News - EU commission holiday pay ruling

2nd June 2014

Employers need to be wary of a “minefield” following an EU Court ruling that sales commission should be included in holiday pay, warns KPMG.

A ruling handed down last week by the Court of Justice of the European Union CJEU in the long-running case of Lock v British Gas noted that a salesperson’s holiday pay could not be limited to their basic salary. Where an employee’s salary includes sales commission, that commission must be included in holiday pay.

The case will now be referred back to the Employment Tribunal to determine what annual leave payments Mr. Lock is entitled to under UK law.

KPMG director Angus Menzies said: “Holiday pay is a real minefield for employers. If employers do not now consider strategies for addressing this issue it could prove very costly. Many employment lawyers already expect holiday pay issues to be one of their most fertile sources of work over the next couple of years.”

The global consultancy firm says businesses are braced for mass claims which could potentially go back to 1998 when the Working Time Directive was implemented in Great Britain.

KPMG says the inclusion of overtime in holiday pay is already being litigated, Menzies wonders if annual bonuses could be the next battleground. He also questions how employers should work out what employment tax is due on any holiday pay owed.

“The Employment Tribunal must follow the CJEU decision so this case is likely to lead to a flood of similar claims from workers whose wage packets ordinarily include a regular and recurring element of commission but for whom this is not factored into their holiday pay,” said Menzies.

“And for employers, as well as the wage bill, there’s the taxman to consider. Where back pay claims are successful there is likely to be tax due. Negotiation with HMRC is likely to be necessary and interest and penalties may be due.”

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