The European Court has recently confirmed that sales commission should be included when calculating statutory holiday pay.
The question arose in a UK employment tribunal case: was the employee (who had a sales commission element in his remuneration) entitled to have a sum in respect of his commission included in “holiday pay”?
The UK tribunal wasn’t sure as there had been conflicting previous decisions, so it referred the matter to the European Court of Justice (ECJ).
The relevant EU law is the Working Time Directive (WTD). The WTD requires that workers receive their “normal remuneration” during holiday time. Normal remuneration includes any payments “intrinsically linked” to the performance of the worker’s task.
The ECJ confirmed the view that contractual sales based commission is intrinsically linked to an employee’s role as salesman. Therefore his statutory holiday pay should include an amount to reflect the commission he would have earned if he had not taken annual leave.
How this sum should be calculated the ECJ said should be determined by the national courts, but it should focus on the average commission earned over the appropriate reference period (which itself is determined by national law).
Impact in Europe
The financial impact of this clarification could be significant certainly in the UK. Many companies employ workers on contractual sales commissions. These employees will now be entitled to increased holiday pay. The impact in other EU countries will depend upon how they implemented and apply the WTD at state level. Where they have adopted the UK approach (i.e. to exclude sales commissions) they must now apply the ECJ ruling.
And another related point is becoming clearer. Does “normal remuneration” also include overtime payments? One recent UK case said it did. If this is confirmed this will result in a further increase in the cost to the employer of holiday entitlement.
In the UK, a review of contracts and processes for calculating holiday pay for staff on sales commission will be sensible but perhaps wait until the UK tribunal in this case has applied the ECJ ruling. For employers of staff on sales commission in other EU member states it would be advisable to check whether the ECJ ruling has any local implications and if so, consider what (if any) adjustments need to be made to contracts and processes.