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Traditionally holiday pay has been paid by employers based on a worker’s contractual weekly pay, excluding commission payments. Overtime pay was also excluded on the basis it wasn’t worked while on holiday.
However, it appears that holidays are likely to become more expensive for employers but perhaps more enjoyable for employees.
In the recent case of Lock v British Gas Trading Ltd the European Court of Justice decided that where a worker’s pay includes commission payments, these commission payments should be included in the calculation of their holiday pay. This only applies though where there is a contractual entitlement to commission. Where this is the case, pay must not be based on basic salary alone. The European Court of Justice took the view that workers and employees would be discouraged from taking holiday if their pay was negatively affected as a result of taking holiday.
The Working Time Regulations 1998, which implement the EU Working Time Directives, stipulate that full time workers are entitled to a minimum of 5.6 weeks paid annual leave per year. Workers are entitled to receive their “normal weeks’ pay” during each week they take as annual leave.
UK business leaders have expressed their serious concerns about this European decision which is likely to apply to the UK as well. One of their key concerns is whether or not the European decision will be retrospectively applied. We simply don’t know the answer to this yet but, if this were the case, then employers could face multiple claims from seeking significant back pay for unpaid holiday entitlement.
So where does that leave UK employers? Going forward employers should consider the way they calculate holiday. If employers are concerned they may be liable for holiday overtime or commission payments then they should put in place a contingency plan and seek specialist employment law advice.