All employers will have contracts of employment which agree terms of payment for staff – and this will include pay to cover holiday allowances.
What many employers may not be aware of is the shifting legal focus on this issue which means that they are likely to be scrutinised in tribunals if challenged on the correct value of these holiday pay allowances – particularly in regards to employees whose salaries are partly made up from commission earnings or overtime.
Historically, most businesses have paid a basic salary allowance for holidays, which does not include any commission or overtime percentage equivalent. This is being challenged via several high profile cases going through tribunals at the moment and recent pay disputes which have gone in favour of the claimant. The outcome of these cases will have a significant impact upon holiday pay for many employers.
The question this poses to employers is whether they are doing enough to match normal earnings for any employee during holiday leave, where that employee relies at any time on additional income, from such sources as overtime, bonuses or commission, to raise their salary up to a level that they are accustomed to earning.
In the Bear Scotland v. Fulton case in 2015 the Employment Appeal Tribunal considered the question of overtime payments and criticised employers who were paying basic pay during holiday periods without considering how overtime payments should also fall into that calculation. This set an initial precedent which has been brought much more into the spotlight when considered alongside other cases regarding holiday pay.
Notably, there is a long-running case of Lock v. British Gas. Mr Lock was employed as a Salesman by British Gas and was paid a basic salary plus commission based on the number and type of contracts he tied customers into. However, when Mr Lock took holiday leave, he was only paid his basic salary plus any commission which he had earned prior to the holiday period. Since he was on holiday, he could not earn any commission, his earnings were reduced below his usual value - and it was that disparity which formed the basis of the dispute.
It had already been decided in the employment tribunal that Mr Lock was entitled to back-pay from British Gas for the failure to pay an amount equivalent to commission which he would otherwise have earned, if he had not been on holiday. The whole point of the dispute's focus is that employees should not be penalised by receiving only normal pay and should in fact, be encouraged to take statutory minimum holiday.
According to this particular judgment, there are 60 other claims against British Gas in the East Midlands region alone and some 918 pending claims around the country. There are literally thousands of similar claims against other employers for unpaid commission waiting on the final outcomes of this case – and because the Secretary of State for Business Innovation & Skills intervened in the employment appeal tribunal hearing, it is unlikely that this case will be appealed.
It is vital that employers take note of the importance of these cases and review their own policies on holiday pay in relation to overtime and commission earnings as this is likely to be challenged much more openly as cases such as Bear Scotland v. Fulton and Lock v. British Gas become precedents for such disputes.
The impact is not just on any holiday pay practices going forward, it may well place an onus on companies to retrospectively adjust those holiday payments to staff who are paid on a basic salary plus additional pay (overtime or commission for example) and to clearly show that employees are not financially penalised for taking holidays.
Wake Smith can offer advice to both employers and employees about all aspects of employment law.
