July 29, 2014

Should Holiday Pay include commission?

It seems that Holiday Pay can sometimes include commission – but only if it’s related to the number of sales you make at work.

That verdict comes from a recent ruling by the European court of justice (ECJ) – otherwise workers could be put off taking leave. Most workers in the UK have a right to 5.6 weeks paid leave under the (WTD) working time regulations. The EJC said this pay should include an element to cover commission a worker would normally earn.

Case Law

Lock v British Gas Trading

In the case of Lock, a sales consultant working for British Gas, the employee was paid commission on a monthly basis and on average commission made up about 60% of his pay, when he took annual leave he did not generate any commission, and, when calculating his holiday pay, his employer took only the basic pay into account.

Lock brought a tribunal claim for outstanding holiday pay and the tribunal asked the ECJ if the WTD requires commission to be included in holiday pay.

British Airways plc v Williams

In the Lock case the judges decided, following the British Airways case, which as commission is intrinsically linked to performance of tasks the worker is required to carry out under their contract of employment, it must be taken into account in calculating holiday pay.  Commission is directly linked to the work Lock normally carried out and, although it fluctuated from month to month, it was permanent enough for it to be regarded as part of his normal remuneration, the court said.

The ECJ did not clarify how the holiday pay should be calculated in these circumstances, and said this was a matter for the national courts to decide on the basis of the rules and criteria already set out in the European case law and the working time directive.  It is likely that UK legislation will be amended to reflect this ruling, and a form of averaging of previous months commission could be used.

As long as there is an intrinsic link between the various components making up the total remuneration of the worker and the performance of the tasks he is required to carry out under his contract of employment, then these components must be included in any holiday pay calculation.

Holiday Pay Calculation

If you are paid commission directly linked to the actual work you are carrying out, the clarification by the ECJ of how commission should be treated during your annual leave entitlement will be prime importance to you.  There may even be the potential to claim lost payments in previous years.

The case of Lock v British Gas Trading extends the principles in previous cases that remuneration paid in respect of annual leave should be the “normal remuneration” received by the worker.

On a Final Note

Employers need to consider now what their potential exposure is to challenges of this sort, given that claims could be backward as well as forward looking.  They should think about whether it’s worth changing commission structures, and whether they have the necessarily technology to calculate holiday pay if it includes average commission.

Further Advice

Our HR Advice Line is also on hand to provide support and advice on this topic. Our Advisors can be contacted on 0845 073 0240.

References:

  • CIPD – Pay to Increase for staff on commission after ECJ ruling – Editorial May 2014
  • Philip Landau – Employment Solicitor at Laudau Zeffertt Weir Solicitors – News Article June 2014
  • CIPD – Holiday Pay should include commission says EU – Paul Mander – News Article January 2014

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