HOLIDAY PAY SHOULD INCLUDE COMMISSION PAYMENTS
In the recent case of ZJR Lock v British Gas Trading Ltd and Others, the European Court of Justice decided what holiday pay should include in cases where a worker’s salary is made up of fixed and variable elements. In particular, whether holiday pay should include basic salary only or commission and basic salary.
Mr Lock was an energy sales consultant for British Gas and was employed to sell energy products to business customers. He received a basic salary and commission on sales. The commission payments fluctuated from month to month but always included some element of commission.
In making its decision, the Court looked at the key questions surrounding the purpose of holiday pay:
- It is a fundamental right in European law that all employees are entitled to take holiday pay;
- Pay is a key element to this right as it will allow the employee to take holiday;
- The purpose of the payment is to put the employee in the same position as other workers when taking holiday;
- Holiday pay should include any sum which is intrinsic to the worker’s performance provided the payments have a degree of permanence; and
- The variable pay of the payment must be averaged out over a reference period to determine the appropriate amount to pay the employee.
The Court decided that a sum representing the commission should be paid to the employee for the period in which he took holiday. Whilst the commission payments that were made to him fluctuated, the payments related to the tasks he performed under his contract and there was a degree of permanence. Failure to require employers to do so would prevent employees from taking holiday, which is contrary to European law.
When considering what the relevant reference period should be to calculate the payment, the Court considered that a 12 month reference period was appropriate.
As a result of this case, employers should ensure that they review the holiday payments paid to employees who habitually receive commission or similar payments.
For further information, please contact the Employment Team.
The Employment Team
Gabb and Co