Should your organisation be including commission payment within holiday pay NOW to comply with Employment law?

This has been an ongoing issue for many months and it is not surprising that many employers are unsure whether or not they should include commission when calculating holiday pay now.

In the previous newsletters, we have kept you up to date with the case of Lock and Ors v British Gas Trading Limited, where the ECJ held that commission payments must be taken in to account when calculating holiday pay under the EU Working Time Directive. The case then returned to the Employment Tribunal to determine whether the UK Working Time Regulations 1998 can be interpreted to give effect to the EU law. The Tribunal handed its decision in March 2015 and it determined that the WTR can be interpreted to give effect to EU law and included new words at regulation 16 (3) of the WTR as follows:

“(e) 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.”

So, if you are paying commission,  that commission should be treated as remuneration when calculating a “week’s pay” by reference to the average hourly rate of remuneration payable over the 12 week reference period set out in s.221 WTR.

What is a week’s pay under employment law?

A week’s pay is the weekly average of all sums earned by the employee in the previous 12 weeks.

Look out for our step to step flow chart to help you calculate a week’s pay, in our forthcoming newsletter.

For now…. employers who are not yet including commission within holiday pay, this matter should be addressed without delay. Otherwise they will be making underpayments for holiday for which workers can claim in the Employment Tribunal.

For those employers who are already including commission within holiday pay it will be important to check that the method of calculation adopted is appropriate. Look at implementing a sophisticated system that can assist you with this.

It must be noted that only the 4 weeks of holiday provided for by the European Working Time Directive needs to reflect this element of remuneration.

It is also important for employers to note that the risk of back dated claims has been reduced considerably. Since 1 July 2015, there is a 2 year cap on unlawful deduction from wages claims.