The Employment Appeal Tribunal (EAT) has determined that commission payments must be included in calculations for employees’ annual leave and holiday pay.
In the case of Lock vs British Gas Trading Limited and others, the EAT confirmed that the working time regulations can be interpreted in line with the working time directive, which requires commission to be taken into account when calculating staff’s holiday pay.
Lock, a sales consultant for British Gas, was paid commission on a monthly basis, which made up about 60% of his overall pay. When he took annual leave he did not generate any commission, and, when calculating his holiday pay, his employer took only his basic pay into account. Lock then brought an employment tribunal claim for outstanding holiday pay.
Helen Cookson, employment senior associate at Trowers and Hamlins, said: “It seems there’s now little room for doubt that commission and overtime, both guaranteed and non-guaranteed (where the worker is obliged to work overtime if required), will have to be included in holiday pay.
“This will lead to additional expense for employers who need to be aware that a failure to include such payments will open the floodgates to a whole succession of unlawful deductions from wages claims. One consolation for employers will be that, under the Deduction from Wages (Limitation) Regulations 2014, there is now a two year backstop on claims for holiday pay which are made on or after 1 July 2015.”
Alan Delaney, employment lawyer at Maclay Murray and Spens, added: “This decision is sure to be welcomed by trade unions and the thousands of employees who have similar claims in the pipeline. It also provides some degree of certainty in the short term, since it takes a consistent approach to the question, against a background of earlier conflicting decisions as to holiday pay requirements.
“It is, however, unlikely to be the end of the matter: employers may well take some comfort from the closing words of the decision which are to the effect that if the EAT has got it wrong (in both decisions), it is for the Court of Appeal to say so. As such, although the EAT has spoken with a unanimous voice for now, a further appeal to the Court of Appeal (and perhaps beyond to the Supreme Court) may well now be likely. In the meantime, it remains advisable for all employers to review their existing holiday pay arrangements, so as to ensure that any exposure and risk from these kind of holiday pay claims is minimised.”
Aye Limbin Glassey, employment law partner at Shakespeare Martineau, said: “This ruling is highly significant for organisations that operate commission schemes, as the inclusion of commission payments in holiday remuneration is a reminder to not deter staff from taking holidays for fear of losing out financially. It represents an increased commitment to the health, safety and well-being of staff, when balanced with business needs.
“What is now essential for employers still to address this issue is much-needed guidance from the government on how to actually calculate holiday pay. This will help set vital parameters for businesses and ensure they comply with best practice.”