Do you pay commission to your employees? Employment Appeal Tribunal ruling confirms what should be included in employee holiday pay
The decision by the Employment Appeal Tribunal has this week ruled in favour of salesman Joe Lock who took his employer, British Gas, to an Employment Tribunal when he was only paid his basic salary while away on holiday, despite most of his normal pay being made up by commission.
What does the ruling mean?
After a four-year legal battle, clarity has now been reached on what should be included in holiday pay for employees who rely on commission to make up their salaries. Those commission earning employees will now be able to ask for holiday pay reflecting what they would normally receive if they were not on holiday i.e. a combination of their basic pay and commission.
A similar ruling in 2014 confirmed the right of workers who regularly do compulsory overtime to also have this included within their holiday pay. The two rulings mean that overtime (not voluntary overtime though…for now) and commission payments should be included when calculating holiday pay if they form a regular part of an employee’s pay. Employees will be able to claim up to two years backdated holiday pay if they have been paid wrongly.
While British Gas may appeal the decision through the Court of Appeal, the ruling is being recognised as crunch time for employers to now make changes to their holiday pay calculations.
What does this mean for me?
If you pay overtime and commission to employees, those payments should now be included when calculating holiday pay, if those payments have formed part of an employee’s pay for the previous 12 working weeks.
What do I need to do?
· Conduct a detailed analysis for both existing and previous employees focusing on start dates (and termination dates if applicable), commission and overtime payments made and holiday pay paid during their employment.
· Start to think about the cost implications of calculating holiday pay in this new way and budget accordingly for future payments.
· Think through the cost implications of paying backdated holiday pay.
· Review your pension scheme rules to focus on whether ‘pensionable pay’ has been calculated correctly.
· Review your remuneration strategy.
· Contact your payroll provider to ensure they work with you to obtain the correct data for future holiday payments
· Consider how you are going to deal with queries from employees, existing and previous, as they may start to ask questions. You may want to now engage in proactive communications.
It’s your business but we can help
Employers are now being encouraged to recognise the issue and deal with it appropriately by having an action plan in place on how to deal with holiday pay calculations going forward, and also consider preparation for backdated claims. Our experienced employment team is on hand to help navigate you through this issue and devise a strategy for the payment of holiday pay.
Published: 25 Feb 2016