Decision Highlights The Complexities Of The National Minimum Wage Regulations

Department store John Lewis has announced a £36m revision to last year’s annual profit in order to cover potential back payments to staff after breaching National Minimum Wage rules.

The retailer said in its latest annual report that the adjustment was necessary due to the issue of pay averaging, which spreads workers' pay evenly over the year.

John Lewis has used pay averaging for over 10 years with the consent of staff.

The retailer, however, has said that those on hourly rates had sometimes seen pay dip below the minimum wage when they worked extra hours, technically breaking the rules.

The error affects all staff paid by the hour over the past six years, and the announcement means thousands of employees, who at John Lewis are known as partners, who worked on hourly rates could be due a top-up.

John Lewis’s Chairman, Sir Charlie Mayfield, said: "Although partners will, over the course of a year, usually have received the correct pay, in some months where greater than average hours are worked they will have been paid less than the hourly rate stipulated in the National Minimum Wage Regulations.

"We are now required to make good those amounts. This is very disappointing, not least because the vast majority of payments ... relate to technical underpayments rather than actual underpayments."

Expert Opinion

“This decision has highlighted the complexities of the National Minimum Wage Regulations, and the potential for employers to face costly penalties for what might seem like minor breaches of the law.

“Here, John Lewis had agreed a payment method with some of its workforce which was welcomed by the majority of the workforce, as they were able to better manage their finances and they received no less pay overall.

“However, it was still found to be a breach of the Regulations. It is clear that there is an agenda to tackle non-compliance with NMW, and we are seeing more and more cases where penalties are imposed and orders are made to make good underpayments to staff because of the way in which payments are structured, even where the overall pay received by the employees is no less than they would have received had the payment method been structured appropriately.

“This also highlights how easy it is, even for organisations with the resources of John Lewis, to unwittingly fall foul of the law.”
Siobhan Mulrey - Senior Associate Solicitor

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