Holiday pay – but at what rate?

There has been continuous debate in the courts as to whether holiday pay should also include a proportion of commission an employee could have earned had they not been on annual leave.

In a recent case of British Gas v Lock, the European Court of Justice made a definitive stance in relation to this matter. The employee in question was on a performance based commission agreement which meant that if they were not at work they could not earn any commission. The employee was only paid their basic pay when they took holiday and therefore in effect, lost money by having a holiday.

The case was referred to the ECJ to ask them for clarification as to how holiday pay should be calculated as per the Working Time Directive. The ECJ responded that commission should form part of the employees annual leave as it is part of their ‘normal remuneration for that period of rest’. The ECJ stated that;

‘The purpose of providing payment for that leave is to put the worker, during such leave, in a position which is, as regards his salary, comparable to periods of work’

Therefore the ECJ left the Members States to implement and calculate this as they felt best.  The UK use a 12 week ‘pay reference period’ which appears to remain the most acceptable calculation method. As such the average of the previous 12 weeks commission should be calculated into a weekly rate and this should be paid to the employee along with their basic wage when on holiday.




 

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Published: 21 Jul 2014

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