comScoreTag
FancyBox
FancyBox

Money Matter


Article exclusively contributed by
Johnson Stokes & Master

Should commission be included in calculating annual leave pay?


The decision of Laing & Others v Lisbeth Enterprises Limited trading as Phillip Wain International (Labour Tribunal Appeal No. 133/2003) confirms that an employer is required to include the amount of contractual commission in calculating annual leave pay and statutory holiday pay.

Ms Luk was paid annual leave pay and statutory holiday pay calculated by reference only to her basic monthly salary of HK$5,600 with commission averaging HK$50,000 per month excluded. The Labour Tribunal found that Lisbeth had rightly not taken Ms Luk's commission into amount in calculating annual leave pay and statutory holiday pay. Ms Luk appealed to the Court of First Instance.

The Employment Ordinance ("EO") prescribes both the amounts of statutory holiday pay and annual leave pay as the sum equivalent to the "wages which the employee would have earned" on a full working day or during a period of annual leave respectively (ss.41(1) and 41C(1)). Where an employee is paid his ordinary wages in respect of any statutory holiday or annual leave the employee will not be entitled to additional holiday pay or annual leave pay (s.42).

"Wages" is defined to include commission but not "any commission which is of a gratuitous nature or which is payable only at the discretion of the employer".

Lisbeth argued that, as Ms Luk did not make any sales (and therefore did not receive any payment) on a holiday or during her annual leave, "the wages which the employee would have earned" under ss.41(1) and 41C would have been nil. The Court rejected this argument on the basis that the definition of "wages" in s.2(1) is defined to include commission that is contractual in nature.

Next Lisbeth argued that Ms Luk had already been paid her "ordinary wages" (ie her basic salary) under s.42 and therefore she should not be entitled to any additional payment. The Court found that Ms Luk's basic salary was not her "ordinary wages" under s.42.

Lisbeth's third argument was that Ms Luk's contract of employment only required it to pay Ms Luk's "full salary" (ie basic salary) during her annual leave. The Court found that "full salary" was not "ordinary wages" under s.42 and therefore that section did not apply. Further, if the contract only required Lisbeth to pay Ms Luk's basic salary during her annual leave, it would fall foul of s.70 which provides that any term of a contract of employment which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by the EO shall be void.

Lastly Lisbeth argued that as Ms Luk had never previously complained about the calculation of holiday pay and annual leave pay, there was an implied contract or an estoppel preventing Ms Luk from asserting her strict legal rights. The Court held that there was no implied contract and even if there were, it would fall foul of s.70. There could be no estoppel as any failure to complain would have been caused by or contributed by the misleading representation made by Lisbeth about Ms Luk's strict legal rights.

The Court allowed Ms Luk's appeal.

While the finding of the Court is perhaps unsurprising given the clear definition of "wages" in s.2(1), Lisbeth's case does reinforce that an employer is required to include contractual commission in the calculation of entitlements by reference to "wages" under the EO, in particular, annual leave pay and statutory holiday pay.

Q1 When will an employer be entitled to not include commission in the calculation of annual leave pay and holiday pay?
A1 An employer will not be required to include "commission which is of a gratuitous nature or which is payable only at the discretion of the employer" in the calculation of annual leave pay and holiday pay (see definition of "wages").

Q2 What is the difference between contractual commission and commission of a gratuitous nature?
A2 Generally commission of a gratuitous nature is payable only at the discretion of the employer and there is no guarantee that the employee will be entitled to it (even if the employee performs well). Contractual commission is the opposite and there is a promise to pay commission if certain objectives are achieved.

Q3 Should contractual commission be included in calculating other entitlements such as wages in lieu of notice, long service pay, severance pay and sickness allowance?
A3 As the above entitlements are calculated by reference to "wages" and the word "wages" is defined to include contractual commission, contractual commission will be included in calculating those entitlements.

Q4 What other types of entitlements under the Employment Ordinance are calculated by reference to "wages"?
A4 Other types of entitlements include maternity leave pay and the protection from having deductions made from wages.


Taken from Career Times 20 August 2004

(Last review date: 23 August 2013)


Disclaimer: The opinions expressed in this article are those of the contributor.

Share


Free Subscription

Email