Commission to be included in holiday pay and why it’s ridiculous

This week, a key decision regarding holiday pay was made by the Employment Appeal Tribunal in the Lock v British Gas case.

The decision ruled that average results-based commission payments must now also be included when calculating holiday pay. This judgement echoed a number of recent legislative changes relating the inclusion of overtime into holiday pay.

This ruling is particularly important because it indirectly sets a precedence that all ‘normal remuneration’ should be incorporated into the calculation of holiday pay. The term ‘normal remuneration’ has not yet been defined, but ACAS have suggested that Employer’s take a common sense approach and consider the following factors:

• Guaranteed overtime (whereby the Employer is contractually obliged to offer and pay for agreed overtime);
• Non-guaranteed overtime (where although there is no obligation for the Employer to offer overtime, the Employee is obliged to work it);
• Commission; and
• Work-related travel.

There has not yet been any definitive case law to suggest that voluntary overtime needs to be taken into account.

An average of the above factors, including normal base salary, should be made across the 12 weeks immediately preceding the holiday period and this should form the payment due to an Employee during their annual leave.

The one saving grace is that this ruling only applies to the mandatory 4-week holiday entitlement specified in the European Working Time Directive; it does not apply to the additional 1.6 weeks given to workers in the UK to account for bank holidays. Although supposedly a saving grace, this could actually make this process even more complicated to manage.

My viewpoint on this is very clear – when an individual is on holiday they cannot earn overtime or commission or carry out work-related travel. As such, why should their holiday pay account for these factors? It all seems overly complicated, unnecessary and the result of greed – the claimants took their jobs in the knowledge that these factors were ‘additional payments’ and as far as I’m concerned, should have accounted for a lower salary whilst on holiday.

We should be encouraging Employer’s to engage more staff rather than adding to the true costs of employment and preventing businesses (particularly SMEs) from being able to do just this. Whilst some Employees will reap the immediate benefits of this ruling, Employers (and consequently all other Employees) will suffer, as the added true cost of employing someone may prevent future business growth/exciting initiatives being brought into the workplace.