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UK HR Ebriefing: Calculating holiday pay: commission payments

  • United Kingdom
  • Employment law - HR E-Brief


An Employment Tribunal has ruled that employers must take into account commission payments when calculating pay for the four week holiday entitlement under regulation 13 of the Working Time Regulations (WTR). The judgment does not, however, require commission to be taken into account when calculating pay in respect of the additional 1.6 weeks’ leave entitlement provided for by regulation 13A.

The decision, in the case of Lock v British Gas, follows a reference to the Court of Justice of the European Union (CJEU), where it was established that EU law, in the shape of the Working Time Directive, requires commission payments to be brought into account when calculating holiday pay (read more). The case then returned to the Employment Tribunal to decide whether this principle of EU law could be read across (‘purposively’) into the WTR (and linked provisions in the Employment Rights Act 1996): if not, claims against private sector employers could not succeed until the law is changed by the Government. In relation to overtime pay, the Employment Appeal Tribunal (EAT) has already ruled that EU law can be read across into our domestic legislation in the combined cases of Bear Scotland Ltd v Fulton and Baxter; Hertel (UK) Ltd v Wood; and Amec Group Ltd v Law (read more). However, the issues in relation to commission are somewhat different; hence the need for a separate hearing to determine the matter.

The Employment Tribunal has now ruled that UK domestic law can be interpreted so as to bring it into line with CJEU’s ruling and that, therefore, employers must bring commission payments into account when calculating holiday pay in respect of the four week entitlement under regulation 13 of the WTR. There will be further hearings in due course to deal with other issues, including how commission should be taken into account for the particular claimants in this case.

It is possible that today’s decision will be appealed. If that happens, it could well re-open the question of whether even overtime pay needs to be included in holiday pay calculations under the WTR. Therefore, employers who have not yet reached agreement with workers and/or unions may wish to wait to find out whether an appeal is to be pursued before acting to resolve outstanding matters. In the event of an appeal, it is possible that the EAT would decide to fast-track the case to enable it to progress to the Court of Appeal, and a definitive resolution, with the minimum of delay. Even if that happens, however, it could be 18 months or more before the lingering uncertainty is resolved.

Eversheds acts for British Gas in this litigation.

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