Category Archives: Wages

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 Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and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.

___________________________________________________________________________

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.

Commission Payments Add Value to Holiday Pay!

FG Solicitors - Holiday Pay CommissionSUMMARY: Employers will need to take into account commission payments when calculating holiday pay.

The Employment Appeal Tribunal (“EAT”) has handed down its decision in the case of British Gas Trading Limited v Mr Z J Lock & Secretary of State for Business, Innovation and Skills.

The issue for the EAT, in the Lock case, was whether holiday pay must take into account elements of normal pay such as commission. In October 2014, the EAT was already scrutinising how employers calculated holiday pay and ruled in Bear v Fulton that employers must take into account non-guaranteed overtime payments when calculating pay for the basic four week holiday entitlement under regulation 13 of the Working Time Regulations 1998. Unsurprisingly, in Lock, the EAT has decided that workers’ remuneration for annual leave periods must also include both commission and basic pay, if this is what they are normally paid.

The Law:

Under the Working Time Regulations 1998 (“WTR”) all workers have a statutory holiday entitlement of 5.6 weeks’ annual leave and they are entitled to be paid at the rate of a week’s pay for each week of statutory holiday. This entitlement is pro-rated for part-time workers.

The WTR derives from the European Working Time Directive (“WTD”), however, the WTD only entitles employees to 4 weeks’ holiday, which is 1.6 weeks’ less than the WTR entitlement.

The Facts of the Lock case:

Mr Lock, who was employed by British Gas as a salesman, had a remuneration package that included a basic salary plus commission which was based on the number and type of contracts he persuaded customers to enter into.  However, the remuneration that he received when he took holiday consisted of basic salary and any commission which he had earnt prior to his leave commencing but that fell due during his period of holiday. This meant he could not earn commission when he was on leave and, as his basic pay was significantly less than his normal pay, this was a disincentive to take annual leave.

In April 2012, Mr Lock claimed to an Employment Tribunal (“ET”) that the failure to pay him commission for the period that he was on holiday leave was contrary to the WTR. As the WTR derive from European law, the ET referred the matter to the Court of Justice of the European Union which ruled that the WTD provides that results based commission should be taken into account when calculating holiday pay. The ET subsequently held that the WTR could be interpreted so as to include commission payments in the calculation of holiday pay for the four weeks’ annual leave provided by Regulation 13 of the WTR.

The ET’s decision was appealed by British Gas. The EAT dismissed the appeal.

Implications for businesses:

  • If workers’ remuneration ordinarily comprises basic pay and commission businesses will need to calculate holiday payments for a worker’s 4 weeks’ statutory holiday entitlement (pro-rated for part-time workers) so that it includes commission which would have been earned but for the taking of leave.
  • Businesses may choose to pay the remaining 1.6 weeks’ statutory entitlement excluding commission, which would have been earned but for the taking of leave.
  • Failure to include commission when calculating holiday pay for the 4 weeks’ entitlement means the worker may apply to the ET for any underpayments provided that the claim is made within 3 months of that underpayment being made. If a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between such underpayments.
  • Any claims presented to the ET for a series of backdated deductions from wages, including any shortfall in holiday pay, will be limited to cover a period of a maximum of 2 years.

British Gas Trading Limited v Mr Z J Lock & Secretary of State for Business, Innovation and Skills UKEAT/0189/15

Contact Details

For more details about the issues in this article or if you would like advice on how to calculate holiday 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.

On the 10th Day of Christmas…

10th Day of ChristmasOn the 10th day of Christmas my employee asked me…. “Why am I not getting a Christmas bonus this year when you’ve paid me one every other year?”

As a gesture of goodwill many employers pay their employees bonuses at Christmas; these payments often fall outside the scope of any formal bonus scheme.

An employer may however decide one year not to pay a Christmas bonus. In coming to that difficult decision, there are a number of factors which the employer needs to consider:

  • Whilst it is unlikely that there will be an express contractual right entitling the employee to a Christmas bonus; contracts of employment, any bonus scheme and other related policies should be reviewed to ensure no automatic entitlement has been created. If there has, the non-payment could be an unlawful deduction of wages.
  • Employers cannot usually unilaterally vary contractual rights without something more in the contract providing for this; employee consent may therefore be essential. Depending on the number of affected employees collective consultation may also need to be considered.
  • The absence of a written bonus agreement may not be fatal to the employee’s cause. If payments have been made over several years without fail, the employees may have acquired contractual rights by custom and practice.
  • Any communication to staff that Christmas bonus payments do not guarantee payments in future year; this may give the employer more flexibility.
  • The exclusion of only certain individuals and/or groups should be justified. Any discretion the employer has must not be exercised in a perverse or irrational way; and must be free from discrimination. Particular care should be taken if those to be excluded are on or have been on long term sick or maternity leave. Depending on the nature of the bonus agency workers could also have an entitlement.

Paying Christmas bonuses every year can create legal rights even if not intended. Given this, an employer who wants to be able to vary the bonus amount or withdraw the entitlement should ensure that this has been clearly communicated to employees to avoid costly disputes in future years.

Contact Details

For more details about the issues in this article 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.