InsightsInsight - Employment & HR - POSTED: March 31 2015
Holiday pay should include commission
There has been much publicity following the recent ruling by the Employment Appeals Tribunal that holiday pay must include pay based on overtime which an employee is required to work.
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There has been much publicity following the recent ruling by the Employment Appeals Tribunal that holiday pay must include pay based on overtime which an employee is required to work. However, in a case with possible wider relevance, an Employment Tribunal has now found that the same principle applies to commission paid to salesmen such that if a salesman regularly receives a substantial part of his or her income as commission, then their holiday pay must be paid at the level of their usual pay, including that commission and not simply at the level of their basic salary.
Also if commission is paid “after the event” (so that a salesman receives commission for work done previously whilst he is on holiday but will, after returning, receive less pay due to not having earned any commission whilst on holiday) they should receive an extra payment (“holiday commission”) to compensate them for the commission they could not earn. This ruling has been made following a reference to the European Court of Justice, the ECJ holding that commission payments do have to be taken in to account when calculating holiday pay under the EU Working Time Directive.
As stated this may be of wider concern than the overtime pay decision as the frequency of commission payments and their level, relative to base salary may be significantly different to overtime claims. It may be that employers will have to rethink the level of commission payable to their workforce given that this ruling is likely to enhance that commission by close to 10%.
A crumb of comfort for employers is the fact that this only applies to holiday required to be provided to employees under the Working Time Directive – that is the first 20 days holiday of each year. However, the practicalities of differentiating between different types of holiday may be more trouble than it is worth.
As with the overtime cases it is likely that a period of three months between holiday for which commission is payable will be sufficient to make any claims for historic commission out of time. Therefore, if any historic claims are brought, a careful study of when that holiday has been taken will be required.
The initial publicity around this case has been less than the overtime case and therefore there may not be such an immediate rush of claims. However, employers are advised to prepare themselves for claims of this type from employees who are paid commission.
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