New ruling on greater holiday pay

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Both the European Court of Justice and the Employment Appeal Tribunal service have ruled in favour of a commission-earning employee who questioned holiday pay and how it was calculated. This ruling will have an effect on thousands of businesses and their employees.

This is not a revision of the holiday pay ruling that took place in 2014 which referred to workers that were regularly paid overtime and have had those payments included throughout their periods of annual leave. In this ruling, the focus is on commission based earnings.

In the test case the employee’s monthly income was part basic salary and mostly commission based on sales. Whilst taking annual leave, the employee was unable to earn commission and thus only received his basic salary. This limits an employee’s ability to take holiday, especially for longer periods when they depend on the commission payments as a significant and necessary part of their income. Holiday pay must now be calculated by combining both basic salary in that month and the average commission payment one may expect to earn over that period.

The implications for sales based companies include how they deal with any guaranteed commission agreements or if there are any clawback arrangements in place?  For many firms this ruling will prompt a re-write of commission and bonus structures that inevitably will adjust the rates of commission to counterbalance the increased cost.