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Commission Must Be Included in Holiday Pay

By February 24, 2016Legal Update
Holiday Pay Must Include Commission | HR Solutions

The Employment Appeal Tribunal (EAT) has confirmed that an employee’s average commission must be included in their holiday pay.

The judgement, published Monday (22nd February), set out how the European Court of Justice (ECJ)’s ruling will apply in the UK. This is another step in the long-running case of Lock v British Gas, which was first raised in April 2012.

Mr Lock was a salesperson at the time of his employment with British Gas. His pay was a basic salary plus commission, which was based on the number of sales that he made. As his holidays were only paid at his basic salary, which was significantly lower than his average earnings, Mr Lock claimed that employees had a disincentive for taking holiday.

Mr Lock took his case to the Employment Tribunal, which referred the case to the ECJ. The ECJ concluded that Mr Lock’s commission was clearly linked to the work that he carried out and so must be taken into account when calculating his holiday pay. Even though the amount of commission was not fixed, it was permanent enough for Mr Lock to consider it a normal part of his salary.

Following this the Employment Tribunal determined that UK law must conform with EU law. The tribunal amended the Working Time Regulations 1998 to state:

  1. Regulation 16(3) of The Working Time Regulations 1998 is to be interpreted and applied as if it had the following paragraph added to it:

(e) as if, in the case of the entitlement under regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.

Appealing the decision, British Gas claimed that it would be “judicial vandalism” to follow the ECJ’s recommendations. However this week the EAT overturned this appeal.

Unison General Secretary Dave Prentis said: “This case will have implications for thousands of workers in the UK and in Europe who for years have been denied a fair deal.

“Some workers who rely on commission and overtime lose a significant amount of money when they take the annual leave they are entitled to. And it is only fair that workers should receive their normal pay, including their regular commission, for periods of annual leave.”

However, this does not mark the end of the legal battle. Lucy Lindstrom, head of employment law at British Gas, said: “We note the decision of the Employment Appeal Tribunal. We have requested permission to appeal to the Court of Appeal so that there can be a definitive ruling on this issue.

“We are also continuing discussions […] with our trade unions over how best to approach holiday pay in the future.”

The ECJ clarified that it is up to the national courts to determine what employers should use as a reference period for calculating the holiday pay rate.

Until the reference periods are clarified we recommend:

  • Setting aside a reserve amount to cover new and potential historical pay-outs
  • Factor the judgement into pay reviews and new starter salaries
  • Review existing commission structures

This judgement will affect the outcome of thousands of other pending holiday pay cases. If commission forms a permanent part of your employee’s pay, then you need to prepare for the increase to your holiday pay bill.

We will continue to update you as the legislation develops.

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