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Holiday Pay and Commission Payments

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Decision confirms that holiday pay should include commission payments but leaves important questions unanswered



British Gas v Lock


The Court of Appeal has now decided this important case regarding the calculation of holiday pay. However, the case merely confirms what we knew already really and actually left some important questions unanswered.


Background


Mr Lock was a salesman on a basic salary with variable commission paid in arrears. Mr Lock's commission depended not on the time worked, but the outcome of that work, i.e. sales achieved. Mr Lock could not earn commission whilst on leave, and therefore would lose income by taking it. He brought a claim for his 'lost' holiday pay after taking leave in December 2011 to January 2012.


ECJ Decision


In 2014, the European Court of Justice held that, when calculating holiday pay, Member States must ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work.  But the ECJ left the mechanics of working out 'how much should that be?' to the member states.

The issue for the Court of Appeal was whether the UK Working Time Regulations 1998 can be interpreted as including holiday pay in respect of commission, as the wording of the Employment Rights Act 1996 suggests not (the natural wording of the legislation says it can't). 


Court of Appeal Decision


The Court of Appeal (as with the EAT and employment tribunal before it) got around that problem by adding a new subsection to the Working Time Regulations 1998, under the guise of statutory interpretation, thereby achieving what the ECJ wants.  


Impact on Employers


The only thing that’s been made clear through the outcome of this Court of Appeal case is including commission when calculating holiday pay - workers are entitled to be paid an amount which reflects the commission they would have earned if not on holiday. However, the decision should only apply to individuals who have normal working hours, and whose pay does not vary according to the amount of work done, but who receive individual results-based commission as a part of their normal remuneration.


Frustratingly key questions remain unanswered such as the timescales involved for back-dating pay claims – the length of reference period employers will need to take into account when calculating holiday pay (the judge opted for it to be decided on a case-by-case basis), and the situation regarding bonuses and other forms of variable pay.


There is the possibility British Gas may still appeal this decision to the Supreme Court but certainly employers need to be careful from now on - if offering a regular commission scheme which is intrinsic to the job their employees do – including overtime or stand-by payments – they must include this in holiday pay as a result of the latest ruling.


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