John Lewis has taken a £36m hit to profits to cover potential back payments to staff after breaching National Minimum Wage rules. The retailer said the issue related to the use of pay averaging, which spreads workers’ pay evenly over the year.
It said employees were paid the correct amount over the course of the year.
However, those on hourly rates had sometimes seen pay dip below the minimum wage when they worked extra hours, technically breaking the rules.
It means that thousands of John Lewis staff who worked on hourly rates could be due a top-up.
As a result John Lewis has revised its annual profit for 2016-17 by £36m to £452.2m.
John Lewis, which is owned by its workers who are known as partners, said it had used pay averaging since 2006 with the consent of staff.
This was to help them with their financial planning.
But in its latest annual report the retailer said it now realised that it had broken the “strict timing requirements” set out under the National Minimum Wage Regulations.
Chairman Sir Charlie Mayfield said: “Although partners will, over the course of a year, usually have received the correct pay, in some months where greater than average hours are worked they will have been paid less than the hourly rate stipulated in the NMW Regulations.”
Image copyrightGETTY IMAGESImage captionTesco has also fallen foul of pay regulations
He added: “We are now required to make good those amounts. This is very disappointing, not least because the vast majority of payments … relate to technical underpayments rather than actual underpayments.”
All staff paid by the hour over the past six years could be due compensation, although the firm said the total amount owed was as yet unknown.
It said it had begun contacting those affected and was working with HM Revenue and Customs to ensure its pay practices were within the rules.
The error comes three years after John Lewis was forced to pay employees an extra £40m when it realised it had been miscalculating holiday pay for seven years.
Other firms to have fallen foul of pay rules include Tesco, which said in March said it was compensating 140,000 current and former staff after a payroll error.
Some of its staff were paid less than the National Living Wage after contributing part of their salary to pensions, childcare and cycle to work schemes.
Tesco promised most workers up to £40 each in compensation, although said some could get much more.
In February, Debenhams and Argos also revealed staff were paid less than the living wage due to payroll mistakes.