New Holiday Pay Case: Employers must include commission in holiday pay article banner image

We have recently reported on the rapidly developing case law for employers on how to correctly calculate holiday pay. The Leicester Employment Tribunal has now given us the much awaited decision in the case of Lock v British Gas. This has reinforced that holiday pay for UK workers should include commission payments and follows a ruling last year which said employers must include overtime in their holiday pay calculations.

The background to this case is that Mr Lock was employed by British Gas as a sales consultant. He received a basic salary plus commission on the sales that he achieved. Commission amounted to approximately 60% of his pay.

When Mr Lock went on statutory annual leave, he was paid his basic salary plus the commission from previous sales. However, his income was reduced in the months following his return to work because he had not secured sales, and had therefore not generated commission, while he was on holiday. Mr Lock brought a claim in an employment tribunal, arguing that his reduced income was a breach of the Working Time Regulations 1998.

The original Lock case was referred by the Leicester Employment Tribunal to the Court of Justice of the European Union (CJEU). The CJEU established that the amount of holiday pay given to workers should be comparable to what they would receive if they were still at work. This is so that they are not deterred from taking holiday, which under European law is seen a health and safety measure. The case was then sent back to the Leicester Tribunal to consider if our UK legislation (the Working Time Regulations) could be interpreted in line with the CJEU decision.

The Leicester Tribunal confirmed that under the Working Time Regulations, Mr Lock’s holiday pay should include his commission. It did this by inserting new words into the Working Time Regulations. However, this case left a number of important questions unanswered on how employers should now calculate holiday pay to take commission into account. It is particularly disappointing that no decision has yet been made about the correct reference period to be used for calculating holiday pay where an employee receives commission. Also, if a commission scheme is structured to compensate employees for holiday periods, is there still a requirement to include commission in holiday pay calculations. The Tribunal stated that these points will be considered at a later date.

So, for the time being employers are not much forward in knowing how to calculate holiday pay. The principle remains, however, that in simple terms workers should generally be no worse of if they take statutory annual leave, in terms of the remuneration they receive, compared to the remuneration they would have received had they not taken the same period off from work as holiday.

The Stephens Scown employment team works in partnership with organisations to improve their HR practices and advise on employment issues. To this or any other HR issue call 01392 210700 or