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11
May

John Lewis profits suffer £36m dent from minimum wage error

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John Lewis profits have been dented by £36m after a payroll error that breached minimum wage rules.

The retailer, which owns Waitrose supermarkets as well as its namesake chain of department stores, said it was working with HMRC to examine its practice of pay averaging, which aims to smooth out monthly pay over the year.

Her Majesty’s Revenue and Customs enforces the national minimum wage and can fine and name and shame companies that do not comply.

Current and former John Lewis workers, who are known as partners because they jointly own the retailer and share an annual bonus based on profits every year, could receive a top-up in back pay as a result of the review. The error affects all staff paid by the hour over the past six years.

The John Lewis chairman, Charlie Mayfield, said arrangements had already been made to contact those affected and make payments.

The total cost of the back pay along with employer’s national insurance, pension contributions and other associated costs, could be as much as £36m, according to the annual report, published on Tuesday.

The issue came to light after a worker raised concerns about their monthly pay following the annual results published in March. John Lewis said employees received the correct pay over the year, but in months where those on hourly rates worked more than average pay fell below the national minimum rate required by law because of the pay averaging system.

John Lewis has to compensate employees for any breach, even on such a technical basis, and so has now revised down its 2016-17 pre-tax profits before partner bonus to £541m, from £577m.

“This arrangement was implemented to support [staff] with a steady and reliable monthly income, but we now believe this arrangement may not meet the strict timing requirements for calculating compliance with the national minimum wage regulations,” John Lewis said.

Mayfield added: “HMRC are aware and we intend to work with them 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.”

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

The company said it now planned to simplify its pay processes to ensure they were easier to administer and at less risk of non-compliance with pay legislation.

The annual report also reveals that Mayfield has waived his annual bonus following a tough year for the company.

The chairman’s total pay fell 7.4% last year to £1.41m according to the report. His basic salary rose nearly 5% to £1.13m but Mayfield requested not to receive his annual bonus, which amounted to £105,000 the year before, and also took a reduced pension supplement. Mayfield has asked not to receive a rise in basic pay this year.

Mayfield dropped his bonus as the company slashed its annual pay out to staff in March to just 6% of salary, the lowest level since the 1950s, despite a 21% rise in pre-tax profits. It was the fourth year in a row that John Lewis cut the award, taking it to the lowest bonus since 1954.

The chairman said the bonus had been cut because the business faced cost inflation and increasing high street competition. While total profits rose strongly last year, trading profits at the John Lewis department stores and Waitrose supermarkets, excluding a benefit from lower pensions accounting charges, were up just 1.9%.

The new boss of the department store chain, Paula Nickolds, has since warned of potential job cuts and price rises as the business tries to adapt to changes in the way people shop, particularly the move to online shopping.

[Source: https://www.theguardian.com/business/2017/may/09/john-lewis-profits-suffer-36m-dent-from-minimum-wage-error]

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