For almost four years the issue of how to calculate holiday pay for workers who earn commission as part of their remuneration package has been disputed in the case of Lock v British Gas. Mr Lock argued that, as his package was made up of a basic salary plus commission on sales, his pay during periods of annual leave should reflect his basic pay plus commission and not just his basic pay. His employer argued that he was only entitled to basic pay during periods of annual leave.

The case has been from the Employment Tribunal to the European Court of Justice and back to the Employment Tribunal, who found in favour of Mr Lock. Now the Employment Appeals Tribunal (“EAT”) has dismissed the appeal brought by British Gas and confirmed that, where a worker earns commission as part of their remuneration package, their holiday pay during periods of annual leave should reflect their average pay during periods in work, rather than be restricted to their basic salary.

In a similar case, Bear Scotland v Fulton, the EAT has previously ruled that holiday pay must be calculated to include a worker’s overtime payments as well as pay for basic contractual hours where the employee is required to work overtime.

The recent judgment of the EAT confirms what has been reasonably clear for some time – that when an employee is on holiday, they should be paid what they would have earned if they had been at work.

Any employer with employees regularly earning commission or being paid for overtime who simply pays basic pay during periods of annual leave is at risk of being the subject of an unlawful deductions from wages claim. If you have not already done so, now is the time to check to make sure that how you are paying holiday pay is in compliance with the law.

This article intended as a guide and for general information only and is not a substitute for taking specific advice relating to your situation. For specific advice regarding this or any other issue relating to employing people, please do not hesitate to contact me.