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Update! Thousands now may be able to claim greater holiday pay after new ruling.

It took four years, but the case is finally finished*. Both the European Court of Justice and the Employment Appeal Tribunal service have ruled in favour of Mr Lock, a commission-earning British Gas employee who questioned holiday pay and how it was calculated. The ruling may affect thousands.

Although strikingly similar, we’re not talking about the holiday pay ruling that occurred back in 2014. Here, workers that were regularly paid overtime have henceforth had these regular payments included throughout their periods of annual leave. This time round, the focus is on commission.

Mr Lock’s monthly income was part basic salary, part commission; the majority being commission based on the number of contracts sold. Whilst taking annual leave, the employee was unable to earn commission and thus only received his basic salary – causing a real dent in his pay packet at the end of the month. This limits an employee’s ability to take holiday, especially for longer periods when they depend on the commission payments to pay the bills.

This will have implications. Now unlawful after the ruling earlier this week, holiday pay must be calculated by combining both basic salary in that month and the average commission payment one may expect to earn over that period.

This ruling is yet another complication we could all do without. For sales based companies, how do you handle guaranteed commission for a new starter or claw back arrangements?  For many firms this ruling will prompt a re-write of commission and bonus structures that inevitably will adjust the rates of commission to counterbalance the increased cost. The HR Dept can help you here.

Now let’s look at the bigger picture. Pay and annual leave are two huge factors that affect job satisfaction. Generosity in these areas sees returns in loyalty, motivation and ultimately productivity. Arguably, before the ruling, limited annual leave payments acted as a disincentive against certain employees taking time away from work, causing some to simply burn out. Especially in cities where one’s basic salary may fail to cover even rent payments. Expect a big boost therefore to the employment relationship and to the performance of your staff when implementing the new holiday pay ruling.

Is your business going to be affected? Are you looking for ways to accommodate the new ruling? Are you unsure how this will affect your wage bills at the end of the month? Give The HR Dept a call. We’re more than happy to provide you with the practical, pragmatic HR advice you need to make the relevant changes to your business.

*British Gas are now seeking leave to appeal to the Court of Appeal 29/02/16 we will keep you updated.