Accurate calculations of the National Minimum Wage continue to cause headaches for employers, with an employment tribunal acknowledging the complexity, saying there is no single key to unlock every case.
Recently, unintentional underpayments in staff pay packets have affected major retailers like John Lewis and Tesco, while others have been waiting for an employment tribunal decision on when sleeping night shift staff are eligible for the National Minimum Wage (NMW).
For John Lewis, a staff-friendly policy of aggregated wages to provide regular monthly income has resulted in the company having to provision £36m for underpayments over a six-year period, despite most under-payments being technical, rather than actual. Staff wages were smoothed out over the year so they received the same amount each month, rather than being paid for the exact hours worked. The problem arose when individuals worked extra hours in a month and the aggregate monthly payment was less than the payment due for the hours worked under the NMW Regulations.
Argos and Tesco have made similar payroll mistakes. Tesco is having to compensate 14,000 staff at a cost of £10m for employees who had made salary contributions to pensions, childcare and other schemes which resulted in their pay falling below the National Living Wage level. Tesco has blamed its payroll software for the error, but for many employers, the difficulty lies in correctly interpreting the NMW Regulations.
One such thorny area is payment for employees who sleep overnight in the workplace or are on call. Previously, such workers were often paid a flat rate for when they were sleeping and their normal hourly rate when they were required to attend to their duties. This approach was challenged on the basis that it did not comply with the NMW Regulations, and three such cases were recently heard together by the Employment Appeal Tribunal: Focus Care Agency Ltd v Roberts, Frudd v The Partington Group Ltd and Royal Mencap Society v Tomlinson-Blake.
But for employers hoping for certainty on the issue, there has been frustration, with the Tribunal saying that there is no ‘bright line’ and that businesses must conduct a ‘multifactorial evaluation’. Their findings highlighted four key factors:
Sarah Hall, Partner in the Employment team at Hay & Kilner commented:
“The Tribunal’s decision highlights just how complicated this area of the law can be. It can be difficult to understand the technicalities, and borderline cases will be difficult to decide, but if there’s any doubt it pays to investigate further as getting it wrong may mean an employer faces claims for back-pay, which can go back six years. As well as the financial costs, there may be enforcement action by HMRC, and reputational damage.”
For further information, please contact Sarah Hall
Call: 0191 232 8345