INSIGHT: Commission is Holiday Pay confirms Employment Appeal Tribunal
Employees who receive commission as a regular part of their salary must have it included in holiday pay following a recent tribunal decision
In the long-running case of Lock v British Gas Trading Ltd, first brought to tribunal in April 2012, Mr Lock, a salesperson, argued that receiving only basic pay whilst on holiday was a disincentive to take annual leave.
He 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 when commission is part of regular pay.
The ECJ concluded that because his commission was directly linked to the work he carried out, it must be taken into account when calculating holiday pay. The case was then referred back to the UK tribunal to apply its ruling to UK law.
The subsequent tribunal decision found in favour of Mr Lock, and also applied an extra clause to the Working Time Regulations 1998 to make them comply with the Working Time Directive.
Previously in November 2014 the Bear Scotland v Fulton case held that workers who worked overtime should be paid holiday pay based on their basic wage plus any overtime worked.
In this latest case the entitlement is extended to workers who receive commission payments in addition to their basic pay.
Previously the EAT had ruled that UK law must be interpreted in a way that conforms to EU law by requiring employers to take into account non-guaranteed overtime payments when calculating holiday pay. The right to paid leave is a pillar of EU social law from which there can be no derogation.
The tribunal in the Lock case ruled that the same approach should apply to commission.
The ruling could influence the outcome of thousands of other pending holiday cases, and will force employers to review their current holiday pay allowances in relation to overtime and commission.
Domestic legislation is contained in the Working Time Regulations 1998 ('WTR') and sections 221-224 of the Employment Rights Act 1996. European Union law is contained in Council Directive 2003/88/EC, the Working Time Directive.
Commenting on the decision Susan Mayall, Head of Employment at Pearson Solicitors said: “Workers will from now on be legally entitled to receive holiday pay which reflects their normal wages.
“On the other hand employers will see this case decision taking away their profits as workers will be entitled to receive wages based on commission they would have earned if they had been in work and not on annual leave.”
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