EAT ruling on holiday pay: commission to be included

The Employment Appeal Tribunal (EAT) has confirmed that employers must pay commission as part of holiday pay.

XpertHR describes the history of this case as follows: “Mr Lock was on paid annual leave from 19 December 2011 to 3 January 2012. During that period, his remuneration comprised his basic pay and the commission that he had earned during the previous weeks. However, Mr Lock did not carry out any work during his period of annual leave, and so he was not able to make any new sales or follow up on potential sales during that period. This affected his pay in the following months. Mr Lock brought a claim in the UK employment tribunal for outstanding holiday pay on the basis that his holiday pay did not reflect what he would have earned from commission.”

The case Lock vs British Gas Trading was first lodged in April 2012. Mr Lock claimed that the fact he didn’t accrue commission during periods of holiday was a disincentive for him to use his statutory entitlement to leave. The employment tribunal referred the case to the European Court of Justice (ECJ).

The ECJ ruled that where commission forms part of regular pay and is directly linked to the work carried out, it must be included in calculations of holiday pay. The employment tribunal in the UK actioned this ruling in March 2015 by adding a subsection in the Working Time Regulations 1998: Payment in respect of periods of leave section.

British Gas appealed to the EAT on this decision on the grounds that it would be “judicial vandalism” to follow the ECJ’s recommendations and interpretation of the Working Time Regulations. The EAT dismissed the appeal meaning that thousands of employees have a claim to demand outstanding holiday pay to cover missed commission.

In a similar case that took place over the same period, In a similar case, Bear Scotland v Fulton, the EAT ruled that employers must take into account non-guaranteed overtime payments when calculating holiday pay. Together these two rulings mean that many employers may have a substantially higher holiday bill to pay in future. The decision on what period should be considered when calculating commission and overtime pay for holiday has not yet been defined.

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Engage is a great tool to help managers stay on top of employee holiday entitlements.

Read more about the EAT ruling on holiday pay in Personnel Today.