A payroll error that breached national minimum wage rules could cost employee-owned John Lewis Partnership (JLP) £36m.
The exceptional charge is related to JLP’s practice of pay averaging which has affected staff paid by the hour who worked greater than average hours over the past six years. Due to this error, in its latest annual report, JLP has revised down its annual gross profit by £36m to £452.2m.
Sir Charlie Mayfield, chair of the John Lewis Partnership, said: “In our annual report and accounts we have made a provision for any payment we may be required to make to comply with the national minimum wage regulations. In the annual report we have said that arrangements have already been made to make these payments and contact former partners.
“HMRC are aware and we intend to work with them 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.”
The report revealed that gross sales were up by 3.2% to £11.374bn for the year ended January 2017, from £11.018bn in the previous year.
Waitrose reported like-for-like sales growth of 0.2% while John Lewis witnessed a 2.7% like-for-like sales growth. The business’ operating profit before partnership bonus also increased by 22% from £531.4m to £649.4m.
The board decided to retain more of its profits to maintain levels of investment and absorb costs, which means the bonus allocated to partner employees would be going down from 10% in 2016 to 6% in 2017.
Over the next year the partnership will focus on improving the presentation and experience in shops and equipping partners with better technology. The retailer is particularly looking at developing the online offer for John Lewis department stores.
Insight research carried out by JLP revealed that the top 10% of customers drive 60% of revenues and the majority of them shop both in Waitrose and John Lewis. Therefore, the business will look at developing common offers and strategies for the two brands.
The retailer is also increasing the numbers of apprenticeships from 80 at present to 500 for 2018-2019. Strengthening its financial position remains another key objective for the retailer, which managed to reduce net debt by 33% in 2016.
“In the Partnership there’s no option for one group of owners to sell out and leave it to another to look after the future. Our ownership model means that we are able to act now, from a position of relative strength, to make the changes to prepare the Partnership for the future,” said Sir Charlie in his foreword to the report.