Commission Payments Should be Included in Holiday Pay

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12 May 2015

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  Domestic case law on holiday pay is fast moving towards European rulings, says Wolters Kluwer’s HR experts, after another important decision on the calculation of holiday pay ruled that the Working Time Regulations should be read so as to provide that commission payments be included in the calculation of holiday pay. Last year, in the case of Lock v British Gas, the Court of Justice of the European Union ruled that workers must receive their normal remuneration during annual leave because the purpose of holiday pay is to ensure that they are paid during periods of holiday in a manner which is consistent with the way they are paid during periods of work. The commission received by Mr Lock was directly linked to his work and so formed a part of his normal remuneration. The case was referred back to the Leicester Employment Tribunal, which has now confirmed that the ruling applies domestically. However, the decision only applies to the minimum four weeks’ leave provided for under European law, not the additional 1.6 weeks’ leave provided for domestically by the Working Time Regulations. Commenting on the decision Andrew Willis, Croner Head of Litigation at Wolters Kluwer says: “This decision is consistent with the recent decision of the Employment Appeal Tribunal in the Fulton case. Although it may be subject to further appeal it is clear that domestic case law is fast moving towards the position adopted by recent European rulings, which is that payments for any tasks intrinsically linked to the performance of the worker’s contractual duties should be factored into the calculation of holiday pay. “However, employers will be pleased that the Fulton approach to the issue of back pay remains undisturbed by this ruling. That case decided that any tribunal action alleging an underpayment of holiday pay must normally be brought within three months, or within three months of the last deduction where a series of underpayments is alleged by an employee – and the EAT stated that any underpayments in such a series cannot be separated by more than three months. Although this point may be re-visited in the future, for now concerns about significant claims for back pay have been allayed. ”

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