Employers Will Have to Pay Commission as Part of Holiday Pay...

As anticipated, the Court of Appeal confirmed on 7 October 2016, in the significant case of Lock v British Gas Trading Ltd, that employers will have to include result based commission when calculating holiday pay in accordance with the Working Time Regulations 1998 (“WTR”).

There has previously been uncertainty as to whether the “normal remuneration” during periods of annual leave would include commission. However, the European Court of Justice (“ECJ”) ruled, when Mr Lock originally brought his claim for unlawful deduction of wages in the form of unpaid holiday in the Employment Tribunal, that the holiday pay of workers who earn result based commission, should not be based on basic salary alone, but should also include an amount that reflects the commission element.

Accordingly, the Employment Tribunal held that the following wording should be added to the WTR in order to make the WTR compatible with the European Directive:

“… a worker with normal hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purposes of section 221.”

British Gas appealed against this decision. However, the Employment Appeals Tribunal (“EAT”) and now the Court of Appeal have ruled in favour of Mr Lock. As such, commission should form part of “normal pay” and must be taken into account when calculating holiday pay.

It is also important to note that the EAT has previously held in Bear Scotland v Fulton that overtime should be included in the calculation for holiday pay.

Implications for your business

If you require advice in relation to holiday pay, commission and overtime, our Employment team is always available to discuss your commercial options and strategy when faced with holiday pay queries or scenarios.

In the wake of Brexit and the possible appeal by British Gas to the Supreme Court, the legal implications for this area of law might still be subject to change in the near future.

For more information on what should and shouldn’t be included as part of holiday pay, read our October Newsletter update or alternatively please get in touch with a member of our Employment team.