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Holiday Pay

Holiday Pay

21/03/2016

HOLIDAY PAY AND COMISSION

Calculating what to pay when an employee (or worker) is on leave is not as straight forward as you might think.  Not only must employers comply with what the law says, they also need to keep track of case law decisions; and with the legislation being far from clear, it is case law that currently sets the pace. 

In the highly publicised case of Lock -v- British Gas Trading, the employee earned commission for each sale achieved but did not receive it until several months later. When the employee took annual leave he simply received basic pay.  He continued to be paid any commission that became due for sales secured previously but did not receive any extra payment for the commission that he said he would have received (albeit a few months later), had he been working (selling) instead of being on holiday.  The point being, his opportunity to gain commission whilst on holiday was zero as he was by definition, not working.

Following a reference from the Employment Tribunal, the European Court of Justice (ECJ) found that this arrangement might deter workers from taking annual leave if they were financially worse off as a result.  This flew in the face of a central principle of European law that workers should not be deterred from taking annual leave. Consequently, the ECJ found that the employee was entitled to payment for the hypothetical commission that he would have earned during his holiday period.

Following the ECJ ruling, the Lock case went before an Employment Tribunal who unsurprisingly followed the ECJ ruling. British Gas appealed to the Employment Appeal Tribunal (EAT) but to no avail.

In February, the EAT dismissed the appeal concluding that it is permissible - and indeed necessary - to imply words into the Working Time Regulations to comply with EU law, as it must have been Parliament's intention to do so.

Unless this case is appealed to the Court of Appeal, it makes it clear that where a worker’s pay varies due to commission, when the worker takes holiday, the holiday pay will need to be calculated to include an element of commission. 

Unfortunately, the EAT failed to clarify exactly how commission should be factored into the calculation of holiday pay. Such guidance is expected to come from the separate ET hearing in which a value of holiday pay, inclusive of commission, is to be determined. The likely result will be an average based on the 12 week period prior to the requested holiday. 

We will keep you posted as soon as this becomes available. 

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