Court hikes holiday pay for contractors on commission

Non-limited company contractors whose total pay packet usually includes some commission should have that commission factored into their holiday payments, a court ruling suggests.

In fact, employers such as agencies that operate a PAYE scheme for contractors working in sales-orientated roles must no longer exclude commission in holiday pay, a tribunal said.

Handed down in Leicester, the tribunal’s judgement has “potential to have a major impact” says umbrella firm Parasol, on wage bills, and the law -- which on holiday pay calculation has been in flux.

It also means recruiters should review their contracts and processes to ensure that their umbrella partners are calculating holiday pay correctly, according to Parasol’s legal expert Juliet Bryne.

But the reference period for calculation, or how employers should go about totting up the amount of commission to include in holiday pay, was not spelt out by the tribunal.

It confined its conclusions in the case, Lock V British Gas, to whether the worker (Lock) was right to say that his holiday pay was unfairly short of what he would make via commission.

As a sales consultant for the utilities giant, Mr Lock earned about 60% of his income from commission, accrued in the normal course of his duties in addition to his basic salary.

He argued that when he took annual leave, he was unable to generate any commission during such a holiday period and consequently received less remuneration on his return to work.

Law firm Reed Smith adds that he filed the case on the argument that his reduced income constituted a breach of the Working Time Regulations (WTR).

In an earlier judgement, it was found that such a financial impact may actually deter a worker from taking annual leave and that this would be contrary to European law.

In finding in Mr Lock’s favour, the Leicester tribunal said its decision was only relevant to the four-week leave period (regulation 13 of WTR), and not to the additional period of 1.6 weeks.

Pointing to another “relief” for employers fearing inflated wage costs, recruitment law firm Lawspeed has said back pay claims would be limited to two years, from July 1^st 2015.

“Future holiday pay calculations may need to be revisited and commission schemes reconsidered,” the firm said, outlining one of the “far reaching effects” of the ruling.

But Eversheds, the law firm that acted for British Gas, has reportedly warned payroll operators against taking immediate action in light of the tribunal’s decision.

It told the FT: “Employers who have not yet reached agreement with workers…may wish to wait to find out whether an appeal is to be pursued before acting to resolve outstanding matters.”

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