Pay - an overview of obligations

Guarantee pay - entitlement, calculation and exemptions

If you do not provide an employee with work throughout a day during which they would normally be required to work under their contract of employment, under certain circumstances you may be required to pay them a guarantee payment. The purpose of a guarantee payment is to compensate the employee for the loss, through no fault of their own, of what they would have earned in normal circumstances.

You can only lay off an employee if their contract of employment allows for it or you operate within an industry where there is a reasonable custom and practice of laying off employees which the employee could be expected to be aware of.

Entitlement to guarantee pay

As long as the employee meets the following conditions, they are entitled to guarantee pay for the particular day(s) they are claiming for.

• the person claiming is legally regarded as being an employee - see our guide on employment status
• the employee is not an excluded employee, as defined below
• the employee has worked for at least one month's continuing employment up to the day before that for which the guarantee payment is claimed
• the employee has normal working hours and is normally required to work in accordance with their contract of employment
• the day the employee is claiming for is not a day which they were on holiday, were sick or not required work under the contract of employment
• the employee must not have worked at all on what would be a normal working day (a day being the 24-hour period from midnight to midnight)
• the absence of work was not caused by industrial action, involving any of your other employees or employees working for your subsidiary or parent company
• the reason the employee has not worked is because there was a recession in the employer's business or anything else disrupts the normal working of the employer's business, for example a natural disaster or failing power supply.
• The employee has not unreasonably refused an offer from you of suitable alternative work - this can be work other than what they normally do.
• The employee has complied with any reasonable requirements imposed by you to ensure that their services are available.

You do not have to pay guarantee pay to excluded employees. These are:

• an employee who works outside the UK under their contract of employment (most employees on offshore oil and gas installations in British sectors of the continental shelf are entitled to guarantee pay)
• 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
• members of the police service and armed forces

Limits on the entitlement to guarantee pay

The statutory entitlement to guarantee pay is limited to five days in any period of three months.

However, the entitlement is reduced pro rata for those employees who - under their contract of employment - work fewer than five days a week.

You must therefore determine how many days of guarantee pay (if any) have been allowed in the three-month period ending with the day in question. Only if a full-time employee had received fewer than five days of guarantee pay in that period would they be entitled to another payment.

If the days of the lay-off are not consecutive, the three-month period must be calculated separately for each day. 

Download our example of how to calculate days for which a guarantee pay is payable (DOC) - Opens in a new window.

Exemptions from the statutory guarantee pay provisions

You and your employees can be granted an exemption from the statutory provisions by an appropriate government minister if you have your own collective agreement covering guaranteed pay.

However, for this agreement to be valid:

• all parties to the agreement must be making the application for exemption
• it must contain guarantee pay provisions that are at least as favourable overall to your employees as the relevant statutory provisions
• the minister must be satisfied that, in the light of the terms of your agreement, the relevant statutory provisions should not apply to both you and your employees
• it must provide complaints procedures that either include a right to independent arbitration in the event of deadlock or indicate that your employee may present complaints under it to an employment tribunal - in which case the tribunal would have jurisdiction over the agreement

Note that if each provision of the agreement is at least as favourable as the corresponding statutory provision, there is no need to apply for an exemption.

However, if, for example, you and your employees would prefer to have your own complaints procedure (including a right to independent arbitration rather than to complain to an employment tribunal), an exemption order would still be required.

Subjects covered in this guide

• Introduction
• Issuing pay statements
• Statutory maternity, paternity and adoption pay
• Statutory sick pay
• Guarantee pay - entitlement, calculation and exemptions
• Guarantee pay - calculation, enforcement and contractual issues
• Complying with the national minimum wage
• Rates and calculation of the national minimum wage
• Paying workers holiday pay
• Making deductions
• Calculating final pay

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