Sales-based commission must be included when calculating holiday pay warns a Lincoln solicitors following a landmark court ruling.
Employers across Lincolnshire will need to re-evaluate their staff’s holiday pay if they currently only pay basic wages following the case of British Gas Trading v Lock and another, where the Court of Appeal upheld the decision of the Employment Appeals Tribunal that holiday pay should include commission.
Kate Hindmarch, partner in the employment team at Langleys Solicitors, said the move could impact thousands of companies, including those that employ sales professionals.
Mr Lock worked for British Gas as a sales consultant. He was paid a basic salary plus commission on sales he generated, usually paid after the sale concluded.
This meant that whenever Mr Lock went on leave his income was significantly reduced due to lack of commission during that period. Mr Lock complained this was a breach of the Working Time Directive.
The Employment Tribunal referred the case to the European Court of Justice, which determined that a workers’ remuneration should include any contractual commission and that any calculation of holiday pay based on basic pay alone was incompatible with the directive.
The Employment Tribunal decided that any commission should be included in holiday pay.
British Gas appealed that decision but the Court of Appeal confirmed that, where remuneration includes sales-based commission, holiday pay cannot be calculated on basic pay alone.
Kate Hindmarch said: “Employers should take stock and consider the prospect of historical claims by workers for the inclusion of commission, overtime payments and other allowances in their holiday pay.
“Employers may also wish to consider how they calculate holiday pay in the future.”
Kate said the position regarding completely voluntary overtime remained unclear. She said some Employment Tribunals had interpreted voluntary overtime as part of normal remuneration if a settled pattern had developed over a sufficient period of time.
However, the rules may change in the light of Brexit, she added. “Depending on what the UK signs up to by way of Brexit, the UK may reassess how holiday pay is calculated as these decisions have been unpopular amongst businesses.
“As the government has previously sought to limit employer liabilities for historic claims, it indicates that there is likely to be an appetite to pull back on what should be paid as ‘holiday pay’.”