The long-awaited decision in the Lock v British Gas has recently been released. Not another holiday pay case, I hear you say, but take note, this one is important!
In context of the much-publicised decision in Bear Scotland Ltd v Fulton which concerned overtime, the Employment Tribunal has confirmed that holiday pay calculations should also take into account commission payments.
This follows a referral to the European Court of Justice last year and the Advocate General's earlier preliminary ruling on the same issue, both of which favoured including commission in holiday pay calculations.
When calculating a week's pay under Regulation 16 of The Working Time Regulations 1998, employers should be aware of the new regulation 16(3)(e) which has been inserted to reflect the Lock ruling.
The decision chimes with the new stock approach to variable elements of pay that are directly linked with work; a worker should receive pay comparable to 'normal pay' whilst on holiday. Anything less would the worker from packing up their bucket and spade before heading off to the sun, which would go against the spirit of the Working Time Directive and, according to Europe, cause a health and safety issue.
You'll recall Williams and Others v British Airways plc which pulled the trigger on the cascade of recent holiday pay decisions. The European Court of Justice decided that the pilot should have been paid a “flying allowance” whilst on holiday - strange, but true!
Many employers will feel like they are staring down the barrel of a loaded shotgun as a result of the Lock decision and other recent holiday pay cases. But fear not, there are ways that employers can reduce the impact of these changes.
Think along these lines:-
- The Lock decision, like more other new cases in the holiday pay arena, only applies to the “European” holiday allowance set out in the Working Time Directive. This is 4 weeks of the 5.6 weeks minimum holiday entitlement. Make sure you and your workers know which holiday is being taken and make savings where the remaining 1.6 weeks apply.
- Why not spread the payment of commission across the year to avoid a spike in holiday (and the higher cost) immediately after making an annual commission payment?
- Consider changing holiday policies to ensure holiday is taken at times where spikes in commission and overtime are less likely.
For further guidance on these suggestions or more ideas to help you manage the impact of the new rulings on your business, give us a call.