EU Court ruling on holiday pay and commissions could affect recruitment firms
23 May 2014
Trade bodies and legal experts agree that a ruling in the Court of Justice of the European Union (CJEU) yesterday will have a serious impact on recruitment firms. However, a leading recruiter says that not all firms will be affected equally.
Fri, 23 May 2014
Trade bodies and legal experts agree that a ruling in the Court of Justice of the European Union (CJEU) yesterday will have a serious impact on recruitment firms. However, a leading recruiter says that not all firms will be affected equally.
The case stemmed from a British Gas employee who was paid sales commission. However, because he made no sales during his annual leave he received less income in the months following his leave. The CJEU ruled that his holiday pay should have taken into account commission payments as otherwise “he may have been deterred from exercising his right to annual leave”.
Bunmi Adefuye, soliticitor for the Recruitment and Employment Confederation, says: “Currently in the UK, the calculation for holiday pay will include commission for workers that do not have normal working hours. However the ECJ ruling extends this entitlement to workers that have normal working hours but their pay fluctuates depending on the amount of work they have done.”
Adefuye advises recruiters to speak with clients “as soon as possible to negotiate any adjustments to pay rates for workers that have normal working hours and receive commission to ensure that there is absolute clarity on the workers’ holiday pay entitlement”.
Commenting on the ruling, Samantha Hurley, head of external relations and compliance at the Association of Professional Staffing Companies, says: “This is obviously a huge issue for any commission-based sales environment and will consequently have a serious impact on recruitment firms which may now have to think seriously about how remuneration packages are structured – and potentially how they may need to be changed. We are very concerned by this ruling.”
A statement from law firm Mishcon de Reya gives this example of how the ruling might be applied: “You have a salesperson, earning £300 per week basic salary who goes to see seven potential customers each week. On average, one of those customers places an order. The order is fulfilled one month later, without any further involvement from the salesperson, and they pocket £100 in commission from that sale.
“If the salesperson goes on holiday for a week,” the example continues, “they should be entitled to £300 in salary and £100 in respect of the commission that they earned from the sale that goes through while they are away (which the salesperson arranged the previous month). Following this case, they should also be entitled to the £100 that they have lost as a result of not being able to arrange next month’s sale.”
The Mishcon de Reya statement continues: “As a result, we anticipate that employers will not only have to bear significant additional cost, but they may also discover that calculating holiday pay for employees on commission is far from straightforward.”
The law firm predicts “huge implications” for employers who operate commission schemes.
However, Jon Dweck, managing director of Pod Talent and winner of Best Recruitment Agency to Work For (fewer than 100 employees) at the recent Recruiter Awards for Excellence, says that many staffing companies recruitment consultants’ earnings are not affected by going on holiday.
“It depends on the life cycle of a vacancy,” he says. He explains that in companies where a consultant maintains ownership of their pipeline of vacancies, and staff cover for one another during holidays, a consultant’s earnings shouldn’t fall in the months after they return from holiday.
Dweck says that where the ruling could be an issue is in call centre type or walk-in recruitment environment, where vacancies are filled in a day. In such environments, he says a consultant’s future earnings could be affected by being on holiday.
However, in companies such as his, “placements are not achieved in a day but over the course of a month or two”, he adds.
APSCO’s Hurley adds: “Rather unhelpfully the CJEU did not expand on its ruling to give any indication of how the holiday pay should be calculated and has said that this is for the UK courts to decide. And so, yet again members are faced with uncertainty as to how to interpret the legislation, and we will need to await case law to give some clarity.”
The case stemmed from a British Gas employee who was paid sales commission. However, because he made no sales during his annual leave he received less income in the months following his leave. The CJEU ruled that his holiday pay should have taken into account commission payments as otherwise “he may have been deterred from exercising his right to annual leave”.
Bunmi Adefuye, soliticitor for the Recruitment and Employment Confederation, says: “Currently in the UK, the calculation for holiday pay will include commission for workers that do not have normal working hours. However the ECJ ruling extends this entitlement to workers that have normal working hours but their pay fluctuates depending on the amount of work they have done.”
Adefuye advises recruiters to speak with clients “as soon as possible to negotiate any adjustments to pay rates for workers that have normal working hours and receive commission to ensure that there is absolute clarity on the workers’ holiday pay entitlement”.
Commenting on the ruling, Samantha Hurley, head of external relations and compliance at the Association of Professional Staffing Companies, says: “This is obviously a huge issue for any commission-based sales environment and will consequently have a serious impact on recruitment firms which may now have to think seriously about how remuneration packages are structured – and potentially how they may need to be changed. We are very concerned by this ruling.”
A statement from law firm Mishcon de Reya gives this example of how the ruling might be applied: “You have a salesperson, earning £300 per week basic salary who goes to see seven potential customers each week. On average, one of those customers places an order. The order is fulfilled one month later, without any further involvement from the salesperson, and they pocket £100 in commission from that sale.
“If the salesperson goes on holiday for a week,” the example continues, “they should be entitled to £300 in salary and £100 in respect of the commission that they earned from the sale that goes through while they are away (which the salesperson arranged the previous month). Following this case, they should also be entitled to the £100 that they have lost as a result of not being able to arrange next month’s sale.”
The Mishcon de Reya statement continues: “As a result, we anticipate that employers will not only have to bear significant additional cost, but they may also discover that calculating holiday pay for employees on commission is far from straightforward.”
The law firm predicts “huge implications” for employers who operate commission schemes.
However, Jon Dweck, managing director of Pod Talent and winner of Best Recruitment Agency to Work For (fewer than 100 employees) at the recent Recruiter Awards for Excellence, says that many staffing companies recruitment consultants’ earnings are not affected by going on holiday.
“It depends on the life cycle of a vacancy,” he says. He explains that in companies where a consultant maintains ownership of their pipeline of vacancies, and staff cover for one another during holidays, a consultant’s earnings shouldn’t fall in the months after they return from holiday.
Dweck says that where the ruling could be an issue is in call centre type or walk-in recruitment environment, where vacancies are filled in a day. In such environments, he says a consultant’s future earnings could be affected by being on holiday.
However, in companies such as his, “placements are not achieved in a day but over the course of a month or two”, he adds.
APSCO’s Hurley adds: “Rather unhelpfully the CJEU did not expand on its ruling to give any indication of how the holiday pay should be calculated and has said that this is for the UK courts to decide. And so, yet again members are faced with uncertainty as to how to interpret the legislation, and we will need to await case law to give some clarity.”
