The European Court of Justice (ECJ) has considered whether commission payments should be taken into account when calculating holiday pay in the recent case of Lock v British Gas Trading Limited (C-539/12).
The ECJ has ruled that where a worker is paid commission based on sales they make, their holiday pay must include both (i) their basic salary; and (ii) the average commission, calculated over an appropriate reference period, the employee would have received if they were working. The case has now been remitted to a UK Employment Tribunal to determine whether the UK Working Time Regulations can be interpreted in a way which is consistent with the ECJ's decision and if so, what the "appropriate reference period" would be for calculating the commission element. There are also two other cases currently in the UK courts on a related issue, namely whether holiday pay should include overtime payments the worker would otherwise normally receive (Neil v Freightliner and Fulton v Bear Scotland Limited), and a judgment is expected on these cases in the next couple of months.
Although the position is not fully settled, it seems likely that there will be significant changes ahead for employers who currently provide holiday pay at basic salary rate to employees whose remuneration consists of both commission and basic salary. The impact may be even greater if employees are allowed to bring claims for arrears of pay too. For now, we would recommend waiting for the judgments rather than trying to second guess the outcome, but employers should be prepared to re-consider their policies quickly if necessary. We will of course keep you updated on developments.