Your workers want commission for sales they don’t make while they’re on holiday?
The law says they can have it!
But confusion reigns in calculating it for workers departing on their holidays
It sounds a holiday present that’s too good to be true – not only do your workers get paid holiday, but they also get paid commission to make up for sales they can’t make because they’re away!
However, that is now the law for the millions of workers who earn commission as part of their pay, ranging from City traders and financial advisors to estate agents and salespeople. (*Does this also affect Britain’s millions of hospitality workers who get tips?).
However, as much of the UK workforce prepares to depart on their summer holidays, there is great confusion as to how to calculate this entitlement.
Tina Wisener of workplace law specialist, Doyle Clayton said: “A recent ruling from the European Court of Justice (ECJ) reaffirmed the principle that employees taking holidays should not in any way be penalised. However, in a piece of logic that is worthy of Gulliver’s Travels, it decreed that as this means they can’t makes sales while they’re on holiday and so their pay will go down after their holiday, a sum reflecting ‘lost’ commission has to be added to their holiday pay to make up for this in advance.
“It sounds simple in theory, but in practice the calculation is far from easy and there has been little guidance. For instance, what is the case where sales are seasonal and employees have busy and quiet seasons. If they take a holiday in a busy time, should the holiday pay reflect this – giving the employer a double whammy of having to pay a higher holiday commission while, at the same time, losing sales because the person is away during this busy period.”
Options being considered by employers include:
– Work out average commission over the past year. This may well be the best approach if commission varies greatly throughout the year.
– Work out average commission over another representative period, such as the previous 12 weeks. This will work if commission remains similar from month to month.
– Not pay anything and wait for legal challenges or clarification of the ruling. This may not be the best approach from an employee relations perspective, but it does mean that employers won’t end up paying more than is legally required.
– Base the payment on sales made for the same period last year. To many, the most sensible way would be to compare sales an employee did in a comparable period the year before. This isn’t allowed. The employee’s remuneration (including commission) has to be worked out over a period which is representative of “normal” working and ‘normal remuneration’. A comparison with the same period last year won’t always be representative.
Doyle Clayton partner Tina Wisener added: “I’ve also had employers asking me whether the best way to do it is to simply agree a lump sum payment with the employee and pay it to them at the end of the holiday year as a way to quickly bring resolution and certainty to this. My advice is that this is not an option. The law strictly prohibits employers from paying in lieu of holiday, except when they leave the organisation. Employees have to be paid their normal remuneration whilst they are on holiday, otherwise they might be put off taking it. It is not possible to make a payment in lieu of commission at a later date.”
Resolution to this conundrum is not going to come in time for the millions taking their summer holidays in July and August and could rumble on for many months, if not years.
Examples of its impact:
Currency broker Joe wants to take 1 week’s holiday in early July.
He earns around £10k per month on average, of which £5K is salary and £5K commission. However, he tends to earn more commission between September and May, and less over the summer and in December. In April and May he earned commission of £8k (£2k per week), but in June and July he earns only £2k commission per month (£500 per week).
If you calculate commission based on the previous 12 months, Joe would have to be paid an extra £1153 (or £2306 for a fortnight).
If, on the other hand, you base commission on the average of the previous 12 weeks (when Joe earned £18k), Joe would have to be paid £1,500 extra for a week’s holiday and £3k for a fortnight – even though he is holidaying at a quiet time when he would make few sales… giving him higher earnings than if he had stayed in the office and worked.
Top estate agent Kate wants to take 1 week’s holiday in early July.
She earns around £5k per month on average, of which £2.5K is salary and £2.5K commission. She also tends to earn more commission between September and May, and less over the summer and in December. In April and May she earned commission of £4k (£1k per week), but in June and July she earned only £1k commission per month (£250 per week).
If you calculate commission based on the previous 12 months, Kate would have to be paid an extra £577 (or £1153 for a fortnight).
If, on the other hand, you base commission on the average of the previous 12 weeks (when Kate earned £9k), Kate will have to be paid £750 extra for a week’s holiday and £1,500 for a fortnight – even though she is holidaying at a quiet time when she would make few sales… giving her higher earnings than if she had stayed in the office.
How it affects employees who don’t have commission and people who are sick while on holiday
Employees whose income doesn’t include commission on sales aren’t affected, but employees who work certain types of overtime may benefit from another ruling last year that overtime pay has to be included in holiday pay (so in effect you get extra holiday pay for overtime you did not work as you were on holiday).
In addition, all employees also benefit from an earlier ECJ decision that if you are ill on holiday, it doesn’t count as holiday.
This decision again gave employers a double whammy of having to pay employees while they were sick on holiday, and then having to pay them all over again when they retake the holiday once they are feeling better.
However, if an employee is ill whilst on holiday they are not entitled to be paid theoretical commission. This is because the pay they receive is sick pay. The court’s ruling only applies to holiday pay and not sick pay. Other than the payment of statutory sick pay, an employer’s sick pay obligations are purely a contractual matter for agreement between employer and employee.
* Does the ruling affect tips earned by waiting and bar staff?
Not expressly. It could be argued it applies if tips are paid by the employer through the payroll, but it’s unlikely to apply where the employee is simply allowed to keep tips given them by the customer.