HOLIDAY PAY – DO YOU PAY ENOUGH?
YES – more than enough we hear you exclaim.
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, thanks to the legislation not being that clear, they also need to keep track of case law decisions. And, at a time when the impact of Europe on matters ‘domestic’ is high in the media, the European Court of Justice (ECJ) has just decided that, where the amount of commission is fixed in the employment contract, payment for annual leave must include an element for commission.
In this case, the employee received commission for each sale achieved but was paid several months later. When the employee took annual leave he simply received basic pay. He also, of course, continued to be paid any commission that became due for sales secured previously but he did not receive an 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.
The employee won because the ECJ found that this arrangement might deter workers from taking annual leave if they were financially worse off as a result. It is, or course, a principle of European law that workers should not be deterred from taking annual leave. Consequently, the employee was entitled to payment for the hypothetical commission that he would have earned during his holiday period.
The case is now back with an Employment Tribunal to determine how that commission should be calculated.
So is this a 'dam burst' case?
It might well be. Whilst each and every case is treated on its own merits, a rush of cases is predicted from sales people, or other commission earning workers, (who are prepared to pay the tribunal fee) seeking to claim additional holiday pay. Given the many different commission structures that exist or are likely to be created by ingenious employers / managers, we are sure this is likely to grow into another area of uncertainty when seeking to apply a correct approach to holidays.
It is hard not to comment that the whole topic of holidays has led to a voluminous amount of case law dealing with entitlement and pay; from the rolled up holiday pay issue (which is technically illegal but will be accounted for when considering claims), to holiday accrual when a worker was / is absent from work due to sickness (see our Information Updates: 2011/21, 2012/10 and 2012/13).
In light of this latest ECJ decision, those employers who pay commission to some (or all) of their employees will need to review how holiday pay is calculated.
If you need advice on this, or any other matter, please do not hesitate to contact us to see if we can help.