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Holiday Pay update

The Employment Appeal Tribunal has recently upheld a decision of an employment tribunal in connection with commission payments in the calculation of holiday pay. 

The employee in question was a worker who had normal working hours, but commission earnt on sales was a particularly important part of his remuneration package and represented about 60% of his basic pay. When the employee took holiday he was entitled to basic pay and continued to receive commission based on earlier sales.  However, his commission payments were lower during the months that followed his holiday because of course he had been unable to generate sales whilst on that holiday. Faced with an apparent conflict between domestic and EU law, the tribunal made a reference to the ECJ for a preliminary ruling. 

Previous ECJ cases held that commission payments must be taken into account when calculating holiday pay under the EU directive. This employee claimed that he had suffered an unlawful deduction in the months that followed his holiday, because these future payments should be enhanced to reflect the future commission he otherwise would have earnt on sales that would have taken place, but for his annual leave.

The situation with regard to holiday pay becomes clearer but is by no means certain and employers should analyse carefully the issue as to whether their overtime arrangements are voluntary, non-guaranteed or compulsory before making a decision.

Commission payments however seem to be now a necessary part of not only the pay whilst the employee is away on holiday, but for the months after they come back.