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28 April 2015

Holiday pay: Tribunal decides commission should be included

In our November issue of e-news, we discussed an important case in which the Employment Appeal Tribunal (EAT) ruled that non-guaranteed overtime should be taken into account when calculating how much an employee should be paid when they are on holiday. Employers could now be hit with further costs following a recent employment tribunal decision that commission payments should be included in holiday pay.

Background

Mr Lock was employed by British Gas as an energy sales consultant.  He received a basic salary, plus commission based on sales.  The commission accounted for approximately 60% of his total wage packet.  Mr Lock went on statutory annual leave between 19 December 2011 to 3 January 2012.  During that time he received his basic salary plus the commission from previous sales that fell to be paid during the period.  However, he suffered a reduced income in the months following his return to work because he had not made sales and generated commission while on holiday.

Mr Lock brought a claim in an employment tribunal arguing that the reduced income amounted to a breach of the Working Time Regulations.

The employment tribunal referred the case to the ECJ, which agreed with Mr Lock’s argument and ruled that holiday pay must include commission in order to comply with the European Working Time Directives.  If not, employees may be deterred from taking holiday, which would be contrary to the purpose of the Working Time Directive.

Decision

The case was referred by the ECJ back to the employment tribunal, which found that the Working Time Regulations could be interpreted to give effect to the ECJ decision, and that statutory holiday pay should be calculated to include payment of commission.

Comment

Until now, it has been standard practice to exclude commission when calculating holiday pay.  This decision means that this is no longer the case and inevitably the ruling will push up some companies’ wage bills.

Unfortunately the decision did not deal with the issue of what the correct reference period is for calculating average commission to be included in holiday pay.  This will be dealt with at a later stage, but it does unfortunately leave employers facing continued uncertainty.

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