Should holiday pay include commission payments?

25 February, 2016
by: Cripps Pemberton Greenish

holidayThe calculation of holiday pay has been in a state of flux for a number of years now.  First was the question of overtime payments and now the Employment Appeal Tribunal (EAT) has considered whether results based commission payments should be included in holiday pay.

The case concerned Mr Lock who worked as a salesman for British Gas.  He was paid a basic salary and further results based commission payments which amounted to around 60% of his total earnings.  Mr Lock argued that, as he could not earn commission when he was on holiday, he would lose money if he took leave.  The Court of Justice of the European Union (CJEU) held in 2014 that results based commission should be included in holiday pay.

The question for the EAT was whether the Working Time Regulations could be interpreted in line with this decision.  The EAT held that they could, and that results-based commission payments should be included in holiday pay calculations. We do not yet know whether British Gas will appeal this decision.

Unfortunately, the EAT did not address many of the important practical issues associated with this issue; most notably, what the appropriate reference period should be for calculating the commission element of holiday pay. The CJEU held that the reference period should be one that is ‘considered to be representative.’  Some have suggested that a 12 month reference period could be used, but, as yet, we have no authority on this point.

Whilst it is now clear that UK law requires results based commission to be included in holiday pay, many of the practical issues remain uncertain.  Employers who include commission in their payments structure are therefore left with continued uncertainty. Some comfort can be gained from a change to the law in 2015 which limits any claims brought after I July 2015 to two years’ of deductions.