TT204: Where is my holiday pay?

Under the EU Working Time Regulations 1998, full time employees in the UK are entitled to a minimum of 5.6 weeks paid holiday. Bank holidays do not have to be given as paid leave. This means that an average worker who works five days a week is entitled to at least 28 days paid holiday leave.

It has been practice for many UK employers just to consider an employee’s basic pay when calculating the ‘holiday pay’. However following the Court of Justice of the European Communities (CJEC) ruling in the case of Lock v British Gas Trading Limited, commission must also be included in calculating the holiday pay where commission forms part of a worker’s contractual remuneration. Unfortunately the court did not specify how holiday pay should be calculated and what reference period should be used to calculate the commission element in the holiday pay, they have left this up to each EU member state to decide.   

The ‘Lock’ case involved a sales consultant (Mr Lock) whose total remuneration was largely made up of commission paid to him in arrears. At the end of December 2011, Mr Lock decided to take some paid holiday leave. Following his return to work, he suffered the unfortunate adverse effects of receiving reduced pay due to the fact he was not earning any commission during the period he was on holiday.

The ‘Lock’ ruling is likely to affect many employees whose pay includes commission as one of the components e.g. people working in sales. This may lead to a number of claims by employees for backdated lost holiday payments due to the fact that commission was not considered when calculating the holiday pay entitlement. Employment contracts may also need to be reviewed or updated although it is expected that UK employment law will have to be amended to reflect the CJEC case.

In a further complication, it is also likely that the holiday pay calculations will also need to factor in overtime and bonus payments. There is expected to be a joint Employment Appeal Tribunal hearing in the near future which should hopefully clarify the extent overtime needs to be considered in calculating the holiday pay.

Where does this leave employers? Unfortunately the answer is ‘in limbo’ until the case in the Employment Appeal Tribunal is heard and decided upon this summer. What is certain is that small employers will be hit the hardest by possible back dated claims, complicated holiday pay calculations, possible changes to contracts and most importantly increased staff costs.

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