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National Minimum Wage blunder costs retailer £36million

BY Daniel Gorry
Employment Law & HR
BG Purple

Paying the National Minimum Wage (NMW) sounds relatively straightforward: workers are entitled to a minimum rate of pay per hour depending upon their age, with a particular rate set for those undertaking an apprenticeship. However, problems frequently arise with the calculation and payment of NMW, the enforcement of which is the responsibility of HMRC. One such problem involved retailer John Lewis, which has found itself on the wrong side of a £36million bill for underpayment of wages.

The John Lewis employees, known as ‘partners’ as they jointly own the business and share an annual bonus based on profits, have their pay averaged over the year. This has been implemented with a view to providing them with a steady income. The system ensures that staff are paid correctly over the course of the year but, in months where an hourly-paid employee works more hours than their average pay equates to, they are being paid less than NMW in that particular month.

This amounts to a technical breach of the NMW Regulations. The Regs stipulate that assessing whether a worker has received the NMW will depend on their ‘average hourly rate’. This involves a straightforward calculation based on their total remuneration earned over the relevant pay reference period, divided by the total number of hours worked during that pay reference period. The Regs also stipulate that the pay reference period cannot be longer than a month, meaning employees must be paid at least the NMW in each and every month. This meant that it was not sufficient for John Lewis to show that their staff had received the NMW over the course of the year, hence the involvement of HMRC and the hefty bill. 

This news comes just four years after John Lewis had to pay out an extra £40million in respect of underpaid holidays, another notoriously difficult area of law for employers to grasp. If you are in any doubt about your own business and the payment of NMW or holidays, speak to your Employment Solicitor who will be happy to help.

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