Q. Our company employs a number of sales representatives whose remuneration comprises a base rate of pay (retainer) and commission on sales. One of the employees recently took annual leave and was paid their base rate for the period of the leave.
Another sales representative recently took long service leave and was paid at their base rate of pay. Both employees have complained to our pay office that they should have received payment representing their commission payments. Because commission payments cannot be predicted, we presumed they are not included in any calculation of ordinary pay for any period of leave.
Are commissions included in ordinary pay for the purposes of annual leave and long service leave? Both employees are employed in New South Wales.
A. The ordinary pay for annual leave provided under the Fair Work Act may be different to the definition of ordinary pay under the relevant state or territory long service leave legislation.
Annual leave
Under the Fair Work Act 2009 (Cth), annual leave is paid at the employee’s base rate of pay for ordinary hours of work.The “base rate of pay” excludes incentive-based payments and bonuses, Loadings, allowances, overtime and penalty rates and other separately identifiable amounts.
Commissions are generally treated as incentive-based payments which means that under the National Employment Standards (NES), commission is not included in annual leave payments.
Modern award and enterprise agreements
While the NES provides that an employee receives their base rate of pay, the applicable modern award or enterprise agreement may provide a more beneficial definition of ordinary pay for a period of annual leave.
In this case, the Commercial Sales Award 2020 applies to sales representatives. This award provides that where an employee receives commission, the employee is to receive either the average of the commission payments earned over the preceding 12 months or the 17.5% leave loading, whichever is the greater. This means employees are entitled to amounts in addition to their base rate of pay for the period of annual leave.
Long service leave
Long service leave is governed by state legislation, not the NES. Under the Long Service Leave Act 1955 (NSW), an employee’s “ordinary pay” includes their base rate and commissions, bonuses and incentive payments, averaged over time.
Typically, commission earnings are averaged over the previous 12 months or 5 years (whichever is greater). This average is used to determine the employee’s ordinary weekly pay for long service leave purposes.
Therefore, in NSW, commission is generally included in long service leave payments.
Other jurisdictions
It should be noted this method of calculating commission and retainer may be different under other long service leave legislation.
For example, it is common for an employee’s ordinary pay to be an average of the employee’s weekly wage (i.e retainer and commission) over a specified period (which can vary depending on the jurisdiction). Reference should be made to the applicable state or territory long service leave legislation to determine the method of calculating an employee’s ordinary pay in regard to payment for a period of long service leave.
Bottom line
In the case of annual leave, bonus or commission is excluded from an employee’s base rate of pay although a different definition may be provided in the applicable modern award.
In the case of long service leave, bonus or commission is usually included in ordinary pay, although this is subject to the relevant state or territory long service leave legislation.
