Should holiday pay include commission?

Year Published: 2014

Under the Working Time Regulations 1998, workers have a right to paid annual leave, putting the worker in a comparable position financially as if they were in work. However, until the decision of an Advocate General of the Court of Justice, holiday pay in the UK was not required to include any commission that would have been earned.

In the recent case of Lock v British Gas Trading the Advocate General stated that holiday pay should include an amount that reflects average commission previously earned by workers over the previous months.

Facts

As a Sales Consultant for British Gas Trading, Mr Lock earned commission on top of his basic pay. These commission payments were made monthly. During periods of annual leave his pay consisted of his basic pay plus any commission that he had earned during the weeks before his holiday. On Mr Lock’s return to work after any period of annual leave he always suffered financially as he was unable to generate any commission whilst off work.

Mr Lock brought a claim for outstanding holiday pay in the Employment Tribunal stating that commission should be included within the calculation for his holiday pay. The tribunal referred the matter to the European Court of Justice (ECJ) for a ruling on whether commission should be paid and how much commission should be included in the calculation.

Decision

The Advocate General decided that Mr Lock should be compensated for not being able to earn commission whilst he was on leave. In justifying this opinion it was provided that annual leave is to allow for a period of rest and relaxation and that the employee should not be deterred from taking it. If an employee is going to lose financially as a result of taking leave then the likelihood is that he or she would be dissuaded from using or reluctant to use their holidays.

Mr Lock’s commission was linked to the work he normally did and although the amount of commission earned varied from month to month, he regarded it as part of his normal pay.

The employer asserted that commission payments took account of an employee’s inability to earn whilst on leave however this argument was rejected.

The EU felt that commission should be included as part of a workers remuneration when calculating what they receive as holiday pay. The Advocate General recommended a measure which took an average of the commission earned by the employee over the previous 12 months.

How does this affect employers?

This decision is not binding on the Court of Justice of the European Union (CJEU) however if the court follows the decision of the Advocate General when it hears the case next year, then the decision will set a binding precedent. If this is the case employers will be required to include commission when calculating holiday pay.

Should this come into force next year, employers will need to consider the payments that are made to workers who earn commission and whether commission structures need to be revised to accommodate these extra payments. Employers must also arrange to properly calculate the commission payments over the annual leave period.

For further information on employment issues, please contact our Employment and HR team on 0161 475 7666.

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