Skip to main content

News story

May 12, 2017

Calculating holiday pay – change on the horizon?

In the UK, many employers calculate holiday pay based on basic salary alone – even if an employee usually receives commission. However, a landmark court case seems set to change this.

Last year the Court of Appeal in British Gas v Lock held that employers must consider commission payments when calculating holiday pay under the Working Time Directive (WTD). However, the Court remained silent on whether the same rule would apply in other cases, for example, where employees receive a single, results-based commission or annual bonus.

Summary of the case

Mr Lock was a sales consultant for British Gas, and was paid a commission which greatly exceeded his basic salary. While on holiday, he was paid at the rate of his basic salary – and claimed this was an unauthorised deduction from his wages. An Employment Tribunal and the Employment Appeal Tribunal (EAT) agreed with him, finding that under the WTD, ‘normal remuneration’ included his commission and should be included in his holiday pay.

How could the ruling affect UK employers?

The ruling sets a precedent for commission to be included in holiday pay if it is intrinsically linked to the performance of tasks in an employee or worker’s employment contract.

While the calculation is left up to national courts to determine under national law, it must be based on the average commission earned “over a reference period which is considered to be representative”. When writing this article, the Tribunal had not considered the appropriate reference period to be applied to calculate Mr Lock’s commission. Although, it was likely to be based on average earnings over the 12-week period before holiday is taken.

In light of Lock and other recent case law, employers are advised to review their holiday pay calculations to ensure they comply with the changes. As it’s unclear how such payments should be calculated, tribunals will likely approach the issue on a case-by-case basis.

In short

“COMMISSION MUST BE INCLUDED IN HOLIDAY PAY IF IT IS INTRINSICALLY LINKED TO THE PERFORMANCE OF TASKS IN AN EMPLOYEE’S OR WORKER’S EMPLOYMENT CONTRACT”

  • Following a landmark court case, employees must consider commission when calculating holiday pay
  • Holiday pay must include commission if it’s part of an employee’s ‘normal remuneration’
  • Pay will be calculated based on the amount of commission earned in a representative period.

If you have an employment query, speak to Karen Cole today.

Note: This is not legal advice; it provides information of general interest about current legal issues.

Stay in touch

Subscribe to our newsletter

Stay in touch

By completing your details and submitting this form you confirm you are happy for us to send you marketing communications and that you agree to our Website Privacy Policy and Legal Notice and to us using Mailchimp to process your data.


Sending

News/Insight

  • Supporting neurodiverse people in family law matters
    Understanding neurodiversity in the legal context.


    Read more
  • Supreme court ruling on referees’ employment status
    In PGMOL v HMRC, the Supreme Court considered whether professional referees were self-employed. The case has the potential for far-reaching implications across the employment world.


    Read more
  • Business First Magazine
    Read our expert insights on key workplace and corporate issues.


    Read more
  • Why is clear contract drafting important?
    How simple contract clauses can protect your business.


    Read more
  • Ensuring equality: A legal guide to responsibilities and compliance
    Understanding equal opportunities in the workplace


    Read more

What they say...

  • Henry, April 2025
    “We have purchased flats before with 2 different solicitors who were unable to help us this time. Martin came highly recommended and are we glad. He was very professional in every way: knowledgeable, approachable, he has a friendly manner, very

  • Megan Purcell-Jones, April 2025
    “Charlotte was extremely diligent and thorough. She talked us through the process of making our wills and listened to and understood our needs and the complexities involved. Extremely patient and very clear.”

  • Hena, April 2025
    “Great experience, Patrick was very clear and gave time to explain the legal processes. Friendly and professional communication made me feel comfortable asking questions, received great legal advice.”

  • Michael Constable, April 2025
    “I wanted to revise my will and appoint RIAA Barker Gillette as my Executor and Trustees. This was handled very efficiently and professionally. It helped that I had agreed a fixed fee in advance.” Review left for: Herman Cheung

  • Anon, April 2025
    “Whistleblowing dismissal claim and settlement negotiations I can not speak highly enough of this firm and [Patrick Simpson], they were not only understanding of my case needs they also worked with the up most integrity and professionalism to e

Read more
Send this to a friend