Legal case of interest: Applying commission in calculating ordinary weekly pay

This case looks into whether productivity or incentive-based payments were a regular part of an employee’s pay for the purposes of calculating ordinary weekly pay under the Holidays Act 2003.

Labour Inspector of the Ministry of Business, Innovation and Employment v Tourism Holdings Ltd [2021] NZCA 1

Tourism Holdings Ltd (THL) employed “driver guides” for their Kiwi Experience tours. The driver guides, among other tasks, sold additional tourist experiences to their clients whilst on tour. The driver guides earned commission for each tourist experience sold. The commission was not paid with their usual wages, but was paid in a lump sum after the end of that tour.

When an employee takes a portion of their paid annual leave, the employer must pay the employee at a rate that is based on the greater of:

Commission is always included in the AWE calculation. However, the Labour Inspector and THL disputed whether the driver guides’ commission should be included in the OWP.

Section 8(1)(b)(i) (external link)  stipulates that productivity or incentive-based payments are included “if those payments are a regular part the employee’s pay”. The Employment Court found that the commission payments were not a regular part of their pay, and therefore need not be included.

The Court of Appeal overturned the Employment Court’s decision, finding that the commission should be included in the OWP calculation (see paragraph 40). In coming to its decision, the Court of Appeal noted the following:

  • Employees who earned commission should enjoy an equivalent benefit in their leave entitlement, which is consistent with the purpose of the Act.
  • The word “regular” means both substantive and temporal regularity. In this case, both meanings applied to the commission earned by the driver guides. Their commission was both regular and habitual.
  • The entitlement to commission arose when the driver guide booked an additional tourist experience for a client, rather than when they completed the documentation process.

Read the full judgement:

Labour Inspector of the Ministry of Business, Innovation and Employment v Tourism Holdings Ltd [2021] NZCA 1 [PDF, 225KB] (external link)