Just before workers across the country disappeared for the bank holiday and half term, the European Court of Justice (ECJ) gave many a holiday pay rise.

On Thursday, the ECJ gave its decision in Lock v British Gas Trading. The decision is the latest in a line of cases on the right to paid annual leave, and affects the way that UK businesses need to calculate payments when workers are on holiday. The court decided that if a worker regularly earns commission that is an intrinsic part of their remuneration for doing their job, the commission needs to be taken into account when calculating pay whilst on leave. The court's concern was that if workers may lose commission payments when they go on holiday, even though that loss won't be felt until a payroll date after they return, they may be discouraged from taking their full annual holiday.

Adam Lambert, employment partner at Clyde & Co LLP says: “This decision impacts on all workers who have a variable element in their pay, such as commission. The cost for employers could be high, but employers may take some comfort from the fact that the ECJ leaves it open as to precisely how commission is taken into account. We may need to see changes to the UK Working Time Regulations to give clarity as to how employers need to make the calculations. Employers may also decide to scale back on commission arrangements. If they are now required to pay commission for 52 weeks a year, even though it is only earned in 46 or fewer weeks, there may be a percentage reduction in commission schemes to counter balance this.”

Lambert continues: “It may not stop there. This summer, the Employment Appeal Tribunal will consider whether the same principles have to apply to overtime payments that are lost whilst on holiday.”