Including commission in holiday pay calculations

Employers who follow employment law will be aware that there has, for some time, been confusion regarding whether the calculation of an employee’s holiday pay should take account of commission. Now, the Employment Appeal Tribunal (EAT) has upheld a decision of the Leicester employment tribunal in the case of Lock v British Gas, to the effect the Working Time Regulations 1998 (WTR) can be interpreted to include commission payments in the calculation of the four weeks’ annual leave provided by Reg 13 of the WTR.

The EAT’s decision in this case was partly based on the view that Parliament’s purpose in enacting the WTR was to comply with its obligation to fully implement the EU Working Time Directive (Directive). Interestingly, workers are also entitled to 1.6 weeks’ additional holiday under regulation 13A of the WTR 1998 (which are over and above the four weeks’ holiday in regulation 13 WTR 1998, as required by the Directive). At present, however, it does not appear that the obligation to include commission in holiday pay extends to these extra 1.6 days.

Mr Lock was an energy trader with British Gas Trading Ltd, and had normal working hours. He earned commission on the sales he generated, which equated to around 60 per cent of his basic pay. When he took holiday, he was entitled to basic pay and continued to receive commission relating to his earlier sales, but his commission payments were lower during the subsequent months because he had obviously not been able to generate sales while on holiday.

In 2012, Mr Lock brought a claim in the Leicester employment tribunal, arguing that he had suffered an unlawful deduction from wages in respect of a period of annual leave. He claimed that, since the European Court of Justice (ECJ) had held (in the case of British Airways plc v Williams and ors in 2012) that holiday pay should reflect the income that a worker would usually receive had he or she been working, these future payments should be enhanced to reflect the commission that he would otherwise have earned during his period of annual leave.
The tribunal referred the case to the ECJ for a preliminary ruling, because of an apparent conflict between domestic and EU law, as a result of which, the ECJ held that commission payments must be taken into account when calculating holiday pay under the Directive. The case then went back to the employment tribunal, for the question of whether the WTR could be interpreted so as to give effect to EU law to be decided.

In the 2015 employment tribunal claim of Lock and ors v British Gas Trading Ltd and anor, following the ECJ ruling, the employment tribunal held that there was no reason not to interpret the WTR in order to include commission payments when calculating holiday pay in respect of the four weeks’ annual leave provided by Reg 13 (i.e. the four weeks’ leave as required under the Directive. As a result, the employment tribunal concluded that Mr Lock had suffered an unlawful deduction from his wages as his holiday pay did not include commission payments.
British Gas Trading Ltd appealed to the EAT, but this was rejected by Mr Justice Singh.

It is, perhaps, interesting in light of the forthcoming referendum on the UK’s membership of the European Union, to note how intertwined our county’s laws are with those of Europe, particularly in relation to employment law. The knowledge that employees who earn commission will be entitled to have that commission taken into account when holiday pay is calculated may prove problematic for some employers, but is also likely to be popular with employees, particularly those for whom commission makes up a significant proportion of their income.

If you have any queries about this case, or its impact on you as an employer or as an employee, please contact Neil Emery at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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