Errors in wage calculations have recently hit big businesses hard, with unintentional underpayments in staff pay packets affecting 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 paying £36m for underpayments over six years, despite most underpayments 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 has to compensate 14,000 staff at a cost of £10m for employees who had made salary contributions to pensions, childcare and other schemes, resulting 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 who 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.
There has been frustration for employers hoping for certainty on the issue, with the Tribunal saying there is no ‘bright line’ and that businesses must conduct a ‘multifactorial evaluation’. Their findings highlighted four key factors.
- The reason for engaging the worker
Suppose an employee is onsite to comply with a regulatory or contractual obligation. In that case, the individual is more likely to be classed as working throughout their whole shift, even if they are asleep or have nothing to do. - Restrictions on the worker’s activities
If a worker would be disciplined for failing to remain on standby, for example, by leaving the premises, then the NMW is more likely to apply than in situations where someone can come and go as they please. - The degree of responsibility
If a worker is required to keep a listening ear and respond, such as a care worker, they are more likely to be treated as ‘working’ than someone who is at home on-call. - The immediacy of the requirement to provide services
This includes both the speed and the level of responsibility of a worker. If they are the ones who will decide whether to intervene and then take action, they are more likely to be categorised as working than someone who is woken and instructed by the responsible member of staff.
Employment lawyer, Karen Cole, noted:
“The Tribunal’s decision highlights just how tricky this area of the law can be, but compliance is a serious business. It is sometimes difficult to understand what’s right and what’s wrong, 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 a company faces claims for back-pay, which can go back six years. As well as the financial costs, there may be enforcement action by HMRC, along with reputational damage.”
The National Living Wage is a premium tier of the NMW for eligible workers over 25.
For those eligible workers under 25, there are further categories of age-related rates. Since April 2017:
- 25 and over – £7.50
- 21 to 24 – £7.05
- 18 to 20 – £5.60
- Under 18 – £4.05
- Apprentice – £3.50
Although given as hourly rates, the NMW Regulations apply to any eligible worker, whether or not they are paid by the hour, and wage calculations must be made according to the payment basis. For example, someone paid annually or by piece work can use a formula to calculate the equivalent hourly rate and check if they’re being paid the right amount.
Speak to employment lawyer Karen Cole today about your wage calculations.
Note: This is not legal advice; it provides information of general interest about current legal issues.