In the holiday spirit…

It’s that time of the year again. Mince pies, mistletoe, Christmas pudding and holiday pay. No, that wasn’t a typo: we really do mean holiday pay.

Which raises the eternal question – what on earth are we on about now? Well, we all know holiday pay is something every worker is entitled to, and that it’s calculated according to/based on your salary. But that’s the thing, you see – it’s not always that straightforward. Particularly if your salary includes, say, commission payments.

At the moment, such payments must be taken into account when calculating holiday pay. Which begs the question, why bother talking about this? More specifically, why now?

A little background

Long, long ago (May 2014), a British Gas employee brought a claim to the Employment Tribunal regarding the way in which his holiday pay had been calculated.

Lock (the employee) was a sales consultant and received commission for every customer he brought over to British Gas. The majority of his salary (approximately 60%) consisted of commission payments, with his base pay making up the remainder. Lock would be paid commission for a successful sale some time after the sale in question actually occurred, so there would be a delay between making the sale and receiving the respective commission payment.

At the end of 2011, he took paid annual leave. As a result, his total take home pay for the subsequent months was less than he usually received (because he wasn’t working during his annual leave and so didn’t make any sales for which he could be paid commission).

Lock consequently claimed that the amount of holiday pay he’d received was less than he was actually entitled to. In other words, he argued that the holiday pay he received in respect of his annual leave should reflect his total take home pay (including his commission payments), as opposed to only his base salary.

The Employment Tribunal referred the case to the Court of Justice of the European Union (the ECJ – the highest court in the European Union), asking:

  • whether the commission a worker would have earned if they had worked during their annual leave should be included when working out their holiday pay; and
  • if that was the case, how that holiday pay should be calculated.

And what did the ECJ say?

The ECJ held that the financial disadvantage suffered by Lock in the months following his annual leave was considerable enough to deter him from taking annual leave in the future. And where a worker’s role is such that commission payments form a significant proportion of their take home pay (as was the case with Lock), the chances of this occurring are even greater. The ECJ pointed out that this ran contrary to the objective of the Working Time Directive, under which workers have the right to 5.6 paid weeks’ annual leave.

It therefore held that, in such a situation, commission payments should be taken into account when calculating holiday pay. After all, the ECJ highlighted, the point of annual leave is to place the worker in a position during periods of rest that is comparable (salary-wise) to that during periods of work.

As for the ‘how’, the ECJ stated that where a worker’s remuneration was made up of several different parts (such as base pay and commission payments), then a specific analysis would need to be carried out in order to determine the worker’s exact holiday pay entitlement.

And because there was an ‘intrinsic link’ between Lock’s commission payments and the work he carried out in the course of his employment with British Gas, those commission payments must be taken into account when calculating his holiday pay.

So the case went back to the Employment Tribunal, who finished the case with a finding in favour of Lock. And that’s the end of that, then. Except that it’s not, and here’s where you find out why we’re talking about this now.

Why now?

Somewhat unsurprisingly, British Gas appealed the Employment Tribunal’s decision. Yes, we know, wonders will never cease.

The EAT (the Employment Appeal Tribunal) heard the appeal just last week. We’ve still a little longer to wait for a judgement – it’s expected early next year – but recent case law shows a trend towards a more inclusive approach to calculating holiday pay. So the EAT’s decision may well reflect that.

What does this mean?

The EAT’s decision, whatever it is, will likely mean different things for different people. The level of remuneration, and the approach taken to it, varies between roles and employers. But whether you’re an employee or employer, it’s certainly worth noting that the rules regarding how holiday pay is worked out may well change in the near future.

And because it’s tricky to say much else without knowing more about the EAT’s decision, we’re afraid it’s yet another case of… watching this space.

More on holiday pay

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