Employment e-Flash - Should holiday pay include commission?

23rd May 2014

The issue of whether the Working Time Directive requires a worker's statutory holiday pay to include commission has been ruled upon by the European Court of Justice (ECJ). The previous position in this respect was unclear and we have been waiting for the decision from the ECJ to clarify the situation.
The ECJ have confirmed that yes, when calculating statutory holiday pay, the UK (along with other member states) must ensure that a worker who is taking such leave is paid commission payments that they would have earned if at work.
The case which was referred to the ECJ to decide this matter related to a salesman who received a basic salary with variable commission. The individual could not earn the variable commission during periods of leave and therefore he lost income when taking holiday. He brought a claim for the outstanding holiday pay.
Although the ECJ decided that that commission payments should be taken into account when calculating statutory holiday pay, it has not provided a set formula or guidance on how to calculate the commission and has instead left this to national courts to decide.
The key point that the ECJ was trying to achieve when making their decision was to ensure that an employee receives pay that is comparable to their 'normal pay' whilst taking leave, as otherwise workers may be deterred from taking that leave.
For employers, we would recommend that they urgently review their holiday pay provisions in their contracts of employment and also how they are calculating holiday payments on a day-to-day basis. Given the ECJ's decision, it would be prudent to ensure that commission and other relevant variable payments are now factored into statutory holiday pay to prevent against the risk of claims. Given that there is no clear guidance on how this should be calculated, it may be that a using an average of relevant variable payments would be appropriate in the meantime.
Employers may also wish to review their overtime arrangements to assess whether workers receiving overtime consistently or with any guarantee could also argue that such payments should be taken into account when calculating statutory holiday pay. A case in the UK courts (Neal v Freightliner) has held that voluntary overtime should be taken into account when calculating holiday pay where the work is "intrinsically linked to the performance of the tasks" that a worker is required to carry out under their contracts. However, this decision is being appealed and a decision is expected in July 2014, so until that point, the position is still not certain. 
For more information on employment related matters, please contact the employment team on 0845 111 5050.


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