It is that time of year again. A brief burst of sunshine and those of us who have failed to organise our holiday frantically search the internet for a week in the sun. The European Court of Justice (ECJ) has also been thinking about holidays. Not their own, but what workers are entitled to be paid whilst catching the rays.
Every worker is entitled to 5.6 weeks’ paid leave every year, which equates to 28 days for a full time worker. The question raised before the ECJ is how pay should be calculated for these purposes. The answer to this question is simple for those workers who receive a basic salary only. It is however far more complicated when a worker’s pay includes a variable payment, such as commission.
In British Gas v Lock, the ECJ had to consider whether a salesman who was paid a basic salary and commission should be paid salary only or salary and commission whilst on holiday. Mr Lock’s commission depended on the sales he achieved rather than the hours he worked. His commission payments amounted to around 60% of his total pay, so without them, the pay he received was considerably reduced.
The ECJ confirmed that where a worker’s pay consists of a basic salary and variable elements such as commission, holiday pay should be calculated on the basis that a worker receives pay comparable to their normal pay. The worker should not receive a lower rate of pay. If he did, he may be deterred from taking leave which would be contrary to the aims of the Working Time Directive: namely, enabling a worker to enjoy a period of rest and relaxation away from work.
What the ECJ did not do was set out how to calculate any holiday pay. This, they said should be left to the national courts. What the ECJ did confirm was that the calculation of holiday pay in these cases must include three elements:
1. basic pay for the period of leave;
2. commission earned and payable during the period of leave; and
3. a payment to reflect the fact that whilst off, the worker will be unable to make sales and therefore generate commission.
If your pay structure includes variable payments such as commission, you will need to ensure that such payments are factored into the calculation of holiday pay. When you have done that, don’t forget to book your week in the sun!
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This publication gives general guidance only. It may not always apply and should not be relied on in place of specific legal advice. © Cripps LLP