£10 million price tag on Tesco from minimum wage payroll error

14 March 2017

During the implementation of a new payroll system, it was discovered that Tesco had inadvertently failed to pay the National Living Wage to around 140,000 former and current employees.

Shopworkers’ trade union Usdaw is working with Tesco to rectify the payroll issue. Usdaw National Officers Pauline Foulkes and Joanne McGuinness said:

“The issue relates to the operation of a number of voluntary benefits, including pensions, childcare vouchers and cycle to work, that the company offers via salary sacrifice schemes. This has resulted in pay after salary sacrifice not reaching the required National Living Wage levels for some staff.

We continue to work with the company to ensure all staff affected are informed and that their pay is corrected and reimbursed as a matter of urgency. For the majority of staff this is likely to be up to £40.

Our priority now is to agree measures with Tesco to ensure this doesn’t happen again. In the meantime we a providing our members with the support and advice they require.”

In February 2017 the Department for Business, Energy and Industrial Strategy named 359 businesses who underpaid 15,513 workers a total of £994,685 with employers in the hairdressing, hospitality and retail sectors the most prolific offenders.

According to media reports Tesco’s underpayment bill is around £10million, so more in total than all the businesses recently named and shamed; however the number of employees affected is also higher.

CIPP comment

Helen Hargreaves, CIPP’s Associate Director of Policy & Membership, spoke to BBC Radio 5 Live about the payroll error and was asked if payroll is too complicated these days?

Helen’s response was that payroll is getting more complex. Every single year there are new elements brought in, new challenges for Payroll Professionals to get to grips with, citing automatic enrolment as a recent example and the Apprenticeship Levy and Gender Pay Gap reporting coming up this year. It was intimated that this may be an excuse for payroll.

Helen pointed out that there is a huge reliance on payroll software particularly since the introduction of reporting information to HMRC in real time, and that increasingly software developers are being given less and less time to test their systems as the information required is being delayed coming though from government. Helen voiced her empathy for payroll software developers.

When faced with a comment on small amounts coming out of someone’s pay over a period time that could go unnoticed but really add up, Helen passionately announced that Payroll Professionals have an aim - and that’s always to pay everyone accurately and on time and assured the interviewer that the people who work in Tesco’s payroll department will be very upset that these staff have been underpaid - because they are professionals, and they want everyone to get exactly the amount that they should.

The interviewer rounded off saying, “Helen Hargreaves, sticking up for Payroll Professionals all round.”

The CIPP’s Payroll Assurance Scheme can help payroll departments identify potential risk areas such as those experienced by Tesco, and limit the likelihood of non-compliance fines.

Rates of pay

The National Minimum Wage - The National Minimum Wage (NMW) is the minimum pay per hour most workers are entitled to by law. The rate will depend on a worker's age and if they are an apprentice.

The National Living Wage - The Government's National Living Wage was introduced on 1 April 2016 for all working people aged 25 and over.

The rates from 1 October 2016 are:

£7.20 per hour - 25 yrs old and over
£6.95 per hour - 21-24 yrs old
£5.55 per hour 18-20 yrs old
£4 per hour - 16-17 yrs old
£3.40 for apprentices under 19 or 19 or over who are in the first year of apprenticeship.

The rate will then change every April starting April 2017. The rates from 1 April 2017 will be:

£7.50 per hour - 25 yrs old and over
£7.05 per hour - 21-24 yrs old
£5.60 per hour - 18-20 yrs old
£4.05 per hour - 16-17 yrs old
£3.50 for apprentices under 19 or 19 or over who are in the first year of apprenticeship.