Perhaps not unsurprisingly, following the combined cases heard in the Employment Appeal Tribunal last November (Bear Scotland Ltd v Fulton) and the previous European Court of Justice ruling in this particular case, the Employment Tribunal has ruled that where a worker works fixed hours but earns variable pay such as commission, this variable pay must be included when calculating holiday pay.
Mr Lock earned 60% of his earnings as commission; however, his holiday pay only took into account his basic salary and not any previously earned commission pay. Mr Lock argued that this was unfair and brought a claim in the Employment Tribunal. The Employment Tribunal asked the European Court of Justice (ECJ) whether the Working Time Regulations 1998 interpreted the European Working Time Directive correctly as to how holiday pay was calculated where a worker worked fixed hours but earned variable pay. Applying its earlier decisions, the ECJ found that holiday pay for Mr Lock should not be based solely on his basic pay, but should take into account the commission he earned prior to going on holiday. Following this decision, the case returned to the Employment Tribunal.
The Employment Tribunal, applying the ECJ’s decision in the context of our domestic legislation, has rewritten part of the Working Time Regulations 1998 which provides for paid holiday. The Tribunal held that where a worker has normal working hours, and they receive commission pay – or a similar payment - then that will be deemed to be part of their remuneration which should be taken into account when calculating holiday pay in respect of the 4 weeks basic European holiday.
What does it mean for employers?
As with the cases last year concerning holiday pay and non-guaranteed over time (Bear Scotland Ltd v Fulton), this will again require employers to look closely at how they calculate holiday pay where a worker’s pay varies with the amount of work they undertake. This decision will have a huge impact where workers earn large commission payment immediately prior to taking holiday.
Where does this leave employers? Well one judge has described the provisions of the Working Time Regulations 1998 as “complicated” and we tend to agree! This decision will impact on future payments of holiday pay. This decision means that where a worker has normal working hours and earns commission, then the employer will need to take into account that commission when calculating holiday pay.
To discuss how this decision will impact on your business, please contact our Employment Team on 0118 952 7284.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.