Commission and holiday pay

  • By The Alchemist About Town
  • 23 May, 2016

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If your reward strategy includes commission and makes use of overtime payments than it is time that you review your policies and contracts of employment in line with recent courts decisions.

In the long saga of Lock v British Gas Ltd.   the Employment Appeal Tribunal (EAT) has upheld the employment tribunal’s decision in the case of Lock v British Gas.

This is the well publicised case regarding holiday pay and commission, in which the employment tribunal ruled after the case had been referred back to it from the European Court of Justice .

The case involves Mr Lock (salesperson at British Gas) whose remuneration package included a basic salary plus commission, based on the number and type of contracts to which customers agreed. When he took annual leave, he would only receive basic pay, which was considerably less than his usual salary. Lock lodged a claim with an employment tribunal, which referred the case to the European Court of Justice (ECJ) to clarify the relationship between holiday pay and commission for workers where commission was a regular part of their pay. 
In a similar case, Bear Scotland v Fulton , the EAT ruled that UK law must be interpreted in a conforming way to EU law by requiring employers to take into account non-guaranteed overtime payments when calculating holiday pay and this approach should also apply to commission.

The decision means that employees with regular working hours whose remuneration includes commission or similar payments will fall to have a week's pay, for annual leave purposes, calculated at the average rate over the previous 12 weeks, and this will include commission, not only basic salary.This decision applies only to the four-week European Directive related annual leave and not the full 5.6 weeks granted by the Working Time Regulations (WTR).

If you regularly pay commission or bonuses intrinsically linked to job related functions and who don’t factor that in to certain holiday pay calculations need to be conscious that continuing such a practice is against the decisions being made by the tribunal and EAT in this area. However, it is a complicated area and if there is a further appeal, the legal position may be regarded as still uncertain, so please do seek advice she reviewing your policies or drafting contracts of employment/terms and conditions.

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