Workers could now be entitled to extra pay, alongside their holiday pay, if they could also get paid commission to make up for the sales they can’t make because they’re away.
This is now the law for millions of workers who earn commission as part of their pay, ranging from city traders and financial advisors to estate agents and salespeople.
As many of the UK’s workforce prepares to depart for their holidays there is much confusion as to how to calculate this entitlement.
Tina Wisener of workplace law specialist Doyle Clayton says:
“A recent ruling from the European Court of Justice (“ECJ”) reaffirmed the principle that employees taking holidays should not in any way be penalised. However, in a piece of logic that is worthy of Gulliver’s Travels, it decreed that as this means they can’t makes sales while they’re on holiday and so their pay will go down after their holiday, a sum reflecting “lost” commission has to be added to their holiday pay to make up for this in advance.
“It sounds simple in theory, but in practice the calculation is far from easy and there has been little guidance. For instance, what is the case where sales are seasonal and employees have busy and quiet seasons. If they take a holiday in a busy time, should the holiday pay reflect this – giving the employer a double whammy of having to pay a higher holiday commission while, at the same time, losing sales because the person is away during this busy period.”
Options being considered by employers include:
- Work out average commission over the past year. This may well be the best approach if commission varies greatly throughout the year.
- Work out average commission over another representative period, such as the previous 12 weeks. This will work if commission remains similar from month to month.
- Not pay anything and wait for legal challenges or clarification of the ruling. This may not be the best approach from an employee relations perspective, but it does mean that employers won’t end up paying more than is legally required.
- Base the payment on sales made for the same period last year. To many, the most sensible way would be to compare sales an employee did in a comparable period the year before. This isn’t allowed. The employee’s remuneration (including commission) has to be worked out over a period which is representative of “normal” working and “normal remuneration”. A comparison with the same period last year won’t always be representative.
Doyle Clayton partner Tina Wisener adds:
“I’ve also had employers asking me whether the best way to do it is to simply agree a lump sum payment with the employee and pay it to them at the end of the holiday year as a way to quickly bring resolution and certainty to this. My advice is that this is not an option. The law strictly prohibits employers from paying in lieu of holiday, except when they leave the organisation. Employees have to be paid their normal remuneration whilst they are on holiday, otherwise they might be put off taking it. It is not possible to make a payment in lieu of commission at a later date.
“Resolution to this conundrum is not going to come in time for the millions taking their summer holidays in July and August and could rumble on for many months, if not years. “