Employment tribunal rules for holiday pay calculations

Employment tribunal rules that employers must include commission in holiday pay calculations

An Employment Appeal Tribunal has ruled that employers must include commission payments in employees’ holiday pay allowance.

In a landmark ruling, the Employment Appeal Tribunal (EAT) has confirmed that the Working Time Regulations can be construed consistently with the Working Time Directive, which calls for commission to be taken into consideration when calculating employees’ holiday pay.

Former British Gas sales consultant, Joe Lock, was paid monthly commission, which constituted approximately 60 per cent of his total pay.

Mr. Lock’s commission was based on the number and type of contracts that customers entered into.

However, when he took annual leave, Mr. Lock would only receive basic pay as he did not generate any commission therefore, when calculating his holiday pay, his employer only factor in his basic pay.

Mr. Lock then bought a claim for outstanding holiday pay at the EAT arguing that this practice served as a disincentive to taking annual leave.

The EAT referred the case to the European Court of Justice (ECJ) to ascertain the relationship between holiday pay and commission in circumstances where commission was a regular feature of payment.

The ECJ ruled that, because Mr. Lock’s commission was connected to the work he performed, it must be taken into consideration when calculating holiday pay.

The court then sent the case back to the EAT so that it could apply its ruling to UK law.

As a result of the ECJ’s decision, employers that operate commission schemes will have no choice but to review their holiday pay allowances and commission and overtime – guaranteed and otherwise – will have to be included in holiday pay.

Consequently, employers will incur extra expenses because a failure on their part to make commission payments will leave themselves open to claims for unlawful deductions from wages.

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