Holiday pay must include commission, ECJ rules

By Kate Hodgkiss

The European Court of Justice (ECJ) has handed down judgment in a case that could mean that employers face huge liabilities for claims for holiday pay. The issue arises because of an apparent conflict between UK and European law as to how holiday pay should be calculated and in particular whether elements of remuneration such as overtime and commission must be included.

The Working Time Directive (WTD) entitles workers to four weeks’ leave but does not specify how pay should be calculated. The directive is implemented in the UK by the Working Time Regulations 1998 (WTR). Under the WTR, workers are entitled to 5.6 weeks’ leave and must be paid at the rate of a week’s pay for a week’s leave. The Employment Rights Act 1996 (ERA) sets out how to calculate a week’s pay; the calculation depends on a number of factors including whether or not a worker has normal working hours. The effect of the week’s pay provisions is that many common elements of remuneration, such as overtime, commission and bonus, are excluded from statutory holiday pay.

However, in cases interpreting the WTD, the ECJ has stressed the need for normal remuneration to be maintained during the period of annual leave. In a 2011 case (Williams v British Airways), the ECJ ruled that (1) workers on annual leave should receive their normal remuneration and (2) normal remuneration entitled a worker to any payment that is intrinsically linked to the performance of the tasks that he is required to carry out under his contract of employment. The ECJ held that it is then left to the national court to assess the intrinsic link between the various components making up the total remuneration of the worker and the performance of the task he is required to carry out under his contract of employment…

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