The Court of Appeal has confirmed that holiday pay calculations should include a representative amount of commission-based pay.
In the case of British Gas v Lock, Lock, a sales consultant for British Gas, brought an employment tribunal claim for outstanding holiday pay when this was calculated according to his basic salary without taking into account the commission he would usually earn.
The Court of Appeal upheld a decision issued by the Employment Appeal Tribunal in February 2016, finding that normal remuneration earned over over a suitable reference period should be taken into account when determining holiday pay.
This maintains the decision reached by the European Court of Justice (ECJ), which found that the working time regulations allow Lock to have his holiday pay calculated based on his normal remuneration, which includes taking into account commission payments.
The Court of Appeal’s judgement does not specify what the appropriate reference period for the calculation of holiday pay should be in other cases.
Andrew Granger, partner in the employment, pensions and mobility group at Taylor Wessing, said: “The court has, as expected, confirmed that workers are entitled to have part of their holiday pay calculated by reference to their normal contractual remuneration measured over a suitable reference period, and that in Mr Lock’s case this means that his average commission earnings over a 12 week period are to be taken into account. But the court did not throw much light on how normal remuneration and the requisite reference period are to be calculated in other cases.
“Employers will still need to consider very carefully therefore what exactly constitutes normal remuneration, how and over which period it is to be measured, and, where the issue is not clear cut, whether it is better in financial and HR terms to be proactive and seek agreement with its workers, or to wait for the issue to be raised by or on behalf of those workers.”
Aye Limbin Glassey, employment law partner at Shakespeare Martineau, added: “Although the ruling marks a significant step for employers who have been in limbo for sometime over holiday entitlement for employees on commission schemes, the story is far from over and another appeal is highly anticipated.
“Employers will now be required to include commission payments in holiday remuneration, and this could have severe financial implications. Despite the potential for an appeal, now is the opportune time for employers to put the necessary measures in place and open lines of communication with beneficiaries.
“Agreeing a payment structure with relevant commission-based staff and trade unions will help businesses come to an agreement that has employee wellbeing and business viability at its core. Assessing the needs of the workforce as well as what is financially viable for the business is likely to keep both camps happy, committed and motivated. Failing to do so could open employers up to liabilities over incorrect holiday pay and result in employees requesting backdated payments for commission they were not paid historically.”