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John Lewis takes £36m hit on pay averaging

JLcorporateJohn Lewis has set aside £36m after its attempts to even out the monthly pay of hourly paid staff fell foul of HMRC’s complex rules over the National Minimum Wage.


HMRC’s rules set out that employers must record detailed NMW hours and pay staff based on that: even if their hours have varied from week to week. The chain instead took the decision to average out wages across a year and give staff an average monthly payment.
This may have seen HMRC decide that John Lewis has broken the rules.
‘While contractual hourly rates of pay have never been below the NMW, we intend to work with HMRC to understand if all its arrangements meet the specific criteria of what are some quite complex regulations. We are specifically looking at the practice of pay averaging which aims to smooth out a Partner's pay over a year to ensure a consistent amount is paid to them each month in respect of their basic pay. This arrangement was implemented to support Partners with a steady and reliable monthly income, but we now believe this arrangement may not meet the strict timing requirements for calculating compliance with the NMW regulations.
‘There is a wide range of potential outcomes and so we have made a provision of £36m as an exceptional charge for the year ended 28 January 2017. The total provision is to cover any payments that might become due, along with employer's National Insurance, pension costs and other associated costs,’ said the chain.
‘Arrangements have already been made to make these payments and contact former Partners. HMRC is aware and we intend to work with it in order to resolve some of the key points regarding the way the NMW Regulations apply to our pay arrangements and practices. We expect to do this as quickly as possible. However, it is likely these discussions will take some time to be completed,’ said Sir Charlie Mayfield, John Lewis Partnership chairman.