Most employees have a statutory right to receive from their employer a written statement of main employment particulars within two months of starting work. Such a statement may not, therefore, have yet been issued to everyone who is entitled to a guarantee payment. For fuller details see:</sup>

Example of Calculating Entitlement to Guarantee Payment in Respect of a Day of Lay-Off

In this example, under his contract of employment the employee normally works five days a week and is thus entitled to five days statutory guarantee pay in any three-month period.

• O represents a day of normal working
• X represents a day of lay-off
• GP represents a day for which guarantee pay is payable

Assuming that the employee was entitled to receive guarantee payments for 2, 3, 9, 10 and 16 September, then:

• for a day of lay-off on 1 December, the employee is not entitled to a guarantee payment as in the three-month period (2 September to 1 December) guarantee pay has been paid for five days; but
• for a day of lay-off on 2 December, the employee is entitled to a guarantee payment as in the three-month period (3 September to 2 December) guarantee pay has been paid for only four days.

Similarly:

• for a day of lay-off on 7 December, the employee is not entitled to a guarantee payment as in the three-month period (8 September to 7 December) guarantee pay has been paid for five days; but
• for a day of lay-off on 9 December, the employee is entitled to a guarantee payment as in the three-month period (10 September to 9 December) guarantee pay has been paid for only four days.
  
       

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