Like many commission arrangements operated by employers, the commission in this case was based on sales achieved and would fluctuate from month to month. It was also paid, not at the time that the work which generates the commission was done, but several weeks or months after the sales contract was entered into. This then begs the question as to how an employer should calculate holiday pay to take account of commission.
Advocate-General Bot recommended that it should be left to the national courts (in this case Leicester Employment Tribunal) to decide the mechanism and rules for determining the appropriate amount of commission to include. However, he did suggest that an appropriate solution might be to take account of the average amount of commission received by the worker over a representative period, for example 12 months.
This case could have very significant financial implications for employers who operate commission arrangements, but who currently take only basic pay into account when calculating holiday pay - not least because a worker may seek to recover underpayments made over a number of years as a series of unlawful deductions of wages. Readers of this blog may recall the £40 million back payment that John Lewis reportedly made to its employees over the summer following errors in its holiday pay calculations.
Please do speak to one of the team if you would like more information regarding this issue, including advice on ways in which you might seek to mitigate liability for claims for back payments of holiday pay. We would be happy to assist.
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