Workers in the UK are entitled to a minimum of four weeks’ annual leave under EU law as well as the UK’s eight bank holidays. For the majority, the formula is simple. The worker is entitled their normal salary during annual leave, but for those who work on a commission basis, there can be some confusion about what should be included.

Commission pay on annual leave

Historically speaking, where a worker received a basic salary with commission payments on top, it was only the basic salary that had to be paid to the worker during any period of annual leave. However, a recent case involving British Gas Trading Limited held that commission payments should be taken into account.

Mr Lock, a sales consultant for British Gas, earned 60 per cent of his total pay because of commission. Subsequently, when taking annual leave, the affect this had on his pay was significant.

The ‘lost holiday pay’ claim brought forward by Mr Lock was referred to the Court of Justice of the European Union (CJEU) by the employment tribunal. The CJEU ruled that Mr Lock’s commission pay was permanent enough for it to be regarded as part of his normal monthly pay.

The CJEU left it to the UK to decide on how Mr Lock’s holiday pay should be calculated to include his commission payments. On return, the employment tribunal held that in order to be consistent with the Working Time Directive, it must be interpreted as if it included the following paragraph:

“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 section 221”.

How it affects employers

When employing on a commission basis, employers need to review the way in which they calculate holiday pay. Considerations must be made into how best to factor commissions and variable payments into holiday pay. Averaging their own personal commission-based pay over the past 12 weeks is a common way of doing so.

Specialist employment lawyers

With summer approaching, many of us will be taking annual leave. If you are concerned that your holiday pay does not accurately represent your remuneration, and because of this you feel discouraged to take holiday, contact our specialist recruitment team.

For further advice use the telephone numbers below: