Kate Brooks
Partner, Solicitor & Head of Employment/HR Services
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Date Published:16 Apr 2020 Last Updated:24 Oct 2021

Furlough Scheme – Commission payments

Employment Law Advice

The initial guidance on the Coronavirus Job Retention Scheme (“the Scheme”) did not provide any direction on how to calculate furlough pay for employees who receive commission or bonus payments in addition to their normal wage.

The latest update on the Scheme, published on 4 April 2020 states that employers can claim for “any regular payments that they are obliged to pay their employees” This includes wages, past overtime, fees and compulsory commission payments. Any discretionary payments (i.e. tips), bonus or non-cash payments should be excluded.

This update is vital to those working in commission based sales jobs (i.e. estate agents and recruitment consultants) as their employers must now take into account any compulsory commission payments when calculating furlough pay.

Contractual commission

Some employers operate commission schemes whereby the payment is dependent upon the level of sales achieved. This may be based on sales achieved by the individual employee or by a team of employees. As only contractual commission payments are included under the Scheme, the vital question is whether the commission scheme gives rise to a contractual obligation and entitlement or whether it is discretionary.

Typically, a commission scheme will be set out as a clause in the employee’s contract or will be provided in writing and will be expressed to be contractual. It is also possible that entitlement to commission could be implied into the contract of employment as a result of the parties’ conduct or the custom in specific industries.

Calculating an employee’s wage

The guidance is clear in that compulsory commission payments should be taken into account however, there is a lack of information on how an employer is to calculate an employee’s wage where they are contractually entitled to commission.

We assume that “compulsory” commission payments refers to contractual payments (i.e. those set out within the employee’s contract of employment). These payments only apply when the payments are “regular” but, it is unclear what “regular” means in this context and whether annual bonuses would fall under this meaning.

Options

There are two potential ways to calculate an employee’s furlough pay where they are contractually entitled to commission. These are as follows:-

  • A calculation based on the employee’s basic salary (as at 28 February 2020) plus any contractual commission or bonus falling due during the furlough period (capped at 80% or £2,500 as set under the Scheme).

There is a potential issue with this option as under the Scheme, furloughed workers are not to carry out any work and would therefore not be earning commission (despite this being an entitlement under their contract).

  • The employee is treated as having irregular earnings and receives the higher of either the same month’s earnings from the previous year or an average of the employee’s monthly earnings from the 2019-2020 tax year (capped at 80% or £2,500 as set under the Scheme).

This option seems to reflect the spirit of the Scheme however, employers must be careful to prevent double recovery by ensuring that if previous commission is taken into account when calculating pay, any future entitlement to commission whilst the employee is furloughed is disregarded.

Employer’s should exercise the above options with caution and we recommend that employers await the publication of further guidance to clarify how furlough pay is to be calculated for those who are contractually entitled to commission or bonus payments.

Contact us

If you would like any advice on the Job Retention Scheme or any other employment related matters please contact our Employment Partner, Kate Brooks on 01202 525333 or email kate.brooks@ellisjones.co.uk.