In a judgment recently handed down by The European Court of Justice (ECJ) the court found that that holiday pay must correspond to normal pay, including any commission or other variable pay that it might ordinarily comprise.
In this case, the employee was able to earn a sizeable commission, which could represent up to 60% of his total remuneration. However, when he took annual leave, his holiday pay was based on his basic salary only.
The ECJ found that the employee’s holiday pay should include an amount to reflect the commission he was unable to earn while on annual leave. The court stated that workers may be deterred from exercising their important social right to take annual leave if they suffer a financial disadvantage for doing so. Therefore, holiday pay must correspond with the normal pay received by the worker.
The principle applied by the European Court is likely to apply to any variable pay including overtime, allowances and bonuses. Arguably, any variable pay, provided it is intrinsically linked to a worker’s contract, should be included in holiday pay.
Two cases are due to be heard by the Employment Appeal Tribunal at the end of this month. Employers and employees alike should closely watch this space, as the outcome of these could have considerable financial implications for both.