To misquote the well-known phrase “the road to non-compliance is paved with good intentions”. John Lewis have announced that they have possibly fallen foul of the National Minimum Wage Regulations due to their policy of paying their employees (or partners as they refer to them) via a “pay averaging” system which ensures staff are paid a regular monthly income regardless of the variations in the hours they actually work each month. This could turn out to be an expensive mistake as John Lewis has set aside £36 Million to repay to its employees for this potential breach of the NMW legislation.
Whether a worker has received the NMW will depend on their average hourly rate. This is calculated on the basis of:
- The total remuneration earned over the relevant pay reference period;
- Divided by the total number of hours worked over the pay reference period.
John Lewis have used a pay reference Period of 1 month but the issue is that for some of their employees when they divide their total monthly pay by the number of actual hours worked during that month the average hourly rate is then less than the National Living Wage which is currently £7.50 per hour for those aged over 25.
The position is further complicated when you consider that there are currently 5 different rates of NMW for 5 different categories of worker including the National Living Wage (adults over 25) of £7.50 per hour; the standard adult rate (for those aged 21-25) of £7.05 per hour and the development rate (for those aged between 18-20) of £5.60 per hour plus the young workers and apprenticeship rates.
John Lewis will, therefore, have to work through each of these categories to check for each employee whether or not there have been any underpayments. Given that it employs over 36,000 people this will be a big exercise.
The employee-owned partnership that runs John Lewis department stores and Waitrose supermarkets has set aside £36m to deal with the possibility it may have broken minimum wage rules. It said on Tuesday that its practice of “pay averaging”, where it pays staff the same amount year-round regardless of variations in how many hours they work from month to month, meant it could have paid some staff less than the minimum wage in a given month.