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Employers calculating holiday pay

Employers who pay a worker sales commission which is intrinsically linked to the performance of the tasks the worker is required to carry out should take commission into account when calculating holiday pay.

Legal Alert

This update was published in Legal Alert - January 2014

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A salesman was paid basic pay and commission on sales. The commission varied month by month, and payments in some months were the outcome of work carried out in previous months.

While on annual leave his employer paid him his commission earned from sales made in previous periods, but calculated his holiday pay by reference to his basic pay only on the basis an employee is unable to earn commission while on holiday. The employee claimed his holiday pay should take account of commission. The Employment Tribunal referred the question to the European Court of Justice (CJEU).

The Attorney-General (AG) of the CJEU has given his preliminary ruling and recommended employers should take commission into account when calculating holiday pay, because:

  • the purpose of paid annual leave is to enable the worker to rest and enjoy a period of relaxation and leisure;
  • the payment should put the worker, during such leave, in a position comparable to periods of work;
  • any aspect 'linked intrinsically' to the performance of the tasks the worker is required to carry out, payment for which is included in the worker's total remuneration, must be taken into account for the purposes of the amount to which the worker is entitled during his annual leave

The AG referred to airline pilots who are paid for flying planes but do not do so when on leave. His opinion was that commission was intrinsically linked to the performance of the tasks the worker was required to carry out and must necessarily be taken into account in calculating holiday pay - despite the employer's argument that the rate of commission had been adjusted to take account of the fact no commission could be earned during holiday periods.

The AG recommended that the decision on how to calculate the commission to be included in holiday pay should be left to national courts.

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