Commission payments should be included in holiday pay, according to Leicester ET
When Lock v British Gas  ICR 813 was considered by the Court of Justice of the European Union (“CJEU”) the principle behind the calculation of holiday pay appeared clear:
“The purpose of providing payment for that leave is to put the worker, during such leave, in a position which is, as regards his salary, comparable to periods of work”
This meant that Mr Lock’s holiday pay should take account of what he would normally earn through commission. This amounted to approximately 60% of his pay.
As is often the case, it is the practical application of that principle which has caused difficulty.
In Bear Scotland v Fulton  ICR221, the Employment Appeal Tribunal recognised that the Working Time Regulations 1998 (“the Regulations”) in certain respects do not conform to the EU Working Time Directive (2003/88/EC). It found that the Directive required regular overtime to be considered in the calculation of holiday pay. The Regulations had to be applied consistently with the Directive and they were therefore subjected to some judicial re-drafting to achieve that.
Lock has now returned to the Leicester Employment Tribunal after its European holiday. The question was whether that same process of judicial re-drafting could be applied to include sales commission in the calculation of holiday pay under the Regulations. In a Reserved Judgment handed down on 25 March 2015, the Employment Judge had little difficulty concluding that there was no reason to take a different approach.
Taking his red pen to Regulation 16(3), which modifies the effect of sections 221 to 224 of the Employment Rights Act 1996 when calculating a week’s pay for these purposes, the Employment Judge decided to add a new Regulation 16(3)(e) stating:
‘...as if, in the case of the entitlement under regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of s.221.’
This gives effect to the Judgment of the CJEU and reinforces the obligation on employers to include commission in their holiday pay calculations.
What this decision does not answer however is:
- Where a commission scheme is deliberately structured to compensate employees for annual leave is there still a requirement to include commission in the holiday pay calculations under the Regulations?
- If regard must be had to commission normally received when calculating holiday pay, what is the correct reference period for calculating the average commission to be included in a week’s pay?
The Tribunal stated that those points will be considered at a later date.