EAT confirms employers must include commission in Holiday Pay calculations

The Employment Appeal Tribunal (EAT) has confirmed that employers need to include commission as part of Holiday Pay.

EAT recently rejected an appeal in the long-running case of Lock vs. British Gas and upheld a previous ruling that commission payments should be included in the calculation of Holiday Pay. This was the latest decision in the saga regarding what payments should and should not be included when making the calculations.

For background, there are two key cases where Holiday Pay is concerned. Firstly we have Lock vs. British Gas, and there is Bear Scotland vs. Fulton. Mr. Lock, an employee of British Gas, argued that by taking holidays and time off, he was losing out financially, as holiday pay calculations did not take into account elements of his pay such as commission. Mr. Fulton also argued a similar case against Bear Scotland, claiming that unfair deductions had been made from his pay whilst taking annual leave, as the company failed to include overtime and other payments associated with his work when calculating Holiday Pay.

In the case of Bear Scotland vs. Fulton, EAT ruled that UK domestic law must conform to EU law which now requires employers to include aspects such as commission when calculating their employee’s Holiday Pay.

We recently met with Helen Hargreaves of the Chartered Institute of Payroll Professionals to get their opinion on the ruling. Helen explained that “unfortunately, we’re not really any further forward” as the outcome was widely predicted. She went to to explain that “the problem with the rulings is that, we know that you have to include guaranteed and non-guaranteed overtime as well as commission payments when calculating Holiday Pay, what we don’t know is how to do that.” You can read the discussion with Helen here to know more.

British Gas have now asked for permission to take the case to the Court of Appeal for a definitive ruling.

If you are unsure where your business stands on Holiday Pay, visit our Calculating Holiday Pay insight page for more information. We’ve recently developed the IRIS Holiday Pay Module to help businesses get a head-start on managing Holiday Pay. The software integrates with your existing IRIS payroll software to automatically calculate the amount of pay owed to employee’s based from their average earnings over the previous 12-week period.

Why not book a free, no-obligation product demonstration of the IRIS Holiday Pay Module and see how it can help your business to fairly manage Holiday Pay?

Book my IRIS Holiday Pay Module demo