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Holiday Pay & Commission... the decision

View profile for Manisha Chauhan
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For some time now there has been some discussion and debate over the dreaded subject of holiday pay since two very important decisions were made by the European Courts of Justice (ECJ) which found that UK domestic legislation (that is, The Working Time Regulations 1998) is incompatible in certain aspects of European legislation.

The affect this decision had was that employees were now to receive their “normal remuneration” during periods of holiday (although only for the first four weeks of their holiday). Therefore, when calculating holiday pay, employees were not only entitled to their basic salary, but also to remuneration which “is intrinsically linked to the performance of the tasks which the worker is required to carry out under their contract”.  Does this wording confuse anyone else?

After much discussion in the Courts, guidance was released as to what should be included in a week’s holiday pay provided it is intrinsically linked to the performance of the employees’ contractual duties. There are:

•    Commission payments;
•    Incentive bonuses;
•    Overtime that workers are required to perform - regardless of whether it is guaranteed;
•    Payments that relate to the "personal and professional status" of workers i.e. seniority;
•    Productivity/performance bonuses; 
•    Shift allowances and premiums (additional rates for working particular shifts)
•    Standby payments and payments for emergency call-out duties;
•    Travel and other allowances that are treated as taxable remuneration;

The decision had a huge impact on businesses as the calculation would vary for each employee and therefore created a huge administrative burden for employers, not to mention the significant cost implications.

The Court of Appeal has now handed down its decision on British Gas Trading Limited v Lock which considered whether statutory holiday pay should be calculated to include commission payments.

This case was referred to the ECJ before returning to the Employment Tribunal (ET) and then the Employment Appeal Tribunal (EAT), both of which held that the Working Time Regulations should be interpreted so as to mean that commission should be included when calculating statutory holiday pay. British Gas appealed to the Court of Appeal.

The Court of Appeal upheld the decision reached by the EAT, holding that contractual, results-based commission should be included in the calculation of statutory holiday pay.

As with the previous holiday pay decision, unfortunately the Court did not consider how, practically, an employer should determine the appropriate reference period when calculating holiday pay to include commission and therefore employers will no doubt be left bemused. Hopefully guidance will soon follow.

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