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Contractors’ commission should be included in holiday pay according to court

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Contractors working through non-limited companies who usually earn commission which is included in their total pay packet should be entitled to have that commission included in their holiday pay, according to a court ruling on the matter. The ruling means that employers such as those which operate a PAYE scheme for contractors that work in sectors such as sales, where the commission can represent a significant proportion of a contractor’s earnings, are no longer allowed to exclude commission from their holiday pay.

The tribunal was held in Leicester and the verdict handed down has the potential to have a huge impact on the legal situation surrounding wages, which have been under discussion for some time with no definitive answers as to the legal position when it comes to holiday pay. This change means that recruiters will need to ensure that their contracts and agreements are updated to reflect the changes that this ruling will necessitate. They will need to ensure that any umbrella companies that they work with are calculating holiday pay correctly to protect their recruits and avoid coming under fire for failing to recognise the ruling.

However, there was no reference to any standardised period for calculation in the tribunal’s decision, meaning that some employers may have trouble calculating holiday pay correctly even if they are attempting to comply with the ruling. The case of Lock V British Gas confined itself to the issue of whether the worker should be able to expect that his holiday pay was unfairly limited by the lack of commission paid when he was on holiday. The case was brought because the worker earned around 60 per cent of his take-home pay in the form of commission, meaning that his inability to earn commission whilst on holiday left him considerably out of pocket.

The case was filed on the basis that this discrepancy in wages effectively contravened the Working Time Regulations, on the basis of an earlier ruling which found that such practices could discourage workers from taking their full annual leave entitlement, which is not allowed under European law. The ruling, in this case, did specify that the decision would only apply to the four week leave period specified in the Working Time Regulations and not to any additional periods of leave taken.

Claims for back pay can be made for up to two years from July 1st 2015, and although many firms will wish to check their commission schemes and holiday policies, law firms are warning that any changes should be made with consideration for the potential for an appeal to be launched which could mean that their agreements need to be revised again.

If you are keen to ensure that you make the most of your earnings, then opting to work for yourself through a limited company is often the most efficient way to operate. For information on how to calculate your take-home pay, manage your expenses and estimate your tax, our handy guides are designed to make your finances as simple as possible. We also have a free 60-page guide to contracting which can help you to get an idea of the options available to you.

If you have any questions or would like to find out more information about contracting in general, call us on 01442 275789 or email  newbusiness@sjdaccountancy.com.

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