Court confirms decision to include commission in holiday pay

Estimated reading time 3 minutes

The Employment Appeal Tribunal has confirmed that an employee’s holiday pay should take into account the contractual commission they would have received had the employee been able to work during their holiday period.

The history

The ongoing saga of whether contractual commission and overtime should be included in holiday pay continues to cause headaches for employers (see previous articles here and here). In 2012, the UK Employment Tribunal (EAT) (in the case of Mr Lock v British Gas) asked the European Court of Justice (ECJ) whether contractual commission payments should form part of an employee’s normal salary during their statutory holiday period (being 5.6 weeks in the UK but 20 days under the European Directive). The ECJ reflected that an employee might not take their statutory holiday if they were worried that their remuneration would be reduced.  This would be a result of the fact that they were not able to earn any commission from sales because they were on holiday and not working.  In light of this the ECJ decided that basic salary must include contractual commission during the annual 20 day statutory holiday period. The Employment Tribunal considered the ECJ’s decision in the context of the UK’s Working Time Regulations.  They decided that the Regulations should be revised to take into account the fact that contractual results / sales-driven commission (and similar payments) should be included in statutory holiday pay, and ruled in favour of Mr Lock.

Recent developments

British Gas appealed to the EAT who have now dismissed the appeal and continue to side with Mr Lock.  British Gas is due to appeal to the Court of Appeal.

How does this affect my business?

There are a series of cases working their way through the UK courts dealing with the complex issue of holiday pay.  The one discussed in this article considers the issue of contractual commission but another important case (again involving Mr Lock) considers the actual reference period that should be used to calculate contractual commission.  It remains unclear how an employer should calculate commission payments during the statutory holiday period – should it be based on a 12 week or 12 month average period or longer? Pending a final decision, the safest course of action would be to include contractual commission in an employee’s pay for the period that they were on holiday and that the sum be calculated over a longer (perhaps 12 month) period in order to reach an average and fair sum.

Contact us

Please contact a member of the UK employment team on +44 (0)20 3051 5711 or send an email for further guidance on this matter, Abbiss Cadres.

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

Circular 230 disclosure

To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.