John Lewis sets aside £36m for minimum wage error

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Oli Scarff

John Lewis has set aside £36m to cover potential back payments to staff after breaching National Minimum Wage rules.

The retailer said its use of pay averaging, which spreads pay evenly over the year, meant it had “technically” underpaid staff.

But it said few workers had actually lost out and its hourly rates were never below the minimum wage.

As a result, it has revised down its 2016-17 profits before tax for 2016 from £488.2m to £452.2m.

John Lewis – which is co-owned by its workers, which it calls partners – said it had used pay averaging since 2006 with the consent of staff.

This was to help them with their financial planning.

But in its latest annual report it said it now realised that this broke the “strict timing requirements” set out under the National Minimum Wage (NMW) Regulations.

Chairman Sir Charlie Mayfield said: “Although partners will, over the course of a year, usually have received the correct pay, in some months where greater than average hours are worked they will have been paid less than the hourly rate stipulated in the NMW Regulations.”

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Tesco has also fallen foul of pay regulations

He added: “We are now required to make good those amounts.

“This is very disappointing, not least because the vast majority of payments… relate to technical underpayments rather than actual underpayments.”

All staff paid by the hour over the past six years could be due compensation, although the firm said the total amount owed was as yet unknown.

It said it had begun contacting those affected and was working with HM Revenue and Customs to ensure its pay practices were within the rules.

The error comes three years after John Lewis was forced to pay employees an extra £40m when it realised it had been miscalculating holiday pay for seven years.

Other firms to have fallen foul of pay rules include Tesco, which said in March said it was compensating 140,000 current and former staff after a payroll error.

Some of its staff were paid less than the National Living Wage after contributing part of their salary to pensions, childcare and cycle to work schemes.

Tesco promised most workers up to £40 each in compensation, although said some could get much more.

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