John Lewis expects to fork out £36m in back payments to staff after unwittingly breaching national minimum wage regulations.
The group revealed its pay averaging system “did not meet the strict timing requirements” of government regulations in its annual report today.
Although its hourly rates have never been below the minimum wage, John Lewis operates an averaging system to “smooth out a partner’s pay over a year” and give them a consistent salary every month.
But John Lewis revealed this practice could have left it with a £36m bill in back payments to partners for the past six years.
“Clearly this is very disappointing, not least because the vast majority of payments to affected partners and former partners relate to technical underpayments rather than actual underpayments of their contractual pay,” said chairman Sir Charlie Mayfield.
“Nevertheless the NMW regulations create a strict liability regime and these payments are therefore required to be paid even in cases where partners have over the course of a year been paid the correct contractual amount.”
John Lewis is not the only retailer to inadvertently fall foul of the regulations. Earlier this year, Tesco revealed it owed staff nearly £10m in back payments due a technical error in its new payroll system.
The John Lewis annual report also revealed that chairman Sir Charlie has waived his £66,000 bonus this year after cutting staff dividends to their lowest level in 63 years.
Sir Charlie received £1,413,000 in total rewards for the 2016-17 financial year - down 7.4% on the previous year, when he received a bonus of £105,000.
In March, Sir Charlie revealed a cut to partner bonuses, down to 6% of total salary.
At the time, he said the reduction in payouts would help John Lewis prepare for a tough year ahead.
“This allows us to maintain our level of investment in the face of what we expect to be an increasingly uncertain market this year, while absorbing the costs associated with adapting the partnership for the future,” he said.
John Lewis profits increased by 21.2% to £370m in 2016-17, which was mainly down to a fall in pension accounting charges across the partnership.
Waitrose had a more modest 9% increase in profit for the financial year, with a 0.2% decrease in annual like-for-like sales.
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