More holiday pay news…more expense for employers.. good news for employees! The European Court of Justice (ECJ) have ruled that holiday pay must be comparable to normal pay which therefore means it should include commission or any other elements of variable pay.
The tribunal case of Lock vs British Gas Trading Ltd was based on the fact that Mr Lock received over 50% of his remuneration as commission but his holiday pay was only calculated on his basic salary. The case was referred to the ECJ who concluded that Mr Lock’s holiday pay should reflect the commission he usually earned but didn’t when on holiday.
Taken alongside the other cases relating to overtime pay and shift premiums that we’ve recently highlighted, it seems clear that in the near future employers are likely to be obliged to take all elements of pay that could be considered to be a normal part of the remuneration into account when calculating holiday pay.
As before, this only applies to the 20 days holiday allowed for by the EU not the full 28 days that UK employment legislation allows for. Less costly for employers who choose to make that distinction but an administrative nightmare in calculating what pay is due when in our opinion.
Queries have been raised about how the holiday pay should be calculated and thus far the advice appears to be to calculate average pay including commission in the 12 weeks prior to the holiday, leading to some concern that employees could manipulate the situation to their advantage by taking holiday after a particularly successful quarter’s sales figures and commission payments.
The most concerning part for employers, however, is that employees will potentially have the right to make backdated claims and we await news on whether the tribunals will limit the length of time such claims could be backdated for. If employers choose to change how holiday pay is calculated sooner rather than later they may avoid the risk of backdated claims as a tribunal claim can generally only be made within three months of a breach of statutory rights last occurring.
Although we must now wait a decision as to how the UK tribunal will interpret the ECJ ruling, any employer who pays commission to employees needs to consider how they calculate holiday pay and assess their risks and possible costs as a matter of priority.
For employees whilst this all sounds like good news, we suspect that many employers with tight salary budgets will seek to find ways to reduce costs, possibly not offering any holiday in excess of the statutory minimum, reducing commission rates, limiting overtime and so on.