Charlie Barnes: Iceland’s Christmas savings scheme could cost £21m in back pay

Charlie Barnes

Prior to Christmas, retailer Iceland was told by HM Revenue and Customs (HMRC) that it owed employees up to £21 million in back pay due to its Christmas savings scheme. The reason? The national minimum wage.

Under the National Minimum Wage Regulations 2015, certain deductions made by the employer count towards national minimum wage compliance. This means the employer should look at the pay employees receive after any deductions have been made in order to establish national minimum wage compliance.

Iceland said its employees could join the scheme voluntarily to help spread the cost of Christmas. Iceland deducted money from their pay throughout the year and paid it into the savings scheme on their behalf. Staff could access their money at any time. In effect, employees never lost the money; Iceland was just saving it on their instruction.

The regulations state that deductions from pay ‘which are for the employers’ own use and benefit’ will count towards national minimum wage compliance. If Iceland never used or benefited from the money in the scheme, arguably, the scheme deductions should not count for national minimum wage compliance purposes.

Iceland’s managing director has described HMRC’s actions as ‘idiotic’, and the organisation is challenging HMRC’s findings.

If Iceland is unsuccessful, HMRC will require the supermarket to repay staff up to £21 million, which is the amount paid into the scheme by employees over the last six years. HMRC may also issue Iceland with a financial penalty of up to double that amount. This would lead to the bizarre outcome of affected employees receiving a windfall from Iceland, and those that did not opt into the scheme feeling like they had lost out.

While tackling the exploitation of vulnerable employees is a priority, balance is needed to ensure organisations that are doing their best to comply are not unfairly penalised, particularly where employees suffer no financial harm.

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If this is not addressed, employers like Iceland will be discouraged from operating schemes which provide similar non-financial benefits to staff. Now, that would result in some harm.

Charlie Barnes is an employment lawyer and associate director at RSM Legal