The Court of Appeal in Labour Inspector v Tourism Holdings Limited  NZCA 1 has recently clarified the circumstances in which an employee’s incentive-based payments, such as commission, are included in calculations for ordinary weekly pay (“OWP”).
The issue ultimately boils down to what is a “regular” part of pay.
Tourism Holdings Ltd (“THL”) operates the Kiwi Experience tour bus business. The bus drivers receive a daily rate for days on tours and their pay also includes commission earned on the sale of activities to passengers. The commission is paid in the week following the end of each tour. Each tour can vary considerably in length, as do the commission amounts.
The Holidays Act 2003 sets out two methods for calculating OWP.
The standard calculation is the pay the employee receives under their employment agreement for an ordinary working week. Where it is not possible to calculate this (for whatever reason) an alternative calculation must be used to determine an average over the previous four weeks. Both exclude incentive payments if they are not a regular part of pay.
THL calculated OWP without including commissions. THL argued they were not a regular part of pay. THL argued this concept of regular pay related to what is regular for an ordinary working week. It argued that these commission payments weren’t regular because they didn’t relate to the work the employees ordinarily performed in a working week. THL succeeded in the Employment Court but the Court of Appeal has now overturned that decision.
The Court of Appeal concluded the only requirement is that payments must be a regular part of employee’s pay.
So, what is “regular” then?
The Court of Appeal said commission payments are a regular part of an employee’s pay if they are made either substantively regularly (that is, systematically and according to rules) or temporally regularly (that is, uniformly in time and manner).
In the Court’s view, THL’s employees’ commission payments met both concepts. They received commission in accordance with the rules in their employment agreements; there were terms (or rules) set out in the agreement for commission payments for making bookings for additional activities. And they were uniformly paid commission in the week following the conclusion of their tours (irrespective of the varying lengths of those tours).
The upshot of the Court’s ruling is that in the event the alternative method of calculating OWP is to be applied, productivity or incentive-based payments must be included where they are made on a regular basis (that is, according to a rule or in a uniform time and manner), regardless of whether they are tied to an ordinary working week.
The Court of Appeal’s overruling of the Employment Court should lead to employers looking again at holiday pay calculations for commission-based employees, to make sure that regular commission payments are being included in OWP calculations.