Holiday Pay and Commission
It had previously been thought that where a worker received a basic salary and commission, only their basic salary has to be paid during their holiday.
In the case of Lock –v- British Gas Trading Ltd the Employment Tribunal (ET) held that the Working Time Regulations 1998 (WTR) should be interpreted to include commission payment in respect of holiday pay calculations.
Facts of the case
Mr Lock was employed by British Gas as a sales consultant. Each month he received his salary and a variable amount of commission depending on how many sales he had achieved. On average, his commission payments made up 60% of his remuneration package. When he took holiday, he received his basic pay for the period he was not working and any commission owing to him from sales he had previously made. He argued that, since he was unable to carry out work whilst on annual leave, he was also unable to generate commission during that period. This meant that his remuneration was reduced in the months following his holiday.
The European Court of Justice (ECJ) held that commission payments should be taken into account when calculating an employee’s four weeks’ leave outlined in the WTR. The ECJ explained that if the commission payments are not taken into account when calculating holiday pay, the worker will be placed at a financial disadvantage when taking their holiday under the WTR. In such circumstances the worker may be deterred from taking their holiday, contrary to the purpose of the WTR. It is important to remember that the WTR are a health and safety measure to ensure workers have sufficient time away from the workplace to enable them to carry out their duties safely.
The case was referred back to the ET which held that it could overcome the present incompatibility with EU and UK law by adding wording into the WTR which provides for commission (if part of normal remuneration) to be included in holiday pay calculations.
It is important to mention that this case related to an employee who worked normal working hours. Where employers are calculating holiday pay for employees who do not work normal working hours (i.e. they work different shifts each week for example), they should be using a 12 week reference period to calculate holiday pay which would include commission payments.
On 5 May 2015, Eversheds (legal advisers for British Gas) announced that it had lodged an appeal for British Gas to the Employment Appeal Tribunal. It is hoped that the EAT should hear the case before the end of the year but it is another reminder that we haven’t yet heard the last on the holiday pay saga.