Decision on Holiday Pay and Commission Upheld

In 2014, an important decision was handed down in the Employment Appeals Tribunal relating to the calculation of statutory holiday pay. Under the Working Time Directive, which is an item of EU legislation, there are minimum periods of paid annual leave which must be given. However, there is no guidance on how holiday pay should be calculated.

The decision upheld in the Employment Appeals Tribunal in 2015 confirmed that commission which was fundamentally linked to the performance of the contract must be taken into account when calculating holiday pay. The practice of many employers prior to this decision was simply to pay the representative salary during annual leave, so the decision had significant implications for businesses who incentivise employees by way of bonus and commission.

This matter has come before the Court of Appeal and this Court has upheld the decision of the Employment Appeals Tribunal. It is therefore still the case going forwards that an average amount of commission earned has to be incorporated within holiday pay calculations. Interestingly, this does only apply to the first four weeks of leave which are taken in each holiday year, and there is now a maximum period of two years of arrears which can be claimed in the event of underpayment of holiday pay.

Finally, it should be noted that the unsuccessful employer in this case – British Gas – is likely to seek leave to appeal to the Supreme Court and an announcement is likely to be made on the progress of any such appeal in the coming months.

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