Category Archives: Contract

Sports Direct: Failure to Pay National Minimum Wage – A Business Model With Exploitation at its Heart? (Part 1)

14184143 - green grass  uk pound symbol against blue skySUMMARY:  The Sports Direct founder, Mike Ashley, faced the Business Innovation and Skills (“BIS”) Select Committee on 7 June 2016 for an evidence session into the working practices adopted by Sports Direct.  A month later, it was widely reported that Sports Direct’s profits had been hit.  Mr Ashley’s fortunes have not improved as this month it has been announced that shareholders will be asked to vote on whether there should be an independent workplace review – we will have to wait until September to see how this latest chapter unfolds.

But how did it come to this?

To recap, Mr Ashley received intense criticism stemming from the Guardian Newspaper’s investigation at the end of 2015, which uncovered allegations that his Company:

  1. Failed to pay its workers the minimum wage;
  2. Engaged a significant proportion of staff via zero hours contracts and short term hours agency worker agreements;
  3. Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and
  4. Conducted daily physical security searches of employees.

On the back of the ever increasing publicity of how some high profile companies treat their employees, we have produced a two part series to enable you to assess whether your company is inadvertently making the same mistakes as those reportedly made by Sports Direct.  The first in this series explores the allegation that Sports Direct failed to pay its workers the minimum wage and sets out the law behind this complex issue.

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THE ALLEGATIONS:

HM Revenue and Customs (“HMRC”) are currently investigating allegations that Sports Direct paid its workers less than the National Minimum Wage (“NMW”) effectively saving the Company millions of pounds per year.

The underpayment allegedly arose as a result of workers being forced to undergo compulsory rigorous security checks at the end of their shifts as a theft prevention measure, adding as much as 15 minutes onto their working day (or up to one hour and fifteen minutes to their working week), which is unpaid.

In addition, it is also alleged that workers faced a 15 minute deduction from their pay for “clocking on” 1 minute after their designated start time, even if they actually arrived on site on time.

WERE THE SPORTS DIRECT STAFF WHO WEREN’T EMPLOYEES ENTITLED TO NMW?

All employers are obliged to pay the NMW regardless of their size, and the NMW applies to all “workers” ordinarily working in the UK who are over compulsory school leaving age, not just employees.  This includes agency workers and apprentices.

WHAT ARE THE CURRENT NMW RATES?

From 1 April 2016, there are now 5 rates of NMW:

CATEGORY   RATE (£)
National Living Wage Workers aged 25+

7.20

Standard Adult Rate Workers aged 21-24 (inclusive)

6.70

Development Rate Workers aged 18-20 (inclusive)

5.30

Young Workers Rate Workers aged under 18 but above the compulsory school age

3.87

Apprentice Rate Apprentices either:

  1. Under the age of 19; or
  2. Aged 19 or over, but in the first year of their apprenticeship

3.30

HOW DO I DETERMINE IF MY COMPANY IS PAYING THE NMW?

In order to determine whether the NMW is being paid to your workers, you will need to determine their average hourly rate of pay.

On the face of it this calculation seems quite a simple one – sadly, this is not so. The average rate of pay is calculated by dividing the total amount of “money payments” that a worker earns across the relevant reference period, by the number of hours the worker has worked during that same reference period. However, what amounts to a “money payment” frequently trips up the uninitiated – see below.

The number of hours worked (known as “working time”) can also prove a tricky area for companies and one which has given rise to a raft of case law on its own. This is dealt with below.

Turning then to the relevant reference period, this is usually one month and cannot be greater than one month. However, if the worker is paid weekly or daily, then this is their reference period.

What Money Payments Should Be Considered?

Companies must exercise caution as some payments cannot be included as “money payments” for NMW purposes:

EXAMPLES OF INCLUDED PAYMENTS Basic salary
Bonus**An annual bonus paid for example in December, will usually only count for the December reference period
Commission/Incentive Payments Based on Performance
Accommodation Allowances
Allowances Paid by HMRC Dispensation Agreements
 

EXAMPLES OF EXCLUDED PAYMENTS

Benefits in Kind
Loans Given by the Company
Advances of Wages
Pension Payments
Lump Sum Payments on Retirement
Redundancy Payments
Tribunal/Settlement Awards
Premiums Paid for Overtime/Shift Work
Expenses
Tips and Gratuities

What About Deductions From Pay?

Certain deductions from a worker’s pay can reduce their pay for NMW purposes, including deductions made by a company in respect of expenditure in connection with carrying out their duties (e.g. the cleaning or purchase of uniforms). After these deductions have been taken into account the worker must still be left with at least the NMW.

Another famous retailer, Monsoon, was ordered to pay more that £100,000 to its employees in 2015 as a result of its practice of requiring staff to wear Monsoon clothes at work and deducting the discounted cost of the clothes from their wages. After the deduction, staff were left with less than the NMW.

Conversely, certain deductions do not reduce a worker’s pay for NMW purposes such as a deduction permitted by the contract between the Company and the worker due to misconduct.

In the case of Sports Direct, it has been reported that deductions were made from workers’ pay for lateness. If the deductions were not permitted by contract, the deduction would reduce the workers’ pay for NMW purposes.

A deduction of this nature could also amount to an unlawful deduction of wages, allowing the worker to bring a claim in the Employment Tribunal.

What Is Classed As Working Time?

Finally, a key issue for the Sports Direct case is what is actually classed as working time?

Working time is defined as any time during which a worker is working, at their employer’s disposal and carrying out their duties. There has also been recent case law demonstrating that, for those workers without a fixed placed of work, travelling time to their first assignment of the day and travelling time from the last assignment of the day may count as working time.

Against this legal backdrop, should the time spent by Sports Direct workers undergoing compulsory security checks be considered working time that is counted for NMW purposes? It is highly likely that the answer to this question is “yes”.  This is because workers are not free to leave the company’s premises until the compulsory security checks are completed.

How Can Your Company Avoid A Similar Fate?

Those companies operating in sectors where payment of the minimum wage is prevalent often adopt a proactive stance and schedule annual reviews to ensure legal compliance in this respect. These reviews can be linked to annual pay reviews or can form part of wider audits which align HR strategies to deliver the businesses’ objectives.

In any event, and at the very least, all companies need to:

  • have an awareness of the current NMW rates which are updated twice a year;
  • understand what payments can be included for NMW purposes; and
  • understand what counts as working time for NMW purposes.

This then enables a company to identify any risks which may arise on the back of the publicity surrounding high profile NMW cases such as Sports Direct; at the very least this will enable that company to tackle those risks head on.

CONTACT DETAILS:

If you would like more information on this topic, audits or would like to discuss a specific concern in relation to your business, please contact us:

Call: +44 (0) 808 172 93 22     Email: fgmedia@fgsolicitors.co.uk

This update is for general guidance only and does not constitute definitive legal advice.

Working out holiday pay

holiday-calculationsSUMMARY: With holiday season upon us we have produced a FAQs fact sheet to help you calculate the holiday entitlements of your workers.

What holiday entitlement do my workers benefit from?

Your first point of reference is the contract you have with your worker as this should specify that holiday to which they are entitled (which is a legal requirement for employees) – this is known as their contractual holiday entitlement. Provided their contractual holiday entitlement is equal to, or more than, their statutory holiday entitlement this is their holiday entitlement. If their statutory holiday entitlement is greater than their contractual holiday entitlement, their statutory holiday entitlement prevails.

What is the statutory holiday entitlement?

Holiday entitlement under EU law and UK law is known as statutory holiday entitlement. The table below identifies these entitlements for a full time worker – a part-time workers’ holiday entitlement is calculated on a pro-rata basis.

Source entitlement comes from Amount of holiday entitled to
EU law (Working Time Directive) 4 weeks (20 days)
UK law (Working Time Regulations) 5.6 weeks (28 days) including the 4 weeks provided for by EU law *

*This includes the eight statutory bank holidays.

Will Brexit affect the application of EU Law?

Currently there is no affect and it is generally predicted that, once we exit, the status quo regarding much EU derived employment law will be maintained. This is with the exception of holiday entitlements, in particular, in relation to including overtime and other payments when calculating holiday pay (see below), and holiday rights for those on long-term sick leave. We will provide updates when there is further information about these possible changes.

Do I need to include overtime payments with holiday pay?

This is dependent on whether the worker has normal working hours. Again, the first point of reference is the contract as this should make reference to working hours and whether that worker has normal working hours – for example, 9am to 5pm Monday to Friday.

For those with normal working hours the table below summarises whether paid overtime should be taken into account in the holiday calculation in relation to statutory holiday entitlement – contractual holiday entitlement may be different.

Type of Overtime Description Include in holiday pay calculation?
Compulsory and guaranteed
  • Must be worked
  • Regularly required
YES for 5.6 weeks
Compulsory and non-guaranteed
  • Regularly required
  • Cannot be unreasonably refused
YES for 4 weeks
Voluntary
  • Regularly worked
PROBABLY YES – 4 weeks*
Voluntary
  • Occasional
  • Irregular
PROBABLY NO*

*In every case where overtime is voluntary, whether or not it should be included in the holiday pay calculation, will depend on all the circumstances as it is necessary for employers to consider whether the payments are related to the performance of the worker’s duties.  Legal advice should be sought on a case specific basis.

Those who do not work normal hours should be paid an average of their remuneration over the previous 12 weeks – this will include overtime (of any type) as well as commission, bonuses and other payments. This is with the exception for those who have zero-hours contracts – in this instance some weeks are disregarded when calculating their 12 week average pay.

Is it just overtime payments that need to be taken into account when calculating holiday pay for workers with normal working hours?

No, any payments that are related to the performance of a worker’s duties should be taken into account in relation to the 4 weeks’ holiday (that holiday entitlement derives from EU law – see above). Such payments might include:

  • bonuses based on performance;
  • commission;
  • call-out supplements; and
  • anti-social hours allowances.

Payments which do not usually need to be taken into account include:

  • benefits in kind;
  • bonuses not linked to workers’ performance; and
  • expenses (including travel expenses) which reimburse workers for costs incurred.

How do I calculate the overtime or other payment which I need to include in the holiday pay of workers with normal working hours?

One approach to calculating the holiday pay of a worker with normal working hours is taking the average remuneration received by the worker in the 12 weeks prior to their holiday, in the same way as you would for a worker who does not have normal working hours.

The difficulty associated with this approach is the impact annual performance related bonuses may have on the calculation. Unsurprisingly there is a raft of case law on this area of law and the correct approach for this calculation will be dependent on the circumstances of each case. It is therefore advisable to seek legal advice on a case specific basis.

Contact Details

If you would like more information on holiday entitlements and pay, please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Geys –v– Société Générale: The Implications for PILON Clauses

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SUMMARY: In light of the recent Supreme Court case of Geys –v– Société Générale (‘SG’) employers are encouraged to ensure that their usage of PILON clauses would be effective to terminate employment with immediate effect.

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