News and Updates

Holiday pay: the saga continues

In our previous article on holiday pay (which can be found here) we discussed the joined cases of Bear Scotland Ltd v Fulton and others; Hertel (UK) Ltd v Woods and others; and AMEC Group Ltd v Law and others (judgment given on 4 November 2014) and their effect on the way holiday pay should be calculated.

The EAT ruled that workers should be paid ‘normal remuneration’ for their minimum entitlement of 4 working weeks provided for by the Working Time Directive (“the 4 Week Entitlement”). A payment forms part of a worker’s ‘normal remuneration’ if there is an intrinsic or direct link between the payment and the work a worker is required to carry out.

Whilst Bear Scotland dealt specifically with overtime, it was held in the recent case of Lock v British Gas Trading Ltd and another that the same principle may be applied in respect of commission payments.

The employment tribunal had referred the case to the ECJ, to determine whether the Working Time Directive (“WTD”) required commission payments to be included in holiday pay (this was mentioned in one of our previous articles which can be found here).

The ECJ declared that where a worker’s remuneration included commission determined by reference to sales achieved, domestic law should be read in light of the WTD to include such payments. Mr Lock’s commission payments were directly (and intrinsically) linked to the performance of the tasks he was required to carry out, therefore they must be taken into account when calculating his statutory pay. To not do so would cause a financial disadvantage to Mr Lock, as he would not be able to generate commission whilst on holiday. Consequently, he would be deterred from exercising his right to holiday under the WTD.

The case was remitted back to the employment tribunal, who decided that there was no difference in principle between payment for non-guaranteed overtime as in Bear Scotland and payment in respect of commission so far as the calculation of holiday pay is concerned. Secondly, for workers who are paid commission based on performance rather than time worked, domestic law should be interpreted so that their ‘normal remuneration’ includes commission and similar payments. This ensures that they do not suffer any financial disadvantage when taking holiday.

Although the employment tribunal stated that the case did not concern other forms of remuneration, it is likely that in future the same principle will be applied to payments such as incentive bonuses and bonuses based on productivity or performance, shift allowances and premiums, standby payments etc. Therefore, employers who provide more than basic salary to employees or other workers should reassess how they calculate holiday pay for the 4 Week Entitlement to avoid underpaying individuals and, consequently, potential claims.

For further information on the issues raised in this article, please contact a member of the Spencer Wyatt team on 020 7925 8080 or by email at info@spencer-wyatt.com

+44 (0)20 7925 8080 info@spencer-wyatt.com