As holiday season is upon us and people’s minds are drifting to thoughts of relaxing on a tropical beach with a book in one hand and a pina colada in the other, a recent case held by the European Court of Justice has ruled that an employee’s commission should be taken into consideration when calculating their holiday pay.

The case of Locke v British Gas involved a sales consultant for the energy company who earned an average of 60 per cent of his salary from commission payments.

When he took annual leave in December 2011, Mr Locke was only paid his basic salary as part of his annual leave and so made a claim for the outstanding holiday pay he believed he was owed.

The Advocate General of the European Court of Justice ruled that commission should be included in holiday pay. He deemed that the proper levels of holiday pay were required under the Working Time Directive in order for workers to enjoy their leave and not face the prospect of financial hardship.

Also, because Mr Locke’s job as a sales consultant meant that his role was intrinsically linked to the earning of commission, The Advocate General concluded that the commission should be included.

This will have a significant impact for employers.

Employees earning commission as part of their salary will now be entitled to have this reflected in their holiday pay. However, employers will not have to pay commission on holiday entitlements which exceed the minimum level of annual leave set out in the Working Time Directive.

This is going to provide employers with a major headache especially those in sectors where commissions form a significant part of their reward strategy. Complicated holiday pay calculations will have to be made. To avoid this, businesses may want to consider reviewing an individual’s commission payments over a twelve month cycle.

Although UK tribunals are yet to interpret the case and how it sits with UK law on holiday pay, it’s expected that this will be addressed sooner rather than later.