Holiday pay should be calculated to include commission, according to Advocate General Bot of the Court of Justice of the European Union (CJEU).
The case, Lock v British Gas Trading Ltd and ors Case C – 539/12, concerns Lock, a sales consultant for British Gas, who receives commission on a monthly basis. The amount of commission varies depending on the number and type of sales he achieves, paid at the time the sales contract is entered into, not when Lock actually carries out the work.
Lock took holiday from 19 December 2011 to 3 January 2012, during which time he was paid basic pay and the commission he had earned in the previous weeks. However, as he did no work during his holiday, he did not generate any commission and therefore his salary was lower in the following months. Lock brought a claim for outstanding holiday pay in the Employment Tribunal.
The case was referred to the CJEU. Advocate General Bot stated that the holiday pay required under the Working Holiday Directive is to enable an employee to actually take the leave to which he or she is entitled, and that commission such as that received by Lock should be included in the calculation of holiday pay, because it is directly linked to the work he normally carries out.
Although the amount of Lock’s commission varies on a monthly basis, it is nevertheless permanent enough to be regarded as part of his normal monthly pay. The Advocate General also expressed concern that a failure to include commission in the calculation of holiday pay could deter Lock from taking holiday.
The CJEU has said it is for the Employment Tribunal hearing the case to determine the mechanism for calculating the amount of commission to include.
If the CJEU follows the opinion of the Advocate General, employees who are paid wholly or partly by commission will be entitled to have this reflected in their holiday pay, at least in respect of the four weeks leave entitlement provided for under the directive.
Under Regulation 16 of the Working Time Regulations 1998 (WTR), an employee is entitled to be paid during statutory annual leave at a rate of a week’s pay for each week of leave, calculated in accordance with sections 221 to 224 of the Employment Rights Act 1996.
If the employee has normal working hours but their pay varies, they are entitled to holiday pay based on their average pay during those normal working hours over the previous 12 working weeks.