Holiday Pay Must Include Results Based Commission Says New Ruling

While the business community awaits the results of the Brexit deliberations of the UK government, of course, EU Law continues to influence the rulings of UK judges. A recent judgement in the Court of Appeal could have serious implications for any business that has employees on commission schemes.

A Claim for Wrongly Calculated Holiday Pay

A sales person employed by British Gas had claimed that his holiday pay had been wrongly calculated because it did not include an amount for commission that he would have earned if he had worked during the period of his holiday. Normally his commission represented about 60% of his income so the holiday pay was considerably short of his normal take home pay.

The case had earlier gone to the European Court of Justice which had rejected the claim by British Gas that his holiday pay was comparable to his normal earnings. The court reached this conclusion even though the commission scheme document was separate and not included in the employee's contract of employment. EU case law requires holiday pay to include 'all elements of normal pay'.

When the employer took the case to the Court of Appeal, their lordships considered whether the UK Working Time Regulations 1998 should take account of this EU case law, and concluded that it should. The worker's results-based commission was an element of his normal pay and should therefore be included in his holiday pay calculation.

The Financial Implications

Unless this ruling can be overturned, most of the British Gas 1000 plus sales staff could bring similar claims, resulting in a serious number of back payments from the company. Future holiday pay calculations will have to be correctly made to include amounts for normal commission even though they cannot be earned while their recipients are not working.

Small businesses are not exempt from this ruling and all organisations operating commission schemes should take note. However it doesn't apply to other incentive schemes such as discretionary bonuses based on a high level of the performance of teams or on individual achievement. It could be worth discussing the matter with your local bookkeepers to ensure that you reward your employees in ways that are appropriate and will not adversely affect your bottom line.

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