New Rules: Holiday Pay to Include Commission

The Court of Justice of the European Union (CJEU) has declared that holiday pay should now take into account commission when being calculated. This means that any employees who receive commission will now require this to be reflected in their pay, even if they have been on holiday during the pay period.

The ruling has been made following the Lock v British Gas Trading limited case and several other tribunal cases. Upon hearing of the new ruling, not only did I fear for my SME clients, but also for the larger organisations that I look after, which employ substantial sales teams. Not only is this going to be extremely costly for these businesses, but the administration work is going to be a nightmare.

No clear guidelines have been issued; therefore, it may be left to the organisation to decide how they will calculate holiday pay for their individual employees. I just can’t help wondering how this is going to be achieved fairly. This is because, if an organisation experiences sales peaks, will employees who go on holiday during or after these peaks receive more commission in their holiday pay? If so, what will happen if someone goes away during a quiet period? They have contributed to the sales during the peak season, but due to the timing of the holiday will receive a smaller remuneration package. There does not seem to be a clear answer. Yet all sectors that use a commission structure are going to be affected. The sector I fear most for is recruitment. This is because the majority of their employees pay is based on commission, and many businesses within this sector are SMEs that do not have contingencies in place for the cost and additional work this new ruling will bring. Also, if the UK court agrees, and employees can back date their holiday pay to 1998, I’m not sure how many of these businesses will survive.

At this time, it is too early to predict how employers will react. Will they lower the rate of commission they currently pay? Will they decrease head counts to accommodate for the increase? Or, will they simply scrap commission all together and only pay their employees a basic salary, regardless of sales? Holiday pay in the UK has always been calculated at the rate of a week’s pay for each week of leave. This excluded any overtime, commission, expenses etc. This new ruling will change employee’s expectations, and it will be up to the employers to try and accommodate for this. It is also expected to not stop here. The Employment Appeal Tribunal will soon be considering whether the same rules should apply to overtime. Currently, when employees are on holiday they lose out on overtime payments, but this could soon all change.

The UK courts are yet to decide how this ruling will be applied to businesses in the UK, so watch this space!