Should holiday pay calculations include commission?

Two extremely important cases have recently been decided by the courts that could impact many UK businesses when paying their workforce during periods of annual leave.

Holiday pay has become somewhat confusing for those employers that make commission payments to their workforce, but now we have some clarity.

Holiday pay calculations and commission

Commission payments are commonly used to incentivise workers, particularly in a sales environment, to increase their earnings by making more sales for the benefit of the business.  It has now been confirmed by the courts that any commission a worker would ordinarily receive should be included in holiday pay calculations.

For some time it was unclear whether holiday pay calculations should include results based commission payments that a worker would ordinarily earn. 

Now that uncertainty has been lifted (at least for the time being!) and therefore employers must be aware that how they structure the way they pay their workforce may have some financial implications.

For new businesses, you may want to consider the advantages and disadvantages of paying your workforce on a commission basis.

For existing businesses we would recommend that you assess your risk to date and consider any changes you need to implement moving forward. By this we mean:

  • Identify which members of the workforce (please note, this is not just employees but also ‘workers’) receive commission payments
  • Identify the dates those individuals have taken annual leave
  • Identify what pay they received during the periods of annual leave
  • Assess the risk of any back dated claims
  • Revisit the calculation for pay during annual leave
  • Consider how best to liaise with potentially affected employees and workers to limit any backdated claims.

Please remember that the inclusion of commission for holiday pay only applies to four weeks of annual leave and not the full entitlement.  This is because these changes come from Europe so does not apply to the full 5.6 weeks statutory leave entitlement or any additional contractual entitlement.  Needless to say, the current ‘clarity’ may change again depending on Brexit negotiations.

Holiday pay calculations and overtime

Overtime payments have been included in calculations of holiday pay for some time now but there was some debate as to how long claims could be open for. 

The courts have now confirmed that claims will only succeed provided there has not been a gap of three months or more between holiday underpayments in order to prevent claims going back a number of years.

This post was written by Price Bailey Legal Services. If you would like to speak to one of our advisers from our Price Bailey Legal Services team about improving your workplace wellbeing then contact us here.


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