In the case of Lock and ors v British Gas Trading Limited, the ECJ held that commission payments must be taken into account when calculating holiday pay under the EU Working Time Directive (No.2003/88). The case then returned to the Leicester Employment Tribunal to determine whether the UK Working Time Regulations 1998 (WTR) can be interpreted to give effect to EU law. The Tribunal handed down its decision on 25 March 2015.

It determined that the WTR can be interpreted to give effect to EU law (with the inclusion of additional words to the relevant statutory provision): Regulation 16 (which refers to payment in respect of any period of statutory annual leave) shall be construed such that a worker with normal working hours who is entitled to commission shall be deemed to have remuneration which varies with the amount of work done. This means that commission should be treated as remuneration when calculating a "week's pay" by reference to the average hourly rate of remuneration payable over the 12 week reference period set out ins.221 WTR.  Complicated provisions apply where some days in that period are not worked.

What does this mean to you?

For employers who are not yet including commission within holiday pay the situation should be addressed as a matter of urgency. Otherwise they will be making underpayments for holiday for which workers can claim in the Employment Tribunal. For the many employers who are already including commission within holiday pay it will be important to check that the method of calculation adopted is appropriate.

It is important to note that only the 4 weeks of holiday provided for by the European Working Time Directive needs to reflect this element of remuneration. The risk of back pay claims has been significantly reduced by the EAT's decision in Bear Scotland Ltd v Fulton(which dealt with the position on overtime payments and holiday) in which it was established that a series of unlawful deductions from wages is broken if there is a gap of more than three months. As from 1 July 2015 a cap of two years will be introduced on retrospective unlawful deduction from wages claims.