6 May 2016 by

Holiday Pay: Employers must pay commission

As we start to prepare for a summer of holidays and good weather (hopefully!), it is worth looking at a long-running case regarding the relationship between holiday pay and commission payments, following the most recent ruling of the Employment Appeal Tribunal (“EAT”). The EAT has upheld the Employment Tribunal’s decision, made in March 2015, in which it was found that employers must pay commission as part of holiday pay (Lock v British Gas Trading Ltd).

Case facts

Mr Lock was employed by British Gas as a Sales Consultant. He was paid a salary of around £14,000 per year plus commission. When he took holiday, he would only receive basic pay. Mr Lock challenged British Gas on this, because his pay when he was on holiday was much less than his normal “take home” salary that included his regular commission payments.

He argued that paying him only his basic salary during his holiday was a disincentive for him to take any holiday. The case was referred by the UK Employment Tribunal to the European Court of Justice (“ECJ”) to clarify the intention behind the European Working Time Directive and the relationship between holiday pay and regular commission paid as part of an employee’s salary.

The ECJ decided in favour of Mr Lock. It was confirmed that the calculation of weekly pay under the Working Time Regulations 1998 (“WTR”) must be interpreted to conform with EU Law, and specifically the intention of the European Working Time Directive. This meant that it was not lawful for holiday pay to be paid at a basic rate to employees whose regular commission payments “top up” their salary. It was decided that failing to pay the commission element, in that situation, would deter employees from taking holiday, due to the financial implications.

The recent EAT decision

British Gas’ appealed on the grounds that commission and non-guaranteed overtime should be treated differently, and raised concerns that the ECJ’s interpretation of the WTR was “judicial vandalism”. However, the appeal was unsuccessful, confirming that UK employment legislation is capable of being interpreted in a way that conforms to EU Law and entitles workers to be paid in full when on holiday.

UNISON, the union for public sector workers, has claimed that the EAT’s decision is a “victory” for employees and those that believe in fair pay. Ultimately, this decision will not have come as a surprise to most employers given the long-running case history and the requirement for UK Employment Tribunals’ to conform with EU law.

What does this mean for employers?

There is now little doubt that commission and overtime will have to be included in holiday pay. Employers must therefore factor in these additional holiday pay costs to avoid claims for unlawful deduction of wages and/or breach of contract.

The problem that remains, and which continues to cause confusion for employers and employees alike, is how employers should calculate the level of holiday pay going forwards, to take account of commission and overtime, which in itself may be a complex exercise.

However, we can help you simplify the issues, ensure that you comply with the current legal position and give you practical advice.

If you have concerns or questions about holiday pay, or any other employment-related issues, please contact one of our solicitors in the Employment team here.

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