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How to calculate holiday pay and when your employee is on basic pay plus commission.

British Gas Trading Limited v Lock ([2016] EWCA Civ 983)

The recent Court of Appeal decision in this case has provided employers and employees alike with clarification on what remuneration is due to the employee when taking holiday within the statutory requirement.

According to Article 7 of the Working Time Directive (2003/88/EC) (‘WTD’) an employee is entitled to 20 days’ paid holiday when working full time and this is to be calculated pro-rata for those working part time.  

The decision in the Lock case, was made on the facts that Mr Lock was paid a basic salary which was much less than the commission he earned. When Mr Lock went on annual leave in 2011/2012, he received his basic salary but nothing to reflect the loss of opportunity to earn commission. Mr Lock took the matter to the employment tribunal arguing that an unlawful deduction had been made as holiday pay should have been calculated so as to include the commission element of the scheme he had been a part of. This would then reflect his normal remuneration.

A question of whether commission is to be included in the calculation of an employee’s holiday pay was raised by the employment tribunal to the European Court of Justice (‘ECJ’). The ECJ following a decision made in a previous case, British Airways plc v Williams held that commission should be included in such calculations.

The employment tribunal followed the direction of the ECJ’s decision. The tribunal confirmed that it was acceptable to imply words into Article 7 of the WTD. The effect of this was that holiday pay for an employee whose remuneration generally includes commission or similar payment should have their holiday pay calculated on the basis of an average hourly rate of pay calculated over the 12 weeks before the holiday is taken.

On British Gas’ appeal on the decision by the employment tribunal, the Court of Appeal upheld the decision. The Court of Appeal decided that holiday pay must clearly reflect normal remuneration and to interpret and read the WTR as the employment tribunal had proposed did not go against Parliament’s intentions when it enacted WTR.

Top Tip: Employers should check if they have any employees earning commission and assess whether and how much this should be taken into account in deciding holiday pay for the employee concerned.

For advice on employment matters please contact Andinee Perry a solicitor in our employment team.