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Case law: European Court confirms employers should take commission into account when calculating statutory holiday pay

Employers paying a worker commission on sales, and where that commission is intrinsically linked to the worker's performance of the tasks required to be carried out, must take commission into account when calculating statutory holiday pay, the European Court of Justice (CJEU) has confirmed.

Legal Alert

This update was published in Legal Alert – July 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 both basic pay and commission on sales. The commission varied month by month, and payments in some months related to work carried out in previous months. While on annual leave, his employer paid him commission earned from sales made in previous months. However, it calculated his statutory holiday pay by reference to his basic pay only, on the basis that an employee is unable to earn commission while on holiday.

The employee claimed his holiday pay should take account of commission, and the Employment Tribunal referred the question to the CJEU.

In his preliminary ruling last year, the Advocate General of the CJEU said employers should take commission into account when calculating holiday pay because, for instance, any aspect 'linked intrinsically' to the performance of the tasks the worker is required to carry out, payment for which is included in the calculation of the worker's total remuneration, must necessarily be taken into account for the purposes of the amount to which the worker is entitled during his annual leave. This case fell within this category.

The CJEU has confirmed its agreement with the Advocate General's ruling. However, while the Advocate General suggested an appropriate method of calculating the amount of commission to be paid for holiday pay might be to base it on average commission over the last 12 months, he and the CJEU recommended this was an issue for the national courts and tribunals. Until the UK Employment Tribunal rules on this, it remains unclear how holiday pay for staff on commission should now be worked out.

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