Holiday pay and commission – what now?
When calculating holiday pay, the historical approach taken by tribunals has been a restrictive one in that they have held that commission does not need to be taken into account when working out what holiday pay a worker is entitled to.
In the case of Lock v British Gas, the Court of Justice of the European Union had to consider whether commission payments should be taken into account when calculating holiday pay.
British Gas have a sales force which are paid a basic salary only along with commission on sales they achieve. In Mr Lock’s case, his average commission made up about 60% of his salary. When he took his holiday however he was paid only his basic pay. Mr Lock brought a tribunal claim for his outstanding holiday pay and the tribunal asked the Court of Justice to consider if commission should be taken into account when calculating holiday pay.
The Court of Justice decided that they would have to consider whether the commission was intrinsically linked to the work the employee had to carry out under this contract of employment. In this case the Court of Justice decided that the answer was yes. Therefore commission should be taken into account when calculating holiday pay.
How does this affect employers?
Employers can no longer pay staff who earn commission their basic salary only when they are on holiday. This is likely to create practical difficulties and extra costs for employers trying to administer annual leave.
In addition, employees may now make claims against their employers if they have failed in the past to take commission into account when calculating holiday pay.
What we can do for you
This is likely to cause employers significant difficulties if they have staff who earn commission. Employees may seek to take their holiday after a lucrative period when they have earned a lot of commission. It is also not clear what the reference period will be that an employer has to use to calculate holiday pay. We can help you with these difficult problems.