Should holiday pay include overtime and commission?
With the unusually high temperatures we have gotten recently in Britain we can agree that summer is officially here. While that is great news for most, especially for employees packing their bags and getting ready for their summer holidays, it leaves employers with the headache of calculating annual leave entitlements. The areas of whether holiday pay should include commission and overtime have been hot topics of late.
Lock v British Gas Trading Ltd
Mr. Lock claimed that British Gas had calculated his holiday pay incorrectly by not including a commission element. Mr. Lock was employed by British Gas as a sales consultant and receives a basic salary plus commission based on the sales he achieves. During a period of annual leave, Lock saw his income was reduced as he was paid only his basic salary and not commission as he was not making sales during his holiday. The Employment Tribunal found that Mr. Lock’s holiday pay should include an amount to reflect the commission that he would have otherwise earned had he not taken annual leave. They found that by penalizing an employee’s holiday pay might discourage them from taking annual leave for the fact that they would not be able to make sales and earn commission during that period.
Fulton & Baxter v Bear Scotland Ltd
Fulton and Baxter (the claimants) claimed that Bear Scotland Ltd (the respondent) made unauthorized deductions from their wages when overtime and other payments had not been included in the calculation of their annual leave pay. The ET found that by omitting these additional payments from its annual leave calculations, the respondent had indeed made unauthorized deductions from the claimant’s wages.
Learning Points
These recent rulings indicate a new perspective on what is deemed to be fair in relation to the calculation of leave entitlements. In light of these cases, employers across the board are reviewing how they calculate holiday pay. The current position is that, if there is a fundamental link between commission received and the performance of tasks, the commission should be included in the calculation of holiday pay. Therefore, where an employee would have earned commission during the leave period had they worked, it should be included when calculating holiday pay.
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