Now commission, what next? – The latest development in the holiday pay saga
You may have seen news recently of various decisions about holiday pay, in particular that regular overtime must be included in the amount to be calculated for the purposes of a "week's pay" when determining what a worker is entitled to receive during any period of holiday under the Working Time Regulations 1998 ("WTR").
You might have thought this would be the end of the long-running saga of establishing what a worker's holiday entitlement is and in particular their entitlement to pay for holiday. If so, you were wrong.
On 22 May 2014 the European Court of Justice (ECJ) held in the case of Lock v British Gas Trading Limited that during a period of holiday under the WTR, a worker whose income also includes sales-based commission should be paid an element to reflect their normal commission included in their pay during any period of holiday.
The EJC held that only giving a worker basic pay during any period of annual leave and not including an element for commission was contrary to article 7 of the Working Time Directive as it would be likely to deter the worker from exercising their right to take paid annual holiday. The ECJ held that this was the likely effect of only paying basic pay even though the impact of not paying commission would not be felt at the time the worker took annual leave but would impact in a subsequent pay period.
The case has been referred back to the UK courts to decide the way in which employers should properly calculate the commission which a worker would have been likely to have earned if they had been working during the period of annual leave instead of being on holiday and the timing of making this payment to the employee, which leaves further potential grey areas for employers.
What this decision does mean, however, is that all businesses which employ any staff where their salary has an element of commission based on personal performance (ie, most, if not all, businesses we would expect) will have to factor in increased holiday pay costs for all such workers (4 week minimum entitlement under the WTR) or face breach of contract/unlawful deduction from wage claims in the Employment Tribunal.
This is likely to be a significant additional cost where commission forms a substantial part of a worker's salary entitlement.
In other words, bad news for employers, great news for works, and further grist to the mill for a certain political party…
For further information, please contact Paul Ball our Head of Employment at email@example.com.
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