Payment of Commission as part of holiday pay

An Employment Tribunal on Wednesday 25 March 2015 decided that English Law must be brought into line with the decision from the European Court of Justice and ensure commission payments are included in holiday pay calculations when an employees’ total pay usually includes an element of commission.

Up until this decision it had been normal practice to exclude commission when working out holiday pay rates for employees.  Unfortunately there is very little detail from this decision as to how an employer should calculate the commission to include in holiday pay.  This also follows a decision in late 2014 which ruled employers had to include certain elements (including guaranteed overtime) in their holiday pay calculations.

There are still a number of questions which remain unanswered in relation to commission and holiday pay including:

What is the correct reference period to be included for calculating holiday pay if an employee receives commission?

It is unclear whether all commission schemes are affected. For instance, if a commission scheme includes annual targets and an employer has already taken into account the fact that employees will be taking holidays when setting targets.

It could well be the case that employers may decide to wait and see whether an appeal against yesterday’s decision is to be pursued or wait for further clarification on these matters before deciding how best to approach this matter.

Clearly this decision will also impact on future holiday pay entitlement unless there is a good case for arguing that the current commission scheme already compensates for holidays.

Any back claims regarding holiday pay and commission with effect from 1 July 2015 will be restricted to a maximum 2 year claim period but this only includes those claims which are issued on, or after, 1 July 2015.

Therefore taking into account the possibility of an appeal, and the fact that clarification still needs to be received on the aforementioned issues, employers may decide to and wait to see how these issues develop before making any definite decision regarding backdated payments in relation to holiday pay and commission.

If you have further queries about this matter please contact Nick Smith, Partner and Head of Employment at Mincoffs Solicitors on 0191 212 7739 or email nsmith@mincoffs.co.uk