Good intentions not enough in wage calculations

coins lying on top of pound notes

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.

  1. The reason for engaging the worker – if an employee is on site to comply with a regulatory or contractual obligation, then the individual is more likely to be classed as working throughout their whole shift, even if they are asleep or with nothing to do.
  2. Restrictions on the worker’s activities – if a worker would be disciplined for failing to remain on stand-by, for example by leaving the premises, then the NMW is more likely to apply than in situations where someone is able to come and go as they please.
  3. 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.
  4. 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 one who will decide whether to intervene and then take the action, they are more likely to be categorised as working than someone who is woken and instructed by the responsible member of staff.

“The Tribunal’s decision highlights just how tricky this area of the law can be, but compliance is a serious business,” said employment law expert Jane Crosby.  “It’s 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, and reputational damage.”

The National Living Wage is a premium tier of the National Minimum Wage for eligible workers aged over 25. For those eligible workers aged under 25, there are further categories of age-related rates.

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice
April 2017 £7.50 £7.05 £5.60 £4.05 £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 calculations must be made according to the payment basis. For example, someone paid annually or by piece-work can use a formula to work out the equivalent hourly rate and check if they’re being paid the right amount.

 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Share

Jane Crosby

Partner, Dispute Resolution

Jane is an employment and commercial litigation solicitor of more than 15 years' experience. Prior to entering the legal profession, Jane was employed in the...

Partner, Dispute Resolution

Jane Crosby

Jane is an employment and commercial litigation solicitor of more than 15 years' experience.

Prior to entering the legal profession, Jane was employed in the aviation industry. This experience is appreciated by many of Jane's clients who note that she is able to take a commercial and pragmatic approach to any legal issue that they face.

Jane acts for a wide range of individuals and businesses and her areas of specialism include aviation, property related industries and IT. Jane regularly advises on aspects of employment law, such as settlement agreements, employment contracts, policies and procedures, redundancies, equal pay, data protection, issues arising from TUPE and reorganisations, the calculation of holiday pay, bonus and commission payments, disciplinary and grievance issues, dismissal and termination issues, the protection of confidential information and the enforcement of restrictive covenants. Jane gets involved in GDPR training for her clients and she is able to deliver tailored employment law training sessions upon request.

As a commercial litigation lawyer, Jane also deals in shareholder and directors disputes, commercial contract disputes and the enforcement of restrictive covenants.

Jane has been involved in successful high value commercial litigation for clients in the High Courts, she is an accredited mediator and she is a member of the Employment Lawyers Association.

Jane is often asked to write for a number of well known publications, including The Daily Mail, The Telegraph and The Week and she has been interviewed on BBC Radio 4.

Here is small selection of the feedback that Jane has received:

“Jane, I cannot sincerely thank you enough for your wise counsel and am delighted to have made your acquaintance. If I am blessed with a new position somewhere I will hand over my contract in the first instance to you. Likewise, any of my friends, peers, romans and countrymen wanting advice, I will point them in your direction.”

“Jane, you have been most resilient on my behalf for which I sincerely thank you for all your endeavours. I have a tremendous working relationship with Hart Brown and you have undoubtedly compounded this further."

“I appreciated the clarity of advice given at a stressful time”.

“A sensitive and highly professional approach and efficient work in the interests of the client”.

“Your advice, conduct and assistance have been indeed outstanding and very professional but also – and most importantly – very humane”.

Head Office

Resolution House
Riverview
Walnut Tree Close
Guildford
Surrey
GU1 4UX

Your Local Office

Guildford - 01483 887766
Cobham - 01932 576789
Cranleigh - 01483 887515
Godalming - 01483 887766
Woking - 01483 887766

Hart Brown Solicitors is the trading name of Hart Brown LLP registered in England and Wales No. OC 425835 whose registered office is Resolution House, Riverview, Walnut Tree Close, Guildford, GU1 4UX and is authorised and regulated by the Solicitors Regulation Authority (SRA) No. 658593. Members: N Maud, T Pearce, D Knapp, R Campbell and P Grimwood, Partners: J Crosby, L Harrhy, J Jupp, J Lamont, T Mandelli, V McMurtrie, E Moore, S Osborne, S Powell and G Sanders.

Any reference to a partner in relation to Hart Brown LLP means a member or an employee with the title of Partner of Hart Brown LLP.

© Copyright Hart Brown LLP 2019 - All Rights Reserved. VAT registration no. 211372705