John Lewis takes 36m profits hit to cover minimum wage error

The country’s largest employee-owned company said the problem was a technical one based on its use of pay averaging.

UK department store chain John Lewis has taken a £36 million profits hit to cover potential back payments to staff after breaching national minimum wage rules.

The country’s largest employee-owned company said the problem related to its use of pay averaging, which spreads workers’ salary payments out evenly over the course of a year. While the retailer attested that everyone was paid correctly on an overall annual basis, those on hourly rates had sometimes seen their pay drop below national wage levels if they had worked extra hours.

Technically, this situation meant it had broken the “strict timing requirements” set out under minimum wage rules and thousands of employees working on hourly rates could be due compensation. As a result, John Lewis indicated in its last annual report that it had revised its profits for fiscal year 2016/17 down by £36 million to £452.2 million to cover the potential cost.

Chairman Sir Charlie Mayfield said that although partners (the firm’s name for employees) would usually have received the correct pay over the course of a year, “in some months where greater than average hours are worked, they will have been paid less than the hourly rate stipulated in the NWM regulations”.

As a result, he said the company was “required to make good these amounts. This is very disappointing, not least because the vast majority of payments…relate to technical underpayments rather than actual underpayments”.

Although the sum owed is currently unknown, John Lewis said that all staff paid by the hour over the last six years could be eligible for compensation. It added that it had begun contacting affected individuals and was working with Her Majesty’s Revenue & Customs to ensure its pay practices conformed to the rules.

The incident comes three years after the company was forced to pay workers an extra £40 million on realising it had been miscalculating holiday pay for seven years. Other firms that have fallen foul of pay regulations lately include supermarket chain Tesco, which had to compensate 140,000 current and former staff in March after a payroll error, and retailers Debenhams and Argos, which had to rectify payroll mistakes in February.