Payroll blunders can be costly

Partner and Head of Employment, Nick Hobden speaks to Drapers about the £36m provision that John Lewis had to make to pay the potential costs of the national minimum wage after they discovered their system may not comply with regulations.

Nick said, “The issue related to the calculation of average pay across the year to make sure staff on variable hours contracts received the same take-home pay each month. Unfortunately for John Lewis, it was not as simple as it sounded, as its payroll system did not take into account times when staff exceed their average working hours each month, which led hourly rates to sometimes dip below the minimum wage.

Under the Employment Rights Act 1996 and national minimum wage regulations, it is irrelevant that staff are paid the correct amount over the course of 12 months. This is because minimum wage calculations are based on the ”pay reference period” – that is the period of time for which an individual’s wage is actually paid (weekly or monthly). So even if on average staff are paid above the minimum wage over the year, if they have not been paid the minimum wage for a given pay period, there is a breach of the regulations, which an employer must rectify.

John Lewis is not alone in making underpayment errors. Debenhams, Peacocks, Argos and Tesco are just some of the big names that hit the headlines following the government’s “name and shame” campaign introduced in 2013 to identify underpaying employers”.

The full article is available to read online, first published by Drapers on 1 June 2017: Payroll blunders can be costly