Category Archives: Workforce

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 Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and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

Does “Discretionary” Commission Mean Employers Can Pay Whatever They Want?

CommissionSUMMARY: Many employers give their employees discretionary bonuses or commission. However, “discretionary” does not mean that employers can pay whatever amount they choose.

In a recent case, the Court of Appeal agreed with the High Court that the amount of “discretionary” commission paid to an employee should be increased.

This case is a useful reminder that an employer should be able to show that the way in which it has exercised its discretion is not irrational or perverse.

Here are our top tips for employers who want to avoid challenges by employees about how they have exercised their discretion:

  1. Have in place an appropriately worded clause in the contract of employment setting out that a bonus/commission is discretionary.
  1. Consider the reason(s) for the amount of bonus/commission you are giving to an employee.
  1. Record your reason(s) in writing at the date the bonus/commission decision is made so that you have evidence ready in the event of a challenge.  Your record should show why and how you have reached a decision.  Flipping a coin is not a rational decision-making process!
  1. If you want a bonus/commission scheme in place, ensure that this is suitably worded to give you flexibility.  For example, the flexibility to vary or withdraw a scheme can be a useful tool.
  1. If you tell employees there are factors that will be taken into account in decision making (for example, in a commission scheme), ensure these factors are taken into account.  If the factors change, tell employees in advance of them carrying out the work.
  1. Treat staff consistently.  If an employee feels that they have been awarded a lower commission/bonus than others, they may claim this is on the basis of a protected characteristic (such as age, sex or disability).  This could leave an employer facing a discrimination, as well as a breach of contract, claim.

If you follow these tips, you should be able to motivate your workforce with the possibility of a bonus/commission payment, but avoid claims from employees when you want or need to pay less.

Case

Hills v Niksum Inc [2016] EWCA Civ 115

Contact Details

For more details about how to set up and implement bonus or commission schemes 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.

Engaging With Your Workforce

Engaging With Your WorkforceSUMMARY: Staff turnover can prove costly and also cause difficulties in attracting new recruits. It is therefore important that employers consider how they attract and retain the best talent.

Is it all about the money?

To have strongly defined recruitment and retention strategies an organisation needs to understand what motivates its staff.

Often it is mistakenly assumed that it is all about the money. This is not usually the case. One of our clients recently reported that an employee had turned down a job with a competitor, even though the salary was higher. The employee apparently had no qualms in turning down the offer because it was not just about the money.

Financial reward will undeniably play a significant role in any recruitment and retention strategy but there are many other factors which will influence an individual’s decision to stay or indeed join another organisation.

Why identify what motivates your workforce?

An organisation successful in retaining its current workforce is likely to be meeting the needs of its staff which, in turn, means it is probably also attracting new recruits. This organisation is likely to have taken the time to consider what drives individuals – identifying their needs, expectations, and values.

Whilst not purely a legal matter, we are often asked to advise on how an organisation can identify what is important to its staff and in particular, what steps can be taken to obtain employee feedback.

Taking stock, whilst providing an invaluable insight into what motivates individuals will also add further value – there is likely to be a greater feeling of inclusion leading to increased employee engagement; reduced absence levels; lower staff turnover; becoming known as a “good employer” to work for; less workplace conflict; fewer disciplinaries and grievances; less tribunal claims; increased productivity; higher profitability rates; and surprisingly some innovative ideas to improve the business may also be identified.

How to identify what makes a “great place to work”?

There are many different ways of gaining an increased understanding of the issues that are most important to individuals. For example,

  • through the running of employee forums, focus groups and staff meetings;
  • via suggestion boxes;
  • setting up dream/vision boarding exercises;
  • exit interviews; and
  • by implementing staff engagement surveys.

Staff engagement surveys usually offer the best opportunity to facilitate real business improvement on a more formal basis. Committing to such a formal process demonstrates to staff that they are being taken seriously. In turn, staff are more likely to want to contribute.

A survey can take the form of either a number of generic questions or more importantly, where needs and values are being identified, bespoke questions tailored to address particular or unique circumstances. Fundamentally, any questions must be aligned with the organisation’s overall strategy if the results are to add value. The results will also provide invaluable data to be benchmarked for comparison purposes including looking at industry specific data, to understand how the organisation performs alongside other organisations; this may be important when reviewing any recruitment and retention strategy.

Surveys can be carried out in a variety of different ways such as over the telephone, as paper based exercises or on-line. Some survey providers are now coming up with more creative ideas to get the required results. Important in all cases is that staff are provided with anonymity and the opportunity to offer their opinions on a confidential basis.

Before engaging in any exercise there are some key considerations:

  1. How will the process be managed and communicated?
  2. How will the expectations of participants be managed in terms of deliverable outcomes including sharing the results (warts and all)?
  3. Will there be a willingness to take action?

What might the results say?

The results of any staff feedback exercise are likely to identify that staff have a variety of different values.

If the focus has been on retention then it is likely to become clear that for many individuals money is not the main motivator. Increasingly catching up, and in some instances overtaking financial reward, main motivators are flexible working arrangements, homeworking, challenging and stimulating work, structured career development prospects and recognition for going above and beyond within peer groups.

The example referred to above supports these results; the employee cited a number of reasons for staying including a supportive culture, interesting and varied work, and a flexible working arrangement which provided a good work/life balance.

For some individuals money will be of paramount importance and for others it will be a flexible package. Get it right and the workforce will be more engaged and far more likely to stay; a highly engaged workforce is also likely to attract the best talent.

Contact Details

For more details 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.