Motor Matters - Pay attention if you pay commission!

Published: 20/04/2017

Are your sales staff entitled to be paid commission as part of their contractual pay package? How is this accounted for in the calculation of their holiday pay? Or is it left out entirely?

The calculation of statutory holiday pay entitlement under the Working Time Regulations 1998 (WTR) has been the subject of numerous long-running employment claims, many of which have included a reference to the Court of Justice of the European Union for a determination of rights under the European Working Time Directive.

The case of Mr Lock and British Gas
In the most recent development, the Supreme Court has refused to grant British Gas permission to appeal the Court of Appeal decision in the claim pursued against it by Mr Lock, concerning the calculation of statutory holiday pay and his commission entitlements.

The Court of Appeal decided back in October 2016, upholding the earlier decision of the Employment Appeal Tribunal, that contractual results-based commission should be included in the calculation of statutory holiday pay under the WTR. British Gas sought to challenge this decision in the Supreme Court, but the Court has rejected the application to appeal on the grounds that it did not raise an arguable point of law.

What does this mean for employers?

This means that the decision of the Court of Appeal now stands and that statutory holiday pay should be based on an individual worker’s ‘normal remuneration’, calculated to include results-based commission entitlements. In Mr Lock’s case, his pay immediately following a period of statutory holiday should reflect the commission he would otherwise have earned, had he not been absent on annual leave. In other words, he should not be financially disadvantaged as a result of taking statutory holiday.

It is well established as a result of previous case law that holiday pay should include remuneration that is ‘intrinsically linked’ to the performance of tasks that the individual is contractually obliged to perform. Following the case of Bear Scotland Ltd v Fulton, statutory holiday pay should be calculated to include non-guaranteed, compulsory overtime. The situation in relation to voluntary overtime has not yet been fully determined, although it has been decided in some cases that it should be included in the calculation.

What are we waiting for? 

What has not yet been determined is the appropriate method and reference period for calculating the holiday pay to include commission payments and/or overtime pay or, in Mr Lock’s case, what quantifiable loss he has actually suffered. It is expected that these issues will be decided at a further hearing of the employment tribunal, the outcome of which is keenly anticipated.

We will therefore need to wait a bit longer for any certainty over the calculation of holiday pay to include commission and overtime pay. In the meantime, employers should identify who in their organisation might be entitled to a recalculation of their holiday pay and start to assess the possible costs to the business. 

The content of this article is for general information only. For further information regarding statutory holiday pay, please contact Jolyon Berry on 01245 211345 or a member of Birketts' Employment Team. Law covered as at April 2017. 

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