What constitutes Holiday Pay When it Comes to Payroll?

Most of the time it might seem that payroll can be fairly straightforward, until it goes wrong that is, when it can be anything other than straightforward. This news story takes things one step further as it concerns what is considered to be holiday pay. Fairly straightforward, one might think, but not in the long running case of British Gas Versus Lock.

What is British Gas V. Lock about?

British Gas V Lock is a long running legal case involving British Gas and one of its employees, a Mr. Lock. The case revolves around the inclusion of commission in holiday pay.

Mr Lock, was a sales consultant with British Gas, He brought a claim against his employer via an employment tribunal for outstanding holiday pay on the basis that it did not reflect what he would have earned from commission.

Essentially, he was paid monthly commission, in addition to his basic pay, with the amount of commission depending on his level of sales.

The reason why he brought the claim was that his commission was not included in his holiday pay calculations. Typically and regularly his commission made up 60% of his monthly pay. The argument went, therefore, that he should receive commission in his holiday pay on the basis that he couldn’t work to earn that commission because he was on holiday, commission that he regularly earned.

What was the Outcome of this payroll dispute?

The claim went to an employment tribunal, who asked the European Court of Justice for clarification on what the relationship between holiday pay and commission was.

The conclusion that the European Court of Justice reached was that Mr Lock’s commission was directly linked to the work he carried out, and as a result must be taken into account when calculating holiday pay.

The outcome meant that commission could no longer be discounted when it comes to calculating holiday pay, although there was no guidance on how the calculation should be made. In the words of Stephen Simpson of XpertHR:

“Although there’s no doubt following the European decision that employers must take account of commission in holiday pay calculations, there’s no legally binding guidance on how the calculation should be made.”

That was not the end of the matter, of course, with British Gas’s solicitors, Eversheds, appealing against the decision. However the Court of Appeal ruled that normal remuneration must be included in holiday calculations. This means that because Mr. Locke regularly earned up to 60% of his pay in commission, the commission element was considered part of his normal pay, and therefore should be included in his holiday pay.

This still might not be the end of the legal debate. Given that the Brexit process, which is likely to begin in Spring next year, will presumably end up with the UK no longer being a part of the European Court of Justice, it is impossible to say what the final outcome will be.

What has this got to do with Payroll Services?

As an outsourced payroll services provider, it is our job to run our clients? payrolls accurately and on time, including holiday pay. Our job is to apply all of the rules so that our clients don’t have to worry about them.

Our clients are mainly small businesses, many of whom don’t have in-house finance departments to run their own payroll. Of course, small businesses are unlikely to have the resources to employ a large City law firm like Eversheds to represent them at the Court of Appeal. What we can promise is that when you use us you can be certain that we are 100% up to speed with the prevailing legislation and that your payroll will be 100% correct. Guaranteed.

Contact us or call us on 0121 422 0550 for an initial chat if you are considering outsourcing your payroll.