The Employment Appeal Tribunal (EAT) has upheld a tribunal’s decision (via reference to the European Court of Justice) that the Working Time Regulations 1998 (WTR) can be interpreted so that commission payments must be included when calculating holiday pay (British Gas v Lock [2015]). Although this is not yet definitive, with British Gas seeking to appeal the latest decision, it could lead to employees who are still not seeing these additional sums included in their holiday pay joining the thousands with pending claims for underpaid holiday.
Claims can only apply to the four weeks annual leave derived from the underlying European Working Time Directive. The additional 1.6 weeks UK leave deriving from the WTR can continue to be paid at ‘basic’ rates only.
This decision again confirms that it is no longer acceptable for EU derived holiday pay to reflect only basic pay. It should reflect ‘normal remuneration’ which can vary from case to case to include payments such as commission. However, voluntary overtime remains an area of uncertainty. Our advice is, if there is a sufficient degree of frequency or repetition to the overtime then employers should seriously consider reflecting it in holiday pay.
Previously a major concern has been to limit the risk of claims for back pay in respect of underpaid holiday which could arguably stretch back for significant periods. Back claims have now been restricted by the Deduction from Wages (Limitation) Regulations 2014. From 1 July 2015 a maximum of 2 years underpaid holiday is potentially recoverable.
Although this restriction is helpful, employers should carefully consider their current practice on holiday pay. If it does not reflect the decisions in Lock and other cases, practices and procedures should be amended to ensure holiday is paid at the correct rate.
Where holiday pay has not been correctly calculated we recommend assessing the risk and potential value of any claims. If the exposure to potential claims is high employers should seek legal advice.
