Avoid costly claims on holiday pay and unearned commission

In light of the recent rulings in a series of cases on the correct calculation of holiday pay, employers are advised to urgently review their contractual leave arrangements. For employers with large workforces, potential claims could prove costly if not addressed now. Furthermore, the judgment may also have implications for pension entitlements where these are calculated based on variable earnings.

In Lock v British Gas Trading Limited and Others, the Court of Justice of the European Union (CJEU) has confirmed that the EU Working Time Directive (WTD) requires that the holiday pay of an employee whose normal remuneration is made up of a basic salary plus variable commission should include an amount equivalent to the sum he would have earned by way of commission had he been working rather than on annual leave.

Mr Lock’s normal pay included a commission based on sales in the previous month; on average, this represented more than 60 per cent of his remuneration. As he could not achieve sales while on annual leave, this meant that his pay for the month following his holiday was considerably lower than usual. As such, he brought an Employment Tribunal (ET) claim for outstanding holiday pay…

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