[UK] Next faces HMRC inquiry following payroll errors

High street retailer Next is facing an investigation into whether it is paying staff the minimum wage, following headline-making payroll errors that left workers out of pocket, The Times reports.

The tens of thousands of people working in Next’s stores and warehouses are bearing the brunt of a disastrous implementation of a new Oracle payroll system.

Workers on the minimum wage have been significantly underpaid, while others are being overpaid, causing some to lose access to their benefits amid the worst squeeze on living standards for 60 years.

The current situation is already very serious but the issues at Next appear to run even deeper:

• HM Revenue & Customs is investigating whether Next is paying workers the national minimum wage.
• Next inadvertently over-claimed money from the coronavirus job retention scheme without giving 4,000 members of staff the furlough payments that they were due.
• HMRC has reclassified Next from a low-risk taxpayer to a medium-risk taxpayer.

Under Lord Simon Wolfson, Next made record pre-tax profits of £823 million last year. Only last week, it raised its profit forecast for this year by £10 million to £860 million after droves of shoppers returned to stores.

But workers have been suffering. “More than a dozen people in my store didn’t get paid right last month,” one shop-floor employee told The Times. “One girl was overpaid, so her benefits were stopped and she had to borrow money off her parents to pay her bills and feed her young son. Another girl literally didn’t have the money to pay for her bus fare to work. Morale is awful - I have never known it to be as bad as this.”

The hardships staff are suffering raise difficult questions for finance director Amanda James and operations director Richard Papp, who oversaw the roll-out of the Oracle software system.

Lord Wolfson prefers to use Next’s in-house expertise rather than rely on consultants or third-party software providers. The retailer has largely designed its own systems, developed and supported by a vast IT department of about 1,000 workers. The attempt to integrate those systems with Oracle’s has reportedly been the root cause of the operational meltdown.

HMRC requires companies to use a licensed, third-party payroll provider. Next had to find a new one after learning that its previous software would be discontinued this year. In 2018, it is said to have signed a five-year licence with Oracle and has paid the software giant more than £10 million to date. Oracle did not respond to The Times’ request for comment.

The implementation of the payroll system has lasted the best part of four years. As the deadline neared, a team of more than 50 people worked round the clock to try to ensure the system was ready, with some workers putting in dozens of hours of overtime at double pay for several weeks.

Next even gave an “implementation bonus”; a reward for the failure that reportedly irritated some head-office staff.

The retailer blamed the botched implementation on the pandemic, which led Next to divert key team members to establish its furlough payments system. It also acknowledged that it had tried to replicate too much of the functionality from its original payroll system in too tight a timeframe, meaning that Next went live with an untested system.

However, one source close to the failings told The Times that the company’s insularity and the attitude that “Next knows best” was at the root of the problems. A characterisation that was reportedly rejected by the company.

The consequences have been heavy, regardless. Next had expected that the switchover would prevent it from being able to hire staff for its retail business for two weeks but in practice, it was unable to hire anybody for six weeks. Some employees who had paid off student loans years before noticed deductions suddenly restarting. Meanwhile, pension contributions were deducted from staff pay packets without being invested; Next said it was confident that no workers would ultimately lose out from these mistakes.

The disruption has been most severe for Next’s minimum wage shop-floor workers, paid just £9.50 an hour. The switchover to the Oracle system in February resulted in thousands of staff being paid incorrectly. One member of the retail workforce reportedly said that despite not being paid what they were owed, staff were having to work harder because they had been told to re-label thousands of garments with higher prices.

“Some people just weren’t being paid for months. Affected staff have been calling up crying and, in the worst cases, they have even been suicidal,” a head-office insider told The Times. Another source said that workers in the payroll department “just looked broken”.

Next said this was not a fair reflection of the general interactions. “We acknowledge the frustration many colleagues have felt and reiterate our sincere apologies. We have made huge progress and continue to work very hard to resolve the situation,” a spokesman said.

The retailer’s response was to write another system to catch and correct errors produced by the payroll software before any money is paid to staff. Despite that, 219 retail workers were reportedly underpaid in Next’s latest weekly payroll cycle and a greater number are thought to be getting overpaid, with the risk of benefits being withdrawn. 

The company said all underpayments were now being rectified within five working days and that improvements in the process were dramatically reducing error rates.

In common with many other retailers, there is a staggering gap between the earnings of workers and Next’s executives. In 2021, Lord Wolfson was paid £4.4 million, equivalent to 245 times the average Next employee. Mr Papp and Ms James earned £2.2 million each.

“I was underpaid by more than £500 … I have just given that up,” one warehouse worker said. “Now the system is telling universal credit I have not been to work, so I received almost £800 [in benefits] that I wasn’t due. I have been told that I have to go and look for a job with the job centre, but I am working damned hard because we are that short-staffed. It is demoralising.”

Next said it believed there were no outstanding underpayment queries among warehouse workers that were more than two weeks old.

Jo Mackie - leader of the employment practice at law firm Slater and Gordon - told The Times that HMRC can theoretically punish companies if software issues lead to staff being underpaid; although the liability would be subject to the terms of the contract between the employer and the software provider. 

In 2013, National Grid reportedly agreed to pay £4 million to compensate more than 8,000 US after the botched implementation of a SAP payroll system meant it failed to pay overtime to workers repairing damage caused by Hurricane Sandy.

Lord Wolfson has other problems to worry about. In May, HMRC wrote to the directors of Next advising them that it had opened an investigation into whether the retailer was paying its workers the “correct rate” of national minimum wage.

The inquiry is understood to have been triggered by a complaint from a member of Next’s retail workforce. HMRC has informed Next that the investigation will encompass its entire corporate structure, including any subsidiary companies. HMRC declined to comment.

“In general terms, it is not uncommon for HMRC to audit large employers and their adherence to national minimum wage regulations,” a Next spokesman said.

If HMRC finds companies guilty of underpaying staff, it can force them to make good the underpayment and levy penalties of up to 200 per cent of the arrears.

HMRC also reclassified Next from a low-risk taxpayer to a medium-risk taxpayer. The change came after the company admitted that it had over-claimed £4.3 million of furlough cash, which it repaid in January. After making what was intended to be a final disclosure, Next is said to have realised it had over-claimed an additional £3 million, which has since been repaid.

Additionally, the retailer discovered it had underpaid roughly £2 million of furlough cash to about 4,000 employees. It has repaid all current employees who were left short but admitted that about 900 former employees had been contacted but were yet to be repaid. 

Next reportedly attributed the mistakes to the regular amendments of the COVID scheme, claiming that they were a challenge for all companies to deal with. The company said it had a “clear path” to return to a low-risk rating with HMRC.

Source: The Times

(Quotes via original reporting)

High street retailer Next is facing an investigation into whether it is paying staff the minimum wage, following headline-making payroll errors that left workers out of pocket, The Times reports.

The tens of thousands of people working in Next’s stores and warehouses are bearing the brunt of a disastrous implementation of a new Oracle payroll system.

Workers on the minimum wage have been significantly underpaid, while others are being overpaid, causing some to lose access to their benefits amid the worst squeeze on living standards for 60 years.

The current situation is already very serious but the issues at Next appear to run even deeper:

• HM Revenue & Customs is investigating whether Next is paying workers the national minimum wage.
• Next inadvertently over-claimed money from the coronavirus job retention scheme without giving 4,000 members of staff the furlough payments that they were due.
• HMRC has reclassified Next from a low-risk taxpayer to a medium-risk taxpayer.

Under Lord Simon Wolfson, Next made record pre-tax profits of £823 million last year. Only last week, it raised its profit forecast for this year by £10 million to £860 million after droves of shoppers returned to stores.

But workers have been suffering. “More than a dozen people in my store didn’t get paid right last month,” one shop-floor employee told The Times. “One girl was overpaid, so her benefits were stopped and she had to borrow money off her parents to pay her bills and feed her young son. Another girl literally didn’t have the money to pay for her bus fare to work. Morale is awful - I have never known it to be as bad as this.”

The hardships staff are suffering raise difficult questions for finance director Amanda James and operations director Richard Papp, who oversaw the roll-out of the Oracle software system.

Lord Wolfson prefers to use Next’s in-house expertise rather than rely on consultants or third-party software providers. The retailer has largely designed its own systems, developed and supported by a vast IT department of about 1,000 workers. The attempt to integrate those systems with Oracle’s has reportedly been the root cause of the operational meltdown.

HMRC requires companies to use a licensed, third-party payroll provider. Next had to find a new one after learning that its previous software would be discontinued this year. In 2018, it is said to have signed a five-year licence with Oracle and has paid the software giant more than £10 million to date. Oracle did not respond to The Times’ request for comment.

The implementation of the payroll system has lasted the best part of four years. As the deadline neared, a team of more than 50 people worked round the clock to try to ensure the system was ready, with some workers putting in dozens of hours of overtime at double pay for several weeks.

Next even gave an “implementation bonus”; a reward for the failure that reportedly irritated some head-office staff.

The retailer blamed the botched implementation on the pandemic, which led Next to divert key team members to establish its furlough payments system. It also acknowledged that it had tried to replicate too much of the functionality from its original payroll system in too tight a timeframe, meaning that Next went live with an untested system.

However, one source close to the failings told The Times that the company’s insularity and the attitude that “Next knows best” was at the root of the problems. A characterisation that was reportedly rejected by the company.

The consequences have been heavy, regardless. Next had expected that the switchover would prevent it from being able to hire staff for its retail business for two weeks but in practice, it was unable to hire anybody for six weeks. Some employees who had paid off student loans years before noticed deductions suddenly restarting. Meanwhile, pension contributions were deducted from staff pay packets without being invested; Next said it was confident that no workers would ultimately lose out from these mistakes.

The disruption has been most severe for Next’s minimum wage shop-floor workers, paid just £9.50 an hour. The switchover to the Oracle system in February resulted in thousands of staff being paid incorrectly. One member of the retail workforce reportedly said that despite not being paid what they were owed, staff were having to work harder because they had been told to re-label thousands of garments with higher prices.

“Some people just weren’t being paid for months. Affected staff have been calling up crying and, in the worst cases, they have even been suicidal,” a head-office insider told The Times. Another source said that workers in the payroll department “just looked broken”.

Next said this was not a fair reflection of the general interactions. “We acknowledge the frustration many colleagues have felt and reiterate our sincere apologies. We have made huge progress and continue to work very hard to resolve the situation,” a spokesman said.

The retailer’s response was to write another system to catch and correct errors produced by the payroll software before any money is paid to staff. Despite that, 219 retail workers were reportedly underpaid in Next’s latest weekly payroll cycle and a greater number are thought to be getting overpaid, with the risk of benefits being withdrawn. 

The company said all underpayments were now being rectified within five working days and that improvements in the process were dramatically reducing error rates.

In common with many other retailers, there is a staggering gap between the earnings of workers and Next’s executives. In 2021, Lord Wolfson was paid £4.4 million, equivalent to 245 times the average Next employee. Mr Papp and Ms James earned £2.2 million each.

“I was underpaid by more than £500 … I have just given that up,” one warehouse worker said. “Now the system is telling universal credit I have not been to work, so I received almost £800 [in benefits] that I wasn’t due. I have been told that I have to go and look for a job with the job centre, but I am working damned hard because we are that short-staffed. It is demoralising.”

Next said it believed there were no outstanding underpayment queries among warehouse workers that were more than two weeks old.

Jo Mackie - leader of the employment practice at law firm Slater and Gordon - told The Times that HMRC can theoretically punish companies if software issues lead to staff being underpaid; although the liability would be subject to the terms of the contract between the employer and the software provider. 

In 2013, National Grid reportedly agreed to pay £4 million to compensate more than 8,000 US after the botched implementation of a SAP payroll system meant it failed to pay overtime to workers repairing damage caused by Hurricane Sandy.

Lord Wolfson has other problems to worry about. In May, HMRC wrote to the directors of Next advising them that it had opened an investigation into whether the retailer was paying its workers the “correct rate” of national minimum wage.

The inquiry is understood to have been triggered by a complaint from a member of Next’s retail workforce. HMRC has informed Next that the investigation will encompass its entire corporate structure, including any subsidiary companies. HMRC declined to comment.

“In general terms, it is not uncommon for HMRC to audit large employers and their adherence to national minimum wage regulations,” a Next spokesman said.

If HMRC finds companies guilty of underpaying staff, it can force them to make good the underpayment and levy penalties of up to 200 per cent of the arrears.

HMRC also reclassified Next from a low-risk taxpayer to a medium-risk taxpayer. The change came after the company admitted that it had over-claimed £4.3 million of furlough cash, which it repaid in January. After making what was intended to be a final disclosure, Next is said to have realised it had over-claimed an additional £3 million, which has since been repaid.

Additionally, the retailer discovered it had underpaid roughly £2 million of furlough cash to about 4,000 employees. It has repaid all current employees who were left short but admitted that about 900 former employees had been contacted but were yet to be repaid. 

Next reportedly attributed the mistakes to the regular amendments of the COVID scheme, claiming that they were a challenge for all companies to deal with. The company said it had a “clear path” to return to a low-risk rating with HMRC.

Source: The Times

(Quotes via original reporting)