Does holiday pay have to include commission?

Posted by Mike Wilson on
Last year an Employment Tribunal followed the ruling in British Airways v Williams, holding that voluntary overtime should be included in the calculation of a worker's holiday pay.

The case is not yet binding but a recent Opinion from the European Court of Justice (ECJ) has now suggested that holiday pay should be based on average income including any commission.

This Opinion of an 'Advocate-General' of the ECJ conflicts with a 2002 decision of the Court of Appeal which ruled that, where the employee's pay did not vary with the amount of work done (e.g. where payment of commission was not based on the time spent but on the success or otherwise of his work), commission did not have to be included in the calculation of holiday pay under the Working Time Regulations 1998 (WTR).

Although the ECJ does not have to follow such preliminary Opinions, it usually does so.

The Advocate-General noted the previous ruling of the ECJ in the Williams case, that workers must receive "normal remuneration" for periods of annual leave. He concluded that commission which is directly linked to the work normally carried out by the individual under his contract of employment should be included in the calculation of holiday pay.

This is so even where the amount may fluctuate from month to month, as long as it is permanent enough to be regarded as part of "normal remuneration". Otherwise a worker might be deterred from taking annual leave as a result of the drop in income from that period.

The Advocate-General rejected an argument that the level of commission already took account of the fact that workers could not generate commission during holiday.

This would be similar to the idea of 'rolled-up holiday pay' which is unlawful under EU law.

The Advocate-General concluded that it would be for national courts to determine what methods are appropriate to calculate the commission due, but suggested that taking average commission over a period of 12 months would be one solution.

This is very different to the 12 weeks reference period used under the WTR where there are no normal hours of work or where pay varies with the amount of work done.

If in due course the Opinion is followed by the ECJ, it will mean that the distinction between pay/commission which varies with the amount of work done, and pay/commission which varies with the outcome or success of the work done, may no longer be correct for the purposes of calculating holiday pay in the UK.

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Mike specialises in all aspects of employment law, including restrictive covenants, commercial agents regulations and disqualification of directors.

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