Should holiday pay calculation include sales-related commission in addition to basic pay?

Yes, was the view of the European Court of Justice (ECJ) in Lock v British Gas Trading Ltd last week. This decision is consistent with the earlier opinion of the advocate-general in the same case that was given on 5 December 2013. Employees should not be deterred from taking annual leave and they might be if their income would be lower because of a period of annual leave taken when they would be unable to generate commission, albeit that the actual reduction in earnings would not occur until after the annual leave.

The case concerned an individual, Mr Lock, who received a basic salary but earned commission on top, which was variable depending on sales achieved and not on time worked. The commission element made up, on average, 60 per cent of his monthly earnings. As he could not earn commission while on leave, his income would be lower if he took leave. Having issued his claim for holiday pay, the employment tribunal referred it to the ECJ, specifically to question whether the holiday pay should include commission payments that the worker would have earned had they not taken the leave, and, if so, how that commission element of holiday pay should be calculated.

In its press release (No.76/ 14), the ECJ points out that, during annual leave, a worker must receive his normal remuneration and that the purpose of holiday pay is to ensure that periods of rest are comparable in salary to periods of work. The ECJ rejected the argument of British Gas that Mr Lock received his salary and commission earned from previous weeks’ work during his annual leave. The main basis for the decision appears to be that a worker may be deterred from exercising their right to annual leave. This would be contrary to the objective of the Working Time Directive…

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