Following a review of John Lewis`s payment practices, it was discovered that it had been miscalculating holiday pay for the past seven years. John Lewis had been calculating holiday payments based on contracted weekly hours of employees. It failed to take into account the higher hourly wage rate of employees working on Sundays and bank holidays, as required by the Working Time Regulations 1998, which state that holiday pay should be based on the average hours and pay collected by employees in the last twelve weeks.

As a result, John Lewis will be paying a total of £40 million in compensation to 69,000 underpaid employees. The amount received by employees will vary depending on pay grades and shift patterns, but will average £580 per employee. £7 million will also be added to  future pension liabilities.

There have been recent calls to amend and simplify the rules surrounding holiday pay, as  case law is  no longer consistent with the literal wording of the Working Time Regulations.

This story serves as a reminder to ensure that holiday pay, whether paid at the time the employee takes their holiday, or paid in lieu of accrued leave upon termination of an employee’s contract, is calculated accurately, according to what the employee has actually earned in the previous twelve weeks and not just based on their contracted hours. For more information on calculating holiday pay, click here.