The John Lewis Partnership has belatedly discovered an error that led it to underpay its staff by £40 million.

The employee-owned company has agreed to pay 69,000 of its 85,000 staff the outstanding money, which represents £580 per employee on average; individual payouts will range between approximately £120 and £1,000. Staff will receive a one-off payment this month.

The error, which was brought to the company’s attention by a recently-appointed customer-facing staff member, relates to the calculation of holiday pay for staff who worked on bank holidays and Sundays. John Lewis had calculated its holiday payments on the basis of the number of contracted weekly hours, but the working time regulations prescribe that such payments should be calculated on the average hours and pay received by staff members in the previous three months.

The significance of this different calculation is especially acute for the John Lewis Partnership because it pays staff who work on Sundays and bank holidays twice the usual rate. The error is thought to date back to 1998, when the regulations became law, but the company’s electronic records only extend to 2006. Having admitted the error, however, the company may now be open to underpayment claims from staff dating back to 1998.

Employment law expert Paula Whelan said: “The working time regulations have been in place since 1998 and some considerable case law has built up. When large employers have difficulty in calculating holiday pay allowances, this highlights the need for simplification.”

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