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Holiday pay includes commission

You might remember in a previous newsletter we advised you, following the recent decision in Bear Scotland, that when calculating holiday pay you must now take into account overtime payments. Well, the Employment Tribunal in the case of Lock v British Gas has now handed down its long-awaited decision as to whether or not commission payments should also be included in holiday pay. Perhaps not surprisingly, the answer is yes.

The case involved Mr Lock who was employed by British Gas. He earned a basic salary with variable commission, which was dependant on the outcome of his work, i.e. achieved sales rather than an amount of time spent working. He took annual leave between December 2011 and January 2012 and subsequently brought a claim for his ‘lost’ holiday pay. Mr Lock argued that by taking annual leave he could not earn commission and was worse off financially than if he had been working. After the ECJ remitted the case back to the Employment Tribunal, the case was ultimately decided in Mr Lock’s favour.

Both the Bear Scotland and Lock cases suggest that we are drifting further away from a traditional approach to calculating holiday pay, in that it no longer consists of basic pay only. No doubt this will impact on future holiday pay entitlement;although in respect of any backdated claims it is arguable that employees will not be able to bring claims in respect of holiday payments received more than 3 months ago and there is also the safety net for employers that claims will be capped at a maximum of two years arrears with effect from 1st July 2015. This might be a bit of a headache for businesses and you should take advice to ensure your employees are not underpaid when taking annual leave in the future.