The recent case of Lock v British Gas lodged in the employment tribunal has tested the claim that commission is due on holiday pay. The employment tribunal has now ruled on 25 March 2015 following the Court of Justice of the European Union’s judgement on this subject to give a final decision.
The Lock v British Gas claim came about being lodged by a sales consultant who was paid a basic salary plus a sales commission which made up about 60% of his earnings. He took holiday in December 2011 and was paid his salary and commission earned on sales prior to taking leave. While on leave he made no sales and earned no commission. This would potentially affect his holiday pay if he had taken annual leave later in the year. He claimed this was unlawful.
The Court of Justice of the European Union said holiday pay was meant to reflect workers’ “normal remuneration” and should put workers in a position “comparable to periods of work” with regard to salary. In the UK commission payments had not been accounted for in holiday pay.
It has now been ruled ruled that employers must take commission payments into consideration when they calculate holiday pay.
Employers could potentially have to pay more when they offer commission schemes to enhance employees’ pay. The employees should receive normal pay during periods of holiday that are consistent with how they are paid during working hours. There is no reference in the ruling, however, to the correct reference period for calculating holiday pay where an employee receives commission – perhaps that will be determined by the employment contract which should clearly specify how commission payment should operate.
This will have a future cost impact to various industries that offer commission payments; this will, of course, include those employees with sales roles. It will may provide a possible additional headache with retrospective claims. At least 40% of the UK workplaces receive incentive payments to boost their employees salary so the ruling has far reaching consequences.
This is a key employment tribunal ruing and an interpretation of the Working Time Regulations, however, it sets a precedent and paves the way for other employment tribunal claims to be lodged.