Retail giant miscalculated number of weeks’ pay per year; HR departments must be confident in their systems, says payroll expert

One of Britain’s best-known retailers says a rudimentary payroll error led to it being fined £63,000 after topping the government’s most recent list of businesses that failed to pay the minimum wage.

Department store chain Debenhams underpaid around 12,000 employees by an average of £10 each in 2015, forcing it to pay back almost £135,000 and making it the worst offender in the latest figures.

But it has been claimed that the error originated in a misinterpretation of the number of weeks that should be used when calculating pay – while there are 52 weeks in a calendar year, there are 52.17 weeks for payroll purposes, as mandated by HMRC.

A record 350 companies were named on the list, including clothing store Peacocks, Lloyds Pharmacy and a number of Subway franchises. Hospitality businesses, including restaurants and hotels, were most likely to fail to meet their salary obligations, with 84 employers in the sector underpaying a total of 563 workers. A Harley Street property company was listed as the worst individual offender, after it was found to have underpaid a housekeeper by more than £11,000.

Debenhams was one of several organisations to blame administrative errors for their appearance on the list. But Melanie Pizzey, CEO of the Global Payroll Association, said: “Technical errors in payroll, especially in large organisations, are uncommon. And a large organisation like Debenhams would have dedicated HR and payroll specialists, and sophisticated payroll and HR software that has a range of inbuilt rules and exception reports produced each pay period.

“While we don’t know exactly what the technical error was, they should consider reviewing their payroll and HR software configuration and business rules in conjunction with suppliers, to ensure they have been correctly set up and there are no conflicting rules.”

The negative publicity surrounding such underpayments should act as a wake-up call for HR departments to check that their systems and reporting mechanisms are functioning properly, added Pizzey: “The causes of payroll errors can be anything from the configuration of the payroll elements, to interaction between different payroll elements, business rules or a combination of unusual circumstances. Businesses must ensure they are using all the error and exception reports within their payroll system, and take specialist advice when introducing new reward systems or making changes to their payroll.”

A Debenhams spokesman said: “As a responsible employer, Debenhams is committed to the national minimum wage and, as soon as the error was identified by a routine HMRC audit last year, we reimbursed all those affected. We have apologised to all our colleagues affected and have taken steps to ensure it cannot happen again.”

In the hospitality industry, many of the issues were blamed on businesses using tips to top up pay, asking staff to pay for their uniforms or removing accommodation deposits from salaries, all of which put them in breach of the regulations when they were audited.  

Chief executive of the British Hospitality Association Ufi Ibrahim said the errors could often be attributed to small hospitality and tourism businesses in the UK facing “a raft of rising costs in a labour-intensive industry”. But she said the association “cannot condone” any businesses breaking the law by failing to pay the national minimum wage.   

Business minister Margot James said that, by naming and shaming, the government was “sending a clear message to employers that minimum wage abuses will not go unpunished”.