UK Firms Face 'More Complex and Costly' Holiday Pay Calculations

UK employers could face "more complex and costly" holiday pay calculations after a landmark ruling in the Court of Justice of the European Union.

The CJEU ruled that workers must receive their normal remuneration for annual leave, which must include both commission and basic pay.

"Holiday pay should be straightforward to calculate, but employers will now be faced with even more complicated and costly holiday pay calculations, in what is already a minefield," said Nicola Rabson, an employment partner at Linklaters.

"As a result of this decision, it's possible that employees may be able to gain a significant financial advantage by taking holiday after a particularly lucrative period."

The case involved a British Gas sales consultant, Z. J. Lock, arguing that he should be entitled to his commission payments while taking a period of annual leave because commission formed part of his normal pay.

But Lock took periods of annual leave for which he received only his basic pay and no commission.

This meant that he was losing more than 50% of his average earnings during periods of annual leave and the employee subsequently took the grievance to an Employment Tribunal (ET) in Leicester in 2012.

The ET asked the CJEU whether, in such a circumstance, the commission which a worker would have earned during his annual leave must be taken into account in the calculation of holiday pay and, if so, how the sum payable to the worker must be calculated.

The Court found that such a reduction in holiday pay is liable to deter the worker from actually exercising his right to take his annual leave, which is contrary to the objective pursued by the Working Time Directive.

"This is an extremely important decision that will assist workers across the European Union to argue that they should be entitled to their normal pay, including any commission payments they normally receive, for periods of annual leave," said Dave Prentis, the general secretary of Unison.

Richard Barker, an employment associate at Shoosmiths, told IBTimes UK: "It's quite important for businesses to make sure the commission [they pay] is spread out as much as possible and probably paid on a weekly basis [to avoid upwardly skewered holiday pay payments]."

The case will now be referred back to the Employment Tribunal to determine what annual leave payments Lock is entitled to under UK law.