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Good intentions not enough in wage calculations, employers warned

27/09/2017

A legal expert has warned employers to double check their wage calculations after several high street retailers faced multi million payouts for wrongly working out staff salaries.

 

Tracy Worthington, a Partner at FBC Manby Bowdler, said acknowledgement by an Employment Tribunal that accurate calculations of the National Minimum Wage are complex should be a trigger for employers to check they’re getting it right.

Recently, unintentional underpayments in staff pay packets have affected major retailers like John Lewis and Tesco.

For John Lewis, a staff-friendly policy of aggregated wages to provide regular monthly income has resulted in the company having to set aside £36m for underpayments over a six-year period, despite most under-payments being technical, rather than actual.  

Staff wages were smoothed out over the year so they received the same amount each month, rather than being paid for the exact hours worked.  

The problem arose when individuals worked extra hours in a month and the aggregate monthly payment was less than the payment due for the hours worked under the NMW Regulations.  

Argos and Tesco have made similar payroll mistakes with Tesco having to compensate 14,000 staff at a cost of £10m for employees who had made salary contributions to pensions, childcare and other schemes which resulted in their pay falling below the National Living Wage level.  

Tracy said: “Tesco has blamed its payroll software for the error, but for many employers the difficulty lies in correctly interpreting the NMW Regulations. 

“An Employment Tribunal recently heard several cases against employers that were paying a flat rate for employees who sleep overnight in the workplace or are on call.  

“Previously, such workers were often paid a flat rate for when they were sleeping and their normal hourly rate when they were working.  

“This approach was challenged on the basis that it did not comply with the NMW Regulations. The tribunal couldn’t give a clear ruling and said multiple factors must be taken into consideration in each individual case.”

Tracy added: “The Tribunal’s decision highlights just how tricky this area of the law can be, but compliance is a serious business.

“It’s sometimes difficult to understand what’s right and what’s wrong, and borderline cases will be difficult to decide, but if there’s any doubt it pays to investigate further as getting it wrong may mean a company faces claims for back-pay, which can go back six years.  As well as the financial costs, there may be enforcement action by HMRC, and reputational damage.”

If you would like further information regards employee Wages and Salaries, feel free to contact Tracy on 01902 392476 or t.worthington@fbcmb.co.uk


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