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Taking commission into account when calculating holiday pay

On 22 February 2016, the Employment Appeal Tribunal made its long awaited decision relating to holiday pay in the case of British Gas v Lock.

Mr Lock earned commission as part of his remuneration package.  He claimed that this should be taken into account when calculating holiday pay, as he would otherwise suffer a loss as a result of not being able to earn such commission during periods of annual leave. The case went to the European Court of Justice (ECJ), where it was decided that commission payments should be taken into account when calculating holiday pay.  

The case was returned to the Employment Tribunal which decided that it was possible to read words into the existing UK legislation so as to give effect to the ECJ decision.  This was appealed to the Employment Appeal Tribunal who has this week confirmed that commission must be taken into account, and that effect could be given to the ECJ decision, by reading the following words into Regulation 16 of the Working Time Regulations:

“As if, in the case of the entitlement under Regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.”

Section 221 of the Employment Rights Act states that if an employee’s pay varies with the amount of work done, a week’s pay (used when calculating holiday pay) would have to be calculated based on an average of the pay received in the 12 weeks prior to the ‘calculation date’ – that is, the date on which the employee takes the holiday.  

The problem with this decision is that it is not the period when the employee takes the holiday that the issue arises.  At that point, presumably the employee will be in receipt of commission relating to an earlier period.  The problem will arise weeks, maybe months, later when the employee’s pay is reduced as they were unable to earn commission whilst on annual leave earlier in the year.  It is not clear how this is to be resolved, and therefore this case has left many questions unanswered.

However, we understand that British Gas has asked for leave to appeal the decision to the Court of Appeal.  It is to be hoped that we might get some clarity on this matter following a further appeal but unfortunately, for the time being, we remain in the position of ‘watch this space’ regarding the calculation of holiday pay…

If you need any further advice please call Gemma Sherbourne on 0113 220 6341 or email gemmasherbourne@schofieldsweeney.co.uk 

About the Author

Gemma Sherbourne

Legal Director

Gemma is an experienced employment lawyer, providing advice for a variety of clients from senior executives…

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