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Calculating Holiday Pay : Case Update

2nd June, 2014

Case update: The CJEU has followed Advocate General Bot’s opinion that commission should be taken into account when calculating holiday pay

We previously reported on the case of ZJR Lock v British Gas, in which the Employment Tribunal referred to the CJEU to determine whether Member States should take into account employees’ commission when calculating holiday pay.

Mr Lock was employed by British Gas as a salesman and was paid a basic salary together with a sales-related commission. This meant that the amount of commission Mr Lock received varied from time to time and was, at all times, subject to the sales he made. Whilst on annual leave for a period of around two weeks, British Gas calculated Mr Lock’s holiday pay using only his basic salary. Obviously it was impossible for Mr Lock to make any sales during his period of leave and as such he could not earn any of his usual commission. Mr Lock submitted a claim to the Leicester Employment Tribunal for his ‘lost’ holiday pay.

Following a preliminary ruling by Advocate General Bot, the CJEU has found that whilst on leave, employees must be paid a comparable amount to what they would have earned if at work. The CJEU held that the underlying principle of the Working Time Directive is to allow employees to take leave and that they should not be deterred from doing so due to financial considerations. The CJEU has however left national courts to decide exactly how holiday pay should be calculated to take into account variable elements of pay.

This is an important development for employers and employees alike. It must be remembered that where an employee is paid a basic salary, together with variable elements directly linked to their work, then holiday pay should be comparable to their normal earnings. Although it may take some time for an amendment to the Working Time Regulations to determine how to calculate holiday pay in this way, we would advise that employers review employees’ holiday entitlements sooner rather than later in order to ensure your policies and procedures are compliant with the latest ruling.

For a free review of your contract of employment, or for further information and advice in relation to calculating holiday pay, please contact Claire Brook on 01244 405575 or send an email to [email protected].

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