Calculation of holiday pay based on commission and overtime may have to change

There could soon be a need for employers to look very carefully at how they calculate holiday pay in the light of a landmark decision from the European Court. The case before them concerned a Mr. Lock, a gas sales consultant and had been referred to Europe by the UK’s Employment Appeal Tribunal (EAT).



Mr. Lock’s pay was made up of basic salary plus commission calculated on the basis of completed sales.  The commission was generally paid some weeks after the conclusion of the sale, but usually represented over 60% of his normal monthly earnings.

During holiday periods he was paid in the same way as when he was at work: his basic salary plus any commission due from sales completed previously.  He took three weeks' annual leave over Christmas/New Year; during this time he received past commission but did not earn any commission as he was not making any sales and, as a result, his salary in the months following was reduced.  
He then decided to ask for a "top-up" to reflect losses of commission payments in the future, in the form of a claim for unpaid holiday pay.  The UK's Working Time regulations do not make it clear precisely what must be included in holiday pay so EAT referred Mr. Lock’s claim to the European Court.

They have just decided that the approach taken by the employer was not in line with the European Working Time Directive.  They ruled, Workers must retain their normal remuneration during a period of holiday; if they are at a financial disadvantage as a result of taking holiday, they might be deterred from taking it, particularly where (as in this case) commission represented a substantial proportion of earnings.
The Court said firmly that this principle applies to any payments "linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment".  In addition to commission, the Court said that allowances for seniority, length of service and professional qualifications should also be maintained, but other elements "intended exclusively to cover occasional or ancillary costs" do not have to be taken into account.

Mr. Lock’s case now goes back to a UK employment tribunal who will have to assess how the commission element of holiday pay should be calculated; the preliminary guidance issued with the European ruling says that the employee should get holiday pay which includes basic pay, commission actually payable during that period and a proportion of commission (averaged over a period of, say, 12 months) to reflect what Mr. Lock would have earned had he been working rather than on leave.

Experts say that the Lock cases creates considerable uncertainty as to how to calculate the holiday pay entitlement of employees rewarded on any sort of performance basis.  The principle in Mr.  Lock’s case clearly applies to commission and almost certainly overtime, performance bonuses and standby/call-out payments.  Even allowances might be caught if they are a form of bonus rather than for travel or subsistence.  A particular concern is the possibility of back-dated claims, going back as far as 1998 when the Working Time Regulations were introduced in this country. 
#business #management #entrepreneur #ceo #hr #humanresources

Comments

Popular posts from this blog

Employee Rep Training - Great Feedback

Working with Volunteers - 10 Tips for Success

Using Social Media at Work - Staff rights and responsibilities