The recent European Court Justice (ECJ) decision made a number of employers sit up and take notice due to the way in which the ECJ dealt with the calculation of holiday pay and commission. Are you getting it right?
Employers will know that the Working Time Regulations (WTR) state that all workers receive 5.6 weeks paid annual leave throughout the year. However, it does not specify how statutory holiday pay should be calculated. Theoretically, this is left to national legislation or practice. For each week of leave, employees are entitled to pay a normal weekly pay and most employers have been happy paying only basic salary for a period of holiday and ignoring overtime and commission.
Mr Lock is employed by British Gas Trading Ltd as an internal energy sales consultant. He receives a basic salary plus commission on the sales that he achieves. The commission is paid several weeks or months after a sale is concluded and makes up approximately 60% of his remuneration.
Mr Lock went on statutory annual leave between 19 December 2011 to 3 January 2012. During this time, he was paid his basic salary plus the commission from previous sales that fell due during the period. However, he suffered a reduced income in the months following his return to work because he had not secured sales, and had therefore not generated commission, while he was on holiday.
He brought a claim in an employment tribunal, arguing that his reduced income amounted to a breach of the WTR. Mr Lock claimed that his holiday pay should have included an element of unearned commission so that his holiday pay would be comparable to his pay when he was actually working.
The ECJ agreed in principal stating that the holiday pay must be comparable and therefore payments that are closely linked to the work, such as commission, should be included. If this was not to be the case then employees would be deterred from taking leave which would go in the face of the WTR.
This decision, and other recent employment tribunal decisions show the need for employers to review their pay processes and their approach to the calculation of holidays to ensure that it falls in line with the decision in Lock.
