Sun sets on low cost holidays? How to count commission for holiday pay The Issue We now have the Employment Tribunal decision on how businesses should factor in contractual commission when they calculate holiday pay. This aligns UK and EU law and alters UK law immediately with some retrospective impact.
The new calculation For holiday pay businesses must now calculate the average remuneration inclusive of commission received by the worker during their normal working hours in the 12-week period immediately preceding each holiday. The holiday pay is based on this average pay rate. This new rule only applies to the four weeks’ holiday required under EU law but not to the additional 1.6 weeks holiday given under UK law, for which pay is unaffected.
Our Guidance Businesses should review their commission schemes for this holiday pay impact, particularly for:
the additional cost of commission based holiday pay; whether they have a contractual right to alter the commission scheme for current staff to manage this cost (and the employee relations consequences of doing that); and
what commission terms they will offer to new joiners.
Anomalies The new rule does not separate out different types of commission; for example, commission based on personal sales and commission based on team sales. A worker was previously financially disadvantaged on personal sales commission by going on holiday but may not have been for team sales commission. Interpreting the new wording literally may now result in some anomalies for these commission types.
Claims for historic holiday pay New Regulations will limit the unlawful deductions basis for holiday pay claims made on or after 1 July 2015 to a two-year backstop period.
Employment E-alert March 2015