Commission must now be factored into holiday pay

Employers must now take regular commission payments into account when they are calculating holiday pay for their staff.

This decision is likely to increase costs for a wide range of companies, in various sectors, that reward staff partly or primarily on the basis of achieving defined targets.

The ruling, in the case of Lock v British Gas Trading Ltd, was recently confirmed in the Leicester Employment Tribunal, after having been referred to the European Court of Justice for guidance. The court found that the basic pay Mr Lock received during periods of holiday did not reflect what he would have expected to receive if he had been working during the same period.

The court went on to recommend that the appropriate level of additional pay should be calculated by taking an average of the commission earned over the preceding 12 weeks, and adding this weekly average sum to payment of the employee’s actual normal working hours at their normal hourly rate. However, the judgment failed to explain many other aspects of how the calculation would work in practice.

Many experts have expressed concerns over the practical implications of this ruling. Gillian McAteer, Citation’s Employment Law Team Manager, feels the ruling still leaves employers in the dark:

“From an employer’s point of view, today’s ruling does not clarify the practicalities of how to implement this ruling, which is disappointing. There are a variety of questions that still need to be answered:

• What if the 12 week reference period is not a true or fair representation of what the employee would normally earn in relation to commission?
• How do you distinguish between the 4 weeks (European Holidays) and the additional 1.6 weeks that employees are entitled to under the Working Time Regulations?

Until these questions are answered, it will leave a grey area for employers when they are trying to calculate holiday pay. While this is the case, we would encourage clients to call our Employment Law Team for more detailed advice on how this ruling might affect their business.

British Gas appear to be unhappy with the decision of the tribunal, and they have decided to appeal the decision made by the Leicester Employment Tribunal. They are currently waiting for the new appeal to be heard by an Employment Appeal Tribunal.

British Gas appear to have not taken the decision lightly and have appealed the decision of the Leicester Employment Tribunal. The appeal is still waiting to be heard.