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Holiday pay - the saga continues...

The Leicester employment tribunal recently confirmed that commission payments should be included in holiday pay for all UK workers. Below we provide a brief update on the case and consider what has been left unanswered.  

Commission payments

In last year’s case of Lock v British Gas the European Courts confirmed that commission payments should be included in holiday pay. The case was sent back to the UK employment tribunal which has imported new words into the UK Working Time Regulations to enable commission "or similar payment" to be included in holiday pay calculations. 

What has been left unanswered?

To the dismay of employers, the tribunal did not provide much-needed guidance on the key issues which remain outstanding. It did not determine the impact for commission schemes which already include an element to compensate the worker for commission they cannot earn whilst on holiday. Nor did it consider the correct reference period to use when calculating holiday pay. These issues were set aside to be decided at a later date, implying that a further judgment should be expected, but we do not yet know when.

So where does that leave employers?

This decision and the recent BEAR decision have confirmed that commission payments and non-guaranteed overtime should be included in the calculation of holiday pay. There remains a question mark over whether voluntary overtime and certain bonuses should also be included.  

By adding the words "or similar payment" to the existing law, the tribunal in Lock may have inadvertently introduced a new category that employees seek to bring within their holiday pay. We will have to wait to see the effect of this part of the tribunal's decision.

Strictly speaking, employers can pay different rates of holiday pay depending on whether the worker is taking their EU minimum 20 days' holiday or the additional eight days provided under UK law. The more generous 'normal remuneration' rules apply to the EU minimum holiday only, a point which was reaffirmed by the tribunal in Lock. However, the practical difficulties of paying holiday at different rates may outweigh what at first appears to be a benefit.

Despite expressly setting aside the issue of the correct reference period, the tribunal's reasoning in the Lock decision suggests that a 12 week period may be the right one to use. However, as we have pointed out in the past, this may lead to windfalls for workers in businesses which have seasonal fluctuations in commission or overtime, where a 12 month period may be preferable. Until we have a definite answer, using a representative reference period should minimise the risk of challenge from your workforce.

With the forthcoming general election it remains to be seen whether new laws will be introduced to deal with the oustanding issues. In the meantime, let's hope that the second part of the tribunal's judgment in Lock provides the guidance that employers grappling with these difficult issues really need.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2015. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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