ThePeopleAlchemist Edit: HR, Business and pay
Commission and holiday pay is controversial subject.
But if your reward strategy includes commission and uses overtime payments, then it is time that you review your policies and contracts of employment in line with recent court decisions.
EMPLOYMENT TRIBUNAL CASES
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 a well-publicized case regarding holiday pay and commission. 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. However, when he took annual leave, he would only receive basic pay. This was considerably less than his usual salary. Lock lodged a claim with an employment tribunal. And the ET in turn referred the case to the European Court of Justice (ECJ) to clarify the relationship between holiday pay and commission for workers. Where the 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 conforming to EU law. E.G. requiring employers to consider non-guaranteed overtime payments when calculating holiday pay. This approach should also apply to the commission.
WHAT DOES IT MEAN IN PRACTICE?
The decision means that employees with regular working hours whose remuneration includes the 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. This will include commission. Not only basic salary. This decision applies only to the four-week European Directive related annual leave. 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 into specific 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. If there is a further appeal, the legal position may be regarded as still uncertain. So please do seek advice reviewing your policies. Or drafting contracts of employment/terms and conditions.