Back in the late ‘90s, the Working Time Regulations 1998 (WTR) were introduced here in the UK. They implemented European Union laws that govern the minimum amount of holiday that workers are entitled to receive and the minimum amount of holiday pay that the employers are required to pay. In most cases, calculating a person’s holiday entitlement is fairly simple. Under the WTR, workers are entitled to a minimum of 5.6 weeks’ paid holiday in each holiday year. So for me, as someone who works 5 days per week, I am entitled to a minimum of 28 days’ holiday each year, including the 8 normal bank and public holidays. Assuming that I also receive a fixed annual salary, then when I go on holiday, I just receive my normal monthly salary payment, as if I had been at work. 

Unfortunately, not all cases are as simple as my own. Indeed, the law can become surprisingly complicated when you try to apply it to people with fluctuating hours of work and/or fluctuating levels of pay. British Gas v Lock Take, for example, the recent case of British Gas v Lock. In his role as a salesman, Mr Lock received a basic salary, together with a commission payment that varied depending upon the number of sales that he made. 

Logically, this meant that when he was at work and making sales, he earned commission; when he went on holiday and was not making any sales, he did not. Mr Lock brought a claim against British Gas, arguing that his holiday pay ought to factor in not only his basic pay, but also the commission that he would have earned had he been at work. This case was eventually sent to the European Court of Justice (ECJ), which decided that Mr Lock’s holiday pay should take account of commission as well as basic pay. To decide otherwise would mean that workers might be discouraged from taking holiday, because of the financial penalty that they would suffer when doing so. For now, the ECJ has left it to courts here in the UK to decide precisely how the holiday pay calculation should work.

So what does all this mean? This decision is consistent with a run of recent cases that suggest that many businesses may have been undervaluing the holiday pay that they are obliged to pay to their workers. If you pay commission to your staff, but do not factor this in when calculating holiday pay, you ought to review your current practices. It is worth bearing in mind that some employees, if they were minded to do so, might be able to claim any ongoing shortfall in holiday pay dating back to the start of their employment or the introduction of the WTR, whichever is the later. In some cases, the value of these claims could be quite considerable. So it makes sense to bite the bullet and take steps to address any problems now, rather than letting the situation get any worse.