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Never Knowingly Underpaid?

Have you ever worked for John Lewis? Well if so, you may be interested to know that the Department store group John Lewis will spend £40 million compensating staff who were inadvertently underpaid for working on Sundays and Bank Holidays during the last seven years.

The company realised it had been miscalculating holiday pay for approximately 69,000 employees and will make one-off compensation payments to them. More than half of the recipients will receive under £120, but others will receive over £1,000.

John Lewis said the error occurred because its pay calculations did not comply correctly with employment laws. The retailer had been basing its holiday pay on the contracted weekly hours for staff, but staff working on Sundays and bank holidays are paid a premium. And under the Working Time Regulations this should have been reflected in the holiday payments. John Lewis said it also expects to increase future pension liabilities by about £7 million as a result of the mistake.

The partnership’s pay systems have now been updated to ensure all future holiday payments are correct. This change is expected to add about 0.5% to annual pay costs.

Tracey Killen, John Lewis’s Director of Personnel, said: “As soon as we established that we were not implementing the Working Time Regulations correctly, we worked quickly to make the repayments to our partners in a way that is both fair and responsible.”

The £40m cost of the redress includes national insurance and other expenses, as well as the actual payments received by staff at its department stores and Waitrose supermarkets.

According to some employment law solicitors, John Lewis may not be alone in getting caught out by the regulations so do they need to be simplified?

Workers are entitled to a week’s pay for each week of leave they take. A week’s pay is worked out according to the contractual time worked, the type of contract and how they’re paid for that time. This includes full time, part time and casual workers.

To calculate average hourly rate, only the hours worked and how much was paid for them should be counted. Take the average rate over the last 12 weeks. If no pay was paid in any week, count back a further week, so that the rate is based on 12 weeks in which pay was paid. It’s quite a fiddly way of doing things.

Holiday pay should be paid for the time when annual leave is taken. An employer cannot include an amount for holiday pay in the hourly rate (known as ‘rolled-up holiday pay’). If a current contract still includes rolled-up pay, it should be re-negotiated.

More general information can be found on www.gov.uk. For specific information about holiday pay entitlement, contact us and we will help you understand the regulations and make sure you are not paying out to employees in the future.

Russell HR Consulting provides expert knowledge in HR solutions, employment law training and HR tools and resources to businesses across the UK.

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