HOLIDAY PAY - 27.06.2014

Does commission count?

Facts of the case. In Lock v British Gas Lock (L) was a sales consultant for British Gas where his monthly pay was made up of two main components: a basic monthly salary and a commission, calculated on sales achieved. On average, commission made up about 60% of his pay. Obviously, while L was on annual leave he couldn’t make any new sales, so did not generate any commission; this led to a reduction in his pay in the months following his return to work. So he made a claim for the outstanding, commission-based, holiday pay.

Europe ruling. As the case related to an interpretation of the EU’s Working Time Directive , it was referred to the Court of Justice of the European Union. Its decision, released on 22 May 2014, was that L’s commission was directly linked to the work he carried out. Therefore, it should be taken into account when calculating holiday pay.

How does this decision affect your company? The court’s decision is consistent with the 2013 case of Neal v Freightliner where it was ruled that overtime should be included in the calculation of holiday pay (yr. 6, iss.2, pg.10, see The next step ). So, if any workers receive variable pay, such as commission, overtime or allowances, then your company may find itself facing similar claims if holiday pay is not calculated by reference to normal, rather than basic, pay. Tip. Work out your company’s likely liability if claims are brought and include this as a provision on the balance sheet. The worst case scenario is that workers could claim for the pay they have “lost” by being on annual leave stretching back as far as 1 October 1998. Note. The ruling would only apply to the four weeks’ annual leave required under EU law and not the additional 1.6 weeks’ granted by UK law. There’s no need to change your holiday pay arrangements until we know what specific changes are required.

For a previous article on holiday pay and overtime, visit http://tipsandadvice-financialcontroller.co.uk/download (FC 06.10.01).