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Normal pay when you go away on holiday

View profile for Louise Taft
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Employment lawyers have been eagerly awaiting the decision of the Court of Appeal in the long running saga of Lock v British Gas, which is a decision about how to calculate holiday pay when an employee works fixed hours but receives variable pay due to results based commission.
 
For anyone following the thread of case law from Europe and in the domestic courts, the decision should come as no surprise: the Court of Appeal found that regular results based commission should be included in any calculation of holiday pay. The decision also upholds a similar case from 2 years ago in respect of regular overtime.  The thread goes that employees should receive their “normal remuneration” whilst they are on holiday. If this “normal remuneration” includes regular payments in addition to basic pay, this should form part of the calculation for holiday pay.
 
This only applies to the 4 weeks holiday given by the Working Time Directive, not the additional 1.6 weeks available from UK law or any additional contractual entitlement.
 
The Court left open the position in respect of annual bonuses or situations where commission or bonuses are only payable after a minimum level of sales are achieved, so there would be periods of the year without bonus and periods with a bonus. It seems that we will have to wait for another case before the higher courts will apply their minds as to whether these payments should be included and how that would work in practice.
 
So what does this mean for employers?  Whilst there is speculation that British Gas (who are facing over 900 compensation claims) will take this to the Supreme Court, the publicity surrounding the judgment is yet another opportunity for employees to discover their rights. Anyone using results based commission or regular bonus schemes and not including these payments in holiday pay calculations is treading a dangerous line.
 
Any thoughts that Brexit will mean this decision is short lived in practice are misguided. The government intervened in the appeal to support the employees: they take the view that holiday pay should include results based commission. It therefore seems unlikely that leaving the EU will result in changes to this element of the Working Time Regulations.
 
There are ways of structuring commission and bonus schemes to make sure that employees receive payments whilst on holiday at no additional cost. Implementing changes for existing employees will need to be done carefully to prevent claims for breach of contract or unfair dismissal.
 
If you pay your staff results based commission or regular bonuses and/or overtime, we recommend you have an audit of holiday pay arrangements and work with us to put in place a scheme that is compliant with the Working Time Regulations. Contact Louise Taft for a no obligation chat about how we can help.
 
T: 020 7935 352
E: lt@freemanssolicitors.net 
 
Whatever your personal circumstances the above is only a guide and we would advise you to contact us to obtain definitive advice as you will appreciate that each person’s circumstances are unique to them.

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