14 April 2015

Holiday Pay Saga Continues: UK Tribunals Rule on Commission

The pain for employers on holiday pay continues this month with publication of the latest court ruling to consider this fast-developing area. As previously reported, Last year’s ECJ ruling in of Lock v British Gas Trading Limited confirmed that EU rules require commission to be included in holiday pay. This directly contradicts the clear wording of the UK’s Working Time Regulations and the domestic employment tribunal has now published its decision on how to deal with the contradiction between EU and UK laws.

As anticipated, the employment tribunal has confirmed that, despite the contradiction, the Working Time Regulations must be read as if it requires commission must be included in holiday pay, by including an additional paragraph. 

The effect when read with other relevant law is that, for workers earning commission, holiday must be paid using an average hourly rate of pay from the preceding 12 weeks. However, this 12 week reference period is also under question because it may not be sufficiently representative of “normal remuneration”. Further clarification of the law is expected to address this and the many other outstanding issues, but in the meantime affected employers and employees continue to be left in limbo.

Employers who can get away with it may still prefer to sit tight and do nothing until the law is clarified but this may not be an option. Many businesses with holiday back pay exposure will soon face a crunch point as employees' ability to claim historic underpayments will be curtailed to a maximum of two years in July this year. If resolution cannot be found amicably before then, employees and unions may be forced to issue claims to maximise their entitlements but the ongoing uncertainty over the correct calculation makes it difficult or impossible in the meantime for historic claims to be quantified and resolved. Parliamentary intervention to clarify the law is prevented by the election. What a mess. 

The issues are complex and employers could pay out now based on their current best guess only to find they still face claims as the law continues to evolve. In all cases, the administrative burden of dealing with holiday will significantly increase. Pragmatic solutions based on sound advice are the only hope for a quick fix.  

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