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Holiday pay: should commission payments be included in holiday pay?

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You will no doubt be aware of the on-going holiday pay saga the Tribunals have been grappling with for over 18 months now. The one area that remained outstanding was whether commission payments should be included in the calculation of holiday pay.

The current position on holiday pay

Employers should pay a worker their normal remuneration whilst they are on holiday. This is to make sure that they don’t miss out financially whilst they are on annual leave, which could deter employees from taking holiday.

Holiday pay can be calculated using the average calculation method over the period of 12 weeks before that worker takes that particular period of holiday.  So, employers need to find the average pay for that worker and pay them that amount.

What is normal remuneration?

The following elements of pay ought to be included when calculating holiday pay:

  1. Guaranteed overtime: Overtime that an employer must offer to the worker and that the worker must work.
  2. Compulsory overtime: Overtime that the employer need not offer but if offered the worker must work it.
  3. Certain shift bonuses/attendance bonuses/performance bonuses etc.
  4. Certain standby and call out payments etc.

What about the employee’s commission?

The Employment Appeal Tribunal has now announced its decision in the Lock v British Gas case which deals with whether commision should be considered when calculating holiday pay. They have agreed with Mr Lock that his holiday pay should include the commission that he would receive normally if he were working and not on holiday.

This is not a surprise and follows the trend that the other holiday pay cases, which was including more payments in holiday pay calculations. Commission joins the ever-growing list of elements of pay that should be included in holiday pay calculations.

If your employees receive any element of commission in their pay it is possible that you may have to include an element in their holiday pay to account for this.  It would need to meet the usual test of being:

  1. intrinsically linked to the job they perform; and
  2. paid with sufficient regularity.

What does this mean for me?

As with any Tribunal decision, this is not a new law.  The Employment Appeal Tribunal has decided that the existing law can, and should, be interpreted in this way and commission should, and always should have, been included in the holiday pay calculation.  As we know, this may mean liability for back pay for some employers.

If you are interested in the full decision it can be found on the Employment Appeal Tribunal website.

If you have any questions or queries in relation to holiday pay, commision or any other element of employment law or HR, please contact our Employment & HR team on 01332 340 211.

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