A new ruling by the Employment Appeal Tribunal (EAT) means that employers will now have to factor in commission when calculating holiday pay for commission-based employees.
The decision was handed down in a case between Mr Lock, a British Gas employee and his employer, British Gas Trading Ltd.
Mr. Lock felt that the way his holiday pay was calculated was a disincentive to him taking annual leave, as it only took into account his basic salary and not the commission element of his earnings.
Prior to the EAT decision, the case had gone as far as the European Court of Justice (ECJ), which had decided that because Mr Lock’s commission was directly linked to the work he did, it must be taken into account when calculating holiday pay. With this latest EAT case, the ECJ ruling has now been applied British law.
Nicola Roe, employment solicitor at Ironmonger Curtis says: “Prior to the EAT ruling, an employee who relied on commission to provide a substantial percentage of their monthly earnings would see a real dent in their pay cheque if they took one or two weeks’ holiday.
“As a result, it can be seen why many such employees may have chosen to avoid holidays of more than a couple of days at a time. However, this would not only risk burnout but a souring of the employment relationship.
“Following the new ruling, some businesses might have to respond by revisiting their commission structures to accommodate extra holiday pay. That said, they may well find that a better rested workforce performs to a level that far outweighs the extra cost.”
For advice on holiday pay and policy matters, contact employment solicitors, Ironmonger Curtis on 0845 225 2635.
Written by Fiona Sanderson
Fiona is Marketing Manager at myhrtoolkit. Her areas of expertise include HR systems, productivity, employment law updates, and creating HR infographics.