(Reuters) – A sharp-eyed employee of Britain’s John Lewis Partnership JLP.UL helped uncover a seven-year salary underpayment to staff that will cost the retailer 40 million pounds to fix.
The staff-owned group, which trades from 39 department stores and the 295-store Waitrose supermarket chain, said on Thursday the intervention of the staff member, who performs a “customer facing” role, combined with a review of its holiday pay policy to bring the expensive blunder to light.
The error relates to employees who receive certain additions to pay, such as premiums for working on Sundays or bank holidays, not being paid correctly under the UK’s Working Time Regulations legislation.
The employee “joined from another company where they would have had similar supplements in their holiday pay and asked the question,” said a spokesman for John Lewis.
“This review was happening anyway. The two came together and led to the quick response,” he said.
John Lewis is Britain’s largest example of co-ownership where all 85,500 staff are partners in the business, so an admission it underpaid its employees could be seen as embarrassing.
“We’re being very open and saying we didn’t get this right and we’re doing everything we can to correct it, and we’re paying back as far as we can with the data we’ve got,” said the spokesman.
Some 69,000 partners will this month receive additional one-off payments reflecting amounts due to them back dated to 2006.
This all stems from the incorrect operation of the 1998 Working Time Regulations that require holiday pay to be calculated on 12-week average where the employee works above their contractual hours, in the case of John Lewis, staff working on weekend and Bank Holidays where hours are paid at a premium. It appears that a recent recruit noticed a discrepancy between the way John Lewis did the calculation and the way that the same calculation was performed at a previous employer.
This error will, reportedly, cost the company over £40 million to correct, including the actual cost of the underpayment and the associated National Insurance, pension and administration costs. Over half of the underpayment are quoted as being under £120 per recipient, however, some much larger sums are payable.
Individual payments will vary according to pay and shift patterns, with more than half of the recipients receiving under 120 pounds.
John Lewis will account for the 40 million pounds, which include repayments plus associated pension, National Insurance and administration costs, in its half-year results due to be published on September 12 but will not deduct the sum from this year’s partnership bonus.
It expects future pensions liabilities to increase by about 7 million pounds, while annual pay costs will rise by about 0.5 percent.
John Lewis added that its pay systems had been updated to ensure that all future holiday payments are correct.
The snafu highlights some important issues:
- The Working Time Regulations are complicated for anyone to operate, let alone a reputable retailer like John Lewis. Coupled with the literal operation of the Regulations are complications that case law has developed outside of them.
- John Lewis appears to have been guilty of an over-reliance on a payroll / HR system that had not been programmed correctly.
- It appears that backpay payments will be made to anyone who has retired, left through illness or were made redundant.
- Payments may not be made to employees who left voluntarily. Given that the backpay payments will not cover the entire period of underpayment and some ex-employees will be excluded from receiving them expect employment lawyers to see this as an opportunity for litigation.
- Is John Lewis just the tip of the iceberg, are there other companies in a similar situation?
- The backpay payments in themselves are a significant issue they will result in employees paying National Insurance that otherwise would not have been payable? They may inflate payments in the Pay Reference Period, for pension auto-enrolment purposes, higher than they would not have been if the payment had been made correctly in the first place.
Read More :
- http://www.accountingweb.co.uk/article/john-lewis-admits-40m-payroll-accounting-error/546185
- http://www.payroll-help.com/2013/08/john-lewis-pay-blunder/
