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Including Commission in Holiday Pay - The Pensions Implications




by:
Jonathan Moody
Ian Wright
Mayer Brown International LLP - London Office

 
June 11, 2014

Previously published on June 2014

The Court of Justice of the European Union has recently decided that where a worker has a contractual right to commission that is calculated by reference to sales achieved by the worker, the statutory holiday pay paid to the worker must take into account that commission. In other words, employers must pay commission during periods of annual leave to workers with contractual commission entitlements.

Although at first glance this is a decision which only affects holiday pay, it may have knock-on implications for pension schemes where the employer has not paid commission during periods of annual leave to workers with contractual commission entitlements. Whether the decision will have such implications will depend on:

  • the definition of pensionable earnings/salary under the scheme rules and in particular whether commission is pensionable;

  • whether the employer’s workers have a contractual right to commission;
  • the extent to which the employer already pays commission during periods of annual leave; and
  • how the UK employment tribunal in this case decides that employers should calculate the commission payable during periods of annual leave

Until the UK employment tribunal makes its decision, there is little that employers and trustees can do. Employment tribunal decisions are only binding on the parties to the particular case. However, given that the ECJ has made a ruling in this instance, we would not recommend that employers ignore the ECJ ruling or the tribunal’s eventual decision.

Once the tribunal decision is published, and assuming that it is not appealed, employers will need to decide what changes, if any, are required to the calculation of workers’ statutory holiday pay to reflect commission entitlements. Employers and trustees will then need to decide what changes, if any, are required to the contributions that the employer and members make to the scheme and to the benefits provided under the scheme, and whether any “topping up” of previous contributions is required.

Employers and trustees should also note that an Employment Appeal Tribunal decision is expected this summer on whether overtime should be taken into account when calculating statutory holiday pay.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Jonathan Moody
Ian Wright
Practice Area
 
Employee Benefits
 
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