Important ruling on holiday pay and commission

In a decision which may bring severe financial implications for employers, the Court of Appeal has concluded that holiday pay must include compensation for any results-based commission which would usually be earned by the employee.

In British Gas Trading Ltd v Lock and another, the Court of Appeal upheld the Employment Appeal Tribunal’s earlier decision that the Working Time Regulations 1998 should be interpreted to provide that results-based commission should be included in statutory holiday pay. Mr Lock’s claim related to the fact that his holiday pay only included basic salary. The commission he received in the months after a holiday would therefore be lower because he had not secured sales generating commission while he was on holiday.

The decision is important for any employer that operates a commission scheme or makes other payments to staff which are intrinsic to their employment such as overtime. Unfortunately, the court did not confirm exactly how employers should calculate the commission element of statutory holiday pay. It is understood that British Gas intends to appeal to the Supreme Court. If they were to do so, it is hoped that the court will provide greater clarity on how such payments should be calculated.