Retail organisation John Lewis Partnership has set aside £36 million for the year ended 28 January 2017 to cover costs and payments that may be incurred through a breach of compliance with national minimum wage regulations.
The employee-owned organisation, which employs 86,700 staff across the John Lewis and Waitrose brands, will make retrospective payments to affected current and former employees relating to the last six years.
The £36 million will cover these payments, as well as employer national insurance contributions (NIC), pension costs and any other associated costs.
The breach in compliance has been attributed to John Lewis Partnership’s practice of pay averaging, which may not have complied with timing requirements under the national minimum wage regulations.
The organisation introduced pay averaging in 2006 to help employees with financial planning by ensuring staff were paid a consistent amount each month in respect of their basic pay.
Current average basic hourly pay for non-management staff at John Lewis Partnership is £8.67 an hour. Following the organisation’s April 2017 pay review, the average hourly rate of pay for non-management employees has increased to £8.90 an hour.
The national minimum wage currently stands at £7.05 an hour for employees aged 21 to 24, £5.60 an hour for staff aged between 18 and 20, and £4.05 an hour for those under the age of 18. The statutory national living wage rate for staff aged 25 and over is £7.50 an hour.
John Lewis Partnership plans to work with HM Revenue and Customs (HMRC) to rectify the issue and to simplify its pay arrangements in the future to avoid further non-compliance.
Sir Charlie Mayfield, chairman at John Lewis Partnership, said: “In our Annual report and accounts we have made provision for any payment we may be required to make to comply with the national minimum wage regulations. In the annual report we have said that arrangements have already been made to make these payments and contact former [employees].
“HMRC [is] aware and we intend to work with [it] in order to resolve some of the key points regarding the way the national minimum wage regulations apply to our pay arrangements and practices. We expect to do this as quickly as possible. However, it is likely these discussions will take some time to be completed.”
Lee Knight, employer solutions director at audit, tax and consulting organisation RSM, said: “You would expect the largest employers to be able to comply with the national minimum wage legislation, but the fact that the John Lewis Partnership has chosen to restate its profits because of a breach underlines the difficulties faced by all employers trying to stay on the right side of the law. Complying is fraught with pitfalls and is about much more than just understanding the headline rates.
“John Lewis appears to have chosen to be open and transparent about the apparent breach. They may take a short-term reputational hit but they are clearly keen to draw a line under this episode and put it behind them. This should encourage all employers. Both large and small, to review their arrangements and systems to make sure they are on the right side of the national minimum wage rules.”