Holiday Pay Update – March 2016

The long-running saga of holiday pay may be coming to an end.

We have discussed these cases on various blogs and newsletters over the last couple of years. Both the European Court of Justice and the Employment Appeal Tribunal service have ruled in favour of Mr Lock, a commission-earning British Gas employee who questioned holiday pay and how it was calculated.

The ruling will affect thousands who earn bonus and commission payments. This is different from the holiday pay ruling in 2014, but is very similar. The previous ruling centred on regular overtime payments – this latest ruling relates to commission and bonus payments. Mr Lock’s monthly income was part basic salary, part commission; the majority being commission based on the number of sales he made.

Whilst taking annual leave, he was unable to earn commission and therefore received only his basic salary. This limits an employee’s ability to take holiday, especially for longer periods when they depend on the commission payments to pay the bills.

The employment tribunal referred the case to the European Court of Justice to rule whether the UK are required to reflect results based on commission in its rules for calculating holiday pay. The European Court of Justice concluded that because Mr Lock’s commission was directly linked to the work he carried out, commission must be taken into account when calculating holiday pay. The case was then referred back to the UK tribunal which ruled in Mr Lock’s favour.

The Employment Appeal Tribunals decision will influence the outcome of other pending holiday cases, and will force employers to review their current holiday pay allowances in relation to elements such as overtime and commission, however, claims for unpaid holiday pay can’t go back for more than 3 months. Employers should now take the time to take a proactive approach following this ruling and adjust the way they calculate workers’ holiday pay.

This will cause a headache for sales based companies, particularly around sales and commission schemes. We suggest you review these and ensure they are updated with this latest ruling. I appreciate as an employer you may think why should you pay commission when someone is on holiday if they’re not generating business for you when they’re lying in the sun. However, your sales team are influential in helping your business meet your targets, and having an engaged and motivated team will help you achieve this. Pay and annual leave are two factors that affect job satisfaction and ultimately engagement.

If you need any support to review existing arrangements, please get in touch.