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Custom and Practice: The Hidden Risk in Pay Arrangements

Employers often rely on written contracts, handbooks and policies to define how pay, overtime, allowances and expenses are handled.

Those documents are important. However, they are not always the full picture.

In many workplaces, informal arrangements develop over time. An employee may regularly receive overtime for certain duties. A travel allowance may be paid in practice, even if it is not clearly set out in the contract. A manager may approve a payment repeatedly, creating an expectation that the arrangement will continue.

Over time, these informal arrangements can become a source of dispute.

A recent Workplace Relations Commission decision involving an ESB worker highlights the importance of clearly managing pay practices. The worker claimed he was owed €42,000 in alleged unpaid overtime after the employer stopped paying overtime for travel time. The WRC ultimately ruled that the complaint was out of time, noting evidence that the decision to stop the overtime practice had been made and communicated in November 2023. The Payment of Wages Act provides that complaints must generally be brought within six months of the relevant contravention, with a possible extension of up to a further six months in exceptional circumstances.

For employers, the decision is a useful reminder that pay practices should not be allowed to drift informally. If an arrangement is no longer intended to apply, it should be reviewed, documented and communicated clearly.

What Is “Custom and Practice”?

“Custom and practice” refers to workplace arrangements that may not be clearly written into a contract but have become established through repeated and consistent practice.

This can arise where something is:

  • paid regularly over a long period;
  • approved by managers;
  • treated as normal by both sides;
  • relied upon by employees;
  • not clearly described as discretionary or temporary;
  • applied consistently across a role, team or department.

In a pay context, custom and practice issues often arise around overtime, bonuses, travel time, subsistence, allowances, time off in lieu and shift premiums.

The risk for employers is that something originally intended as informal, discretionary or temporary may later be treated by employees as an entitlement.

Written Policies Are Not Enough If Practice Says Something Else

An employer may have a written policy stating that certain payments are discretionary or not payable. However, if the employer repeatedly acts differently in practice, a dispute can still arise.

For example:

  • employees are regularly paid overtime even where the contract says overtime is not guaranteed;
  • travel time is routinely treated as paid working time;
  • a “discretionary” bonus is paid every year without clear conditions;
  • allowances continue long after the original reason has disappeared;
  • different managers approve payments in different ways;
  • employees are told informally that a payment will continue.

Where the written position and the working reality do not match, the employer may find itself in a weaker position if the arrangement is later challenged.

The key lesson is simple: employers should make sure contracts, policies, payroll practices and management behaviour all align.

Pay Policy Changes Need Careful Communication

Employers may sometimes need to change pay-related arrangements. That may be because a practice has developed incorrectly, costs have increased, roles have changed, or the organisation wants to standardise arrangements.

However, changing an established pay practice should not be done casually.

Employers should consider:

  • whether the payment is contractual;
  • whether it has become an implied term through custom and practice;
  • whether employee agreement is required;
  • whether consultation is needed;
  • what notice should be given;
  • how the change will be communicated;
  • whether the business reason is clear;
  • whether alternatives have been considered;
  • how grievances will be handled.

Even where the employer believes a practice was incorrect, suddenly stopping payments can create employee relations issues and potential legal claims.

A clear written communication can make a significant difference. In the ESB case, the timing of the decision and the evidence that it had been communicated were central to the WRC’s conclusion that the complaint was out of time.

Travel Time, Overtime and Allowances Are Common Risk Areas

Travel-related payments are a common source of disagreement, particularly where employees work across multiple sites, attend training locations, visit clients or travel long distances as part of their role.

Employers should be clear about the difference between:

  • ordinary commuting;
  • business travel;
  • travel between work locations;
  • overnight subsistence;
  • mileage expenses;
  • paid working time;
  • overtime;
  • allowances;
  • time off in lieu.

These categories should not be allowed to blur.

Revenue guidance also treats travel and subsistence payments as an area requiring proper reporting by employers, and employers should be careful to distinguish reimbursement of expenses from wages or overtime arrangements.

Where travel arrangements are unclear, employees may reasonably form expectations based on what has happened before.

Manager Approval Can Create Risk

Many custom and practice disputes start with local management decisions.

A manager may approve overtime, travel payments or allowances because it seems practical at the time. Another manager may continue the same approach. Payroll processes the payments. No one reviews whether the arrangement is contractual, discretionary or temporary.

Months or years later, the employer may decide the practice should stop.

By then, employees may argue that the arrangement has become an established part of their pay.

This is why employers should give managers clear guidance on what they can and cannot approve. A pay practice should not depend on informal habits, local understandings or verbal assurances.

Grievances Do Not Always Stop Time Running

Another important point for employers and employees is timing.

In many employment claims, strict time limits apply. Under the Payment of Wages Act, a complaint must generally be brought within six months of the relevant contravention, with only limited scope for extension.

The WRC also notes in its guidance on deductions from pay that where a series of deductions or payments arises from a particular act or omission, the first deduction or payment in the series must be within the six-month period.

This matters because employees may raise internal grievances before going to the WRC. Employers should still take grievances seriously, but the existence of an internal grievance does not necessarily resolve the underlying issue or prevent a later dispute.

For employers, the practical lesson is not to rely on technical arguments alone. A time-limit defence may succeed in some cases, but the better approach is to prevent uncertainty arising in the first place.

How Employers Can Reduce the Risk

Employers should regularly review pay practices, especially where arrangements have developed informally.

A practical review should ask:

  • Are all pay elements clearly set out in contracts, policies or written communications?
  • Are overtime arrangements clear?
  • Is travel time treated consistently?
  • Are allowances still justified?
  • Are discretionary payments clearly described as discretionary?
  • Are managers applying the rules consistently?
  • Has payroll practice drifted away from written policy?
  • Are employees relying on an informal arrangement?
  • Have any changes been properly communicated?
  • Is there a record of when a policy change was made?
  • Have grievances or objections been addressed promptly?

The aim is not to remove all flexibility. The aim is to ensure flexibility is controlled, documented and understood.

Key Takeaway for Employers

Pay arrangements should not be left to custom, assumption or habit.

If a payment is intended to be discretionary, temporary or exceptional, that should be made clear. If a practice has developed over time, employers should review whether it has become an expectation or potential entitlement.

When changes are needed, employers should communicate clearly, keep records and consider whether consultation or agreement is required.

The safest position is simple:

Know what the contract says.
Know what actually happens in practice.
Make sure the two match.
Document any changes.
Train managers not to create informal pay commitments.

Custom and practice can turn an informal arrangement into a workplace dispute. Employers should address the risk before it becomes a claim.

📞 Contact us today for confidential guidance.

Disclaimer: This article is for general information purposes only and does not constitute legal advice.

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