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The cost of holiday pay

Employers should brace themselves for claims for unpaid holiday pay from employees who earn commission.  In addition, the cost of holiday pay is going to go up for many employers.

The Court of Justice of the European Union (CJEU) has decided in the case of Lock v British Gas Trading Ltd that employers must take commission payments into account when calculating holiday pay.

The case

Mr Lock is employed by British Gas as an Energy Sales Consultant and paid both basic salary and commission.  He was on holiday in December 2011 and January 2012 during which time he could not generate commission.  This had an adverse impact on his subsequent pay packet.

The decision

The CJEU decided that Mr Lock suffered a financial disadvantage as a result of him taking annual leave and that this might deter employees from actually taking that leave.  They went on to find that Mr Lock’s commission was intrinsically linked to his work with the company and should be included in the calculation of his holiday pay.

The CJEU decided to leave the UK courts to rule on how the actual pay due to employees should be calculated.

The implications for employers

  • This decision will lead to an increase in the cost of holiday pay for many employers!
  • Employers should take commission (and very likely any other payments intrinsically linked to the tasks which the employee is required to carry out) into consideration when calculating holiday pay.
  • Employers should carry out an audit to ascertain the cost of adjusting holiday pay to include commission but also the cost of potential claims from employees for historic back payments.
  • Employers should also review their employment contracts to ensure the calculation of holiday pay is clear and up to date.

Posted on June 20, 2014

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