Earlier this week, we reported on how some dealer groups had decided not to include commission when calculating furlough payments for sales staff, as they deemed they were discretionary and not compulsory.
That was bad news for employees, with many telling us that the Coronavirus Job Retention Scheme furlough rate of up to 80 per cent of their basic – ie, commission-less – wage was far too little to live on.
Legal experts at Lawgistics – who have appeared on Car Dealer Live a number of times to talk about furloughing, among many topics – have been poring over the wording of the new legislation, which gathered together all the changing guidance and came into effect on April 15 via a schedule.
Initially, commission wasn’t deemed valid at all. Then, HMRC said it could be included if it was compulsory, as compulsory equalled contractual and fell under the rules governing those on varying pay.
This seemed to clear the matter up – until employment contracts were examined only for their wording to suggest that it was discretionary.
That meant some employers wouldn’t process furlough applications using an employee’s regular take-home pay as the basis for calculations – which in turn meant many sales staff would end up with less than the minimum wage during the time they were being furloughed.
Now, in an update published yesterday (April 16) on Lawgistics’ website, solicitor and legal adviser Nona Bowkis says things still aren’t very clear, adding that Lawgistics is on HMRC’s case to get clarification.
Car Dealer has also asked HMRC for clarification on the commissions payments, but so far they have failed to respond.
In the meantime, Lawgistics is arguing the point that as one particular section of the schedule says, in essence, that all regular salaries or wages can be included in calculations for furlough pay, regular commission should therefore constitute a legitimate part of that.
Lawgistics also points to another paragraph of the schedule that says any amount arising ‘from a legally enforceable agreement, understanding, scheme, transaction or series of transactions’ is permissible to include when calculating furlough pay.
Among the supporting arguments as far as Lawgistics is concerned – which include legal rulings on calculating annual leave for people on commission – is the word ‘understanding’.
As Bowkis puts it:
‘We would argue that it is understood that commission is earned and paid on a regular basis and so is not discretionary at all.
‘The word “scheme” is also useful as most companies will pay commission under the terms of a scheme, ie, you sell x amount of cars and we will pay you £x.
‘And finally, the fact a regular payment can arise from a “transaction” or a “series of transactions” would also suggest that as it is “custom and practice” to pay commission, these are regular payments.’
Lawgistics argues that there is enough in the legal wording to justify paying furlough that is based on regular commission payments.
It cautions, though, that employers will be left short if HMRC decides not to reimburse them.
It therefore urges employers to check directly with HMRC if they aren’t sure, but adds they should use all the above points to justify it.
And it still leaves the thorny issue about commission that has already been earned – with sales staff’s April pay packets normally being particularly welcome because of all the commission that would usually have been included from deals struck in March, with dealerships open for most of that month.
As Lawgistics points out, if an employee is on furlough leave and taking 80 per cent of their regular wage up to the statutory cap of £2,500 a month, employers could be hard-pressed to justify including all the commission previously earned.
It’s basically similar to how anybody who earns above £30,000 will lose out.
Lawgistics says it is continuing to push for further clarification – and so will Car Dealer – but meanwhile it says don’t give up on commission being included in furlough pay.
It also urges employees to examine how they can cut down on monthly outgoings, such as taking advantage of credit card and mortgage payment holidays. In addition, it says employers and their accountants need to maintain a dialogue with trade bodies about the topic.
In today’s Car Dealer Live broadcast, experts from UHY Young Hacker discussed the furlough scheme and how it affects car dealers in detail. You can watch it below.