Holiday Pay Calculations must now include Commission
It’s been a long time coming, however, we finally have more information in the Lock v British Gas case. As it is currently, Working Time Regulations could be interpreted to include commission payments in holiday pay calculations. However, they didn’t tell us how we should go about this.
The case centred on Mr Lock taking his employer to court for unlawful deductions from wages. Because he was not paid holiday pay, which included an amount equivalent to the commission he would have generated if he was at work. Therefore, he argued that this was a disincentive for him to take leave, which is contrary to the principles of EU Law.
What do we have to do?
Therefore, workers who receive commission as part of their remuneration must have their pay calculated in the same way as workers whose hours vary. For instance, their pay should be based on average weekly pay, including commission calculated over a period of time. However, it was suggested that this period should be 12 weeks, but we are awaiting further clarification on this from the courts.
We also need to give thought to other payments that maybe regular payments made to workers. For instance, payments which would influence the average weekly pay. For example, ‘sleep-ins’ for workers in the care sector or ‘on-call’ payments for engineers etc.
Also, a decision in another case confirmed that the commission payments only need to be calculated on the first four weeks’ of holiday. Therefore, this is the time equivalent to the statutory holiday provided by the Working Time Regulations. As it is, it is not the full 5.6 weeks’ entitlement that British workers receive.
Workers will be entitled to claim back pay for underpaid holidays which did not include commission. However, a gap of 3 months or more between unpaid holidays is likely to break the underpayments.
What does this mean for employers?
- Holiday pay calculations should now take into account regular overtime and commission payments. These must be linked to the worker’s duties. For instance, commission based on sales.
- Employers need to consider whether to alter remuneration packages. This can minimise the cost to their business in the future.
- You will need to decide whether to include overtime and commission when calculating the first 4 weeks of a worker’s holiday entitlement. Also to decide whether to pay for 4 weeks only or extend it to the full 5.6 weeks.
- Employers should consider what reference period to use when working out average earnings for holiday pay.