Beware of averaging pay and unintentionally falling foul of the National Minimum Wage Regulations
Earlier this month John Lewis announced it was adjusting its profits down by £36 million to cover potential back payments to staff after breaching National Minimum Wage Regulations. John Lewis had paid all its staff the correct amount for the hours they worked over the course of a year, but chose to spread pay over the year evenly.
What does this mean?
This meant that for thousands of workers who worked more hours during certain times of the year, their hourly rate sometimes fell below the National Minimum Wage, therefore breaching the Regulations.
The result of this unintentional breach is that those workers could be due a top up of wages for the months in which their hourly pay fell below the minimum requirements.
What are the implications?
This is a stark reminder to employers of the strict requirements of the National Minimum Wage Regulations. Paying workers annually is often done with the best of intentions and is welcome by staff who then enjoy a regular monthly income. However, for workers whose pay is at, or near, the National Minimum Wage, averaging pay may expose their organisations to back pay and possible fines of up to 200% of the arrears owed up to a maximum of £20,000 per worker.
There is also the possibility of criminal sanctions if considered appropriate by HMRC and the negative PR that comes with the suggestion of failure to pay the National Minimum Wage can be very damaging for an organisation’s brand.
What should you do?
Employers should check whether they have any workers for which they average pay and, if so, whether the hours worked during particular pay periods causes the workers’ hourly rates to fall below the National Minimum Wage. If so, employers should rectify this by changing the way that they structure their pay to ensure that no worker dips below the National Minimum Wage for the hours worked.
Such a change would be reasonable given the duty on employers to act within the law however it may well be met with disappointment by workers who are happy with the averaging of pay. Some advanced notice of the changes would assist workers who need to change any financial commitments.
Published: 24 May 2017