COVID-19: Just when you thought furlough & commission was all clarified…

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Does discretionary mean that an employer doesn’t have to pay it?

Author: Nona Bowkis
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This article is 2 years old.

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To recap. Furlough was announced. Initial HMRC guidance said no commission. It was then changed to compulsory commission which led to a whole debate about what is compulsory.

HMRC then confirmed to us that compulsory included contractual and so commission then became payable which made it more straightforward for most of our clients who create their employment contracts using our simple to use HR Manager resource.

However, it transpired that others in the industry issue contracts to their sales team with the word ‘discretionary’ in regard to commission payments. This clearly threw an unexpected spanner in the works as HMRC specifically states that discretionary commission payments are excluded from furlough. 

We then had to unpick this, considering what discretionary really means, and what is the point of having it in the contract. Does discretionary mean that an employer doesn’t have to pay it? No. It can’t mean that as otherwise an employer could simply turn round one month and say ‘well, yes you had a good month but Daniel Levy has put the price of my season ticket up and so I am going to keep your commission and use it to fund that’

Clearly that is absurd (not the Daniel Levy bit) and will almost certainly land the employer in an Employment Tribunal. If it isn’t at the employer’s discretion whether to pay it, then it isn’t discretionary and therefore it is compulsory and so payable.

This does leave the loose end about why the word discretionary is in a contract at all. We think the more appropriate word is ‘conditional’ quite simply because any commission is conditional on targets being met etc. In that case, what those contracts should perhaps say is that the employee will be paid £x basic plus any commission which falls due under any particular commission scheme which will be set and varied by the company at any time – companies can then create a separate document with the details.

And finally, before we leave furlough and commission completely, it appears some want to process claims for commission earning employees based on the furlough rules for ‘fixed pay’ employees. However, quite clearly, if someone is on commission, their regular pay will vary and so we advise those payments should be calculated on the ‘employees whose pay varies’ rule’. 

Hopefully this puts an end to the commission/furlough saga but if any members need help either now or in the future if HMRC query their calculations, we are here to help. We would also advise that employers take this opportunity to check if their contracts are up to date and fit for purpose (our members can of course do this using our compliance software HR Manager). 

HR Manager is FREE to Lawgistics Small Business and Professional Members. If you have not yet requested an account call 01480 455500 today.

Nona Bowkis

Legal Advisor

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