John Lewis’ Staff Underpayment of National Minimum Wage

Last week saw that giant of British retail the John Lewis Partnership announcing that it is setting aside £36m due to failures to pay the national minimum wage (NMW) to its workers. This is to cover payments which may be due over a six year period. To be fair it doesn’t seem to be intentional but rather a breach as a result of trying to smooth out pay over a year as hours of work could vary from month to month for employees.

What the figures show though is that the costs can be huge. Even for smaller operations. Here Noele McClelland, Employment specialist and Partner at Thorntons, comments for Lawyer Monthly.

If you are found to be in breach you will be issued with a notice of underpayment which includes a requirement not only to make good any underpayment but also to pay a financial penalty which can be up to 200% of the arrears, capped at £20,000 per worker. There are also criminal offences under the legislation which extend to officers and directors of companies and partners in a partnership.

And it is not just the big names which HMRC are targeting. In February the Department for Business, Energy and Industrial Strategy published a list of over 350 companies who were breaching the legislation, which is there to protect our lowest paid workers. The worst offenders were hairdressers, and the retail and hospitality sectors but also included nurseries, care providers, joinery firms, garages and golf clubs.

The questions are how many more are there out there, and how are they getting it so wrong – particularly since the regulations governing the national minimum wage have not massively changed since they were brought into force in 1998?

There is no doubt about it that for some offenders it is entirely intentional and that really calls into question moral and ethical issues. There is also a real problem with vulnerable workers being targeted particularly those who have been trafficked or who are working illegally. But for others the calculation process can be quite complicated.

Accordingly for a number of employers it may simply be ignorance of what can and cannot be included in the calculation of pay which means that they are falling foul of the legislation. However ignorance isn’t an excuse it is their responsibility to ensure that they are following the legislation.

So what can individuals do? Whether you are an employee or a worker the NMW applies to you. If you are unsure raise it initially with your employer. If they do not co-operate you can require them to produce these records which you also have the right to inspect, examine and copy. If they fail to do so you can being a claim against them with the penalty being an amount equal to 80 times the amount of the NMW applicable to you at the time. You can also report them to HMRC who may carry out an investigation. If you are sure you have not been paid it then you have the right to bring a claim in the employment tribunal for unlawful deduction of wages although from July 2015 you can only go back a period of two years. Alternatively you can bring a claim for breach of contract in the civil courts which can award damages going back five years in Scotland or six in England and Wales.

For businesses it is important to undertake an audit to identify whether or not they are paying the NMW, and in particular ensuring that all working time is included in that audit and you are not deducting anything from wages which you are not allowed to. If you identify that you haven’t been then you will need to look at how you will settle this with your employees. Whilst claims are brought by individuals in the employment tribunal often they are reluctant to do so and HMRC and other agencies can carry out an investigation.