While the business community awaits the results of the
Brexit deliberations of the UK government, of course, EU Law continues to
influence the rulings of UK judges. A recent judgement in the Court of Appeal
could have serious implications for any business that has employees on
commission schemes.
A Claim for Wrongly Calculated
Holiday Pay
A sales person employed by British Gas had claimed that his
holiday pay had been wrongly calculated because it did not include an amount
for commission that he would have earned if he had worked during the period of
his holiday. Normally his commission represented about 60% of his income so the
holiday pay was considerably short of his normal take home pay.
The case had earlier gone to the European Court of Justice which
had rejected the claim by British Gas that his holiday pay was comparable to
his normal earnings. The court reached this conclusion even though the
commission scheme document was separate and not included in the employee’s
contract of employment. EU case law requires holiday pay to include “all
elements of normal pay”.
When the employer took the case to the Court of Appeal, their
lordships considered whether the UK Working Time Regulations 1998 should take
account of this EU case law, and concluded that it should. The worker’s
results-based commission was an element of his normal pay and should therefore
be included in his holiday pay calculation.
The Financial Implications
Unless this ruling can be overturned, most of the British
Gas 1000 plus sales staff could bring similar claims, resulting in a serious
number of back payments from the company. Future holiday pay calculations will
have to be correctly made to include amounts for normal commission even though
they cannot be earned while their recipients are not working.
Small businesses are not exempt from this ruling and all
organisations operating commission schemes should take note. However it doesn’t
apply to other incentive schemes such as discretionary bonuses based on a high
level of the performance of teams or on individual achievement. It could be
worth discussing the matter with your local bookkeepers to ensure that you
reward your employees in ways that are appropriate and will not adversely
affect your bottom line.
