20 August 2019

Employment Court examines employee commissions and holiday pay

Court considered how the definition of ordinary weekly pay requires an employer to treat commissions when calculating holiday pay.
New Zealand Employment and HR
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The Employment Court has recently given new clarity to a previously untested area of the Holidays Act. In Tourism Holdings Limited v A Labour Inspector of the Ministry of Business, Innovation and Employment [2019] NZEmpC 87, the Employment Court considered how the definition of ordinary weekly pay requires an employer to treat commissions when calculating holiday pay.

Under the Holidays Act, when an employee takes a paid annual holiday they are entitled to be paid the greater of their:

  • Ordinary weekly pay; or
  • Average weekly earnings for the previous 12 months (starting from their last pay period).

Ordinary weekly pay includes productivity or incentive based payments (such as commission) which are a "regular part of the employee's pay". This case was mainly concerned with these words - "regular part of the employee's pay".

Tourism Holdings employs bus drivers, who earn commission on the sale of activities they book for passengers. The dispute between the Labour Inspector and Tourism Holdings concerned whether commissions earned in this manner should be considered a 'regular part' of the drivers' pay for an ordinary working week. If they are a 'regular part' of the driver's pay, they are required to be included when calculating holiday pay.

Tourism Holdings argued that commissions earned by drivers was excluded from the statutory definition of 'ordinary weekly pay', as it was not earned weekly, but at irregular intervals measured by the length of each trip and subsequent reconciliation.

The Labour Inspector argued that:

  • The drivers are 'regularly' paid commissions earned on trips;
  • That no period of time is expressly given in the Holidays Act against which the regularity of commission payments can be measured; and
  • That Parliamentary intention, and a 'balanced and harmonious approach to the formula" was a period of at least 4 weeks when considering commissions earned.

The Employment Court held that in light of the wording of the statute and its purpose, the intended meaning of 'regular' within the Act is what is received under the employment agreement for an ordinary working week. Tourism Holdings' drivers commonly received pay including commission, but that was earned over varying intervals of time and required reconciliation after each trip (which could extend well beyond a week), and as such did not constitute the 'regular' type of payment contemplated by the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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