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Tesco plans clawback of mistaken redundancy pay from fired staff

25th Jun 2019
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A tough situation for Tesco has been made even trickier after a payroll error caused hundreds of ex-employees to be overpaid and underpaid their redundancy pay.

From an accounting perspective, it’s been a difficult few years for the UK’s biggest supermarket chain by market share.

In 2014, only three weeks into Dave Lewis’ tenure as Tesco CEO, the company announced it had overstated its profits by £250m after revenue recognition irregularities were spotted in its half-year results.

The gaffe drew the attention of the Serious Fraud Office and the FCA, and Tesco eventually pledged to pay out £235m in fines and settlements to quell the brewing storm. But it hasn’t been a smooth road since then, either.

In 2017, the chain announced a round of redundancies as part of a broader turnaround strategy citing a “competitive and challenging market”. Nine-thousand staff members were affected.

Now Tesco has announced yet another, albeit less existentially threatening accounting error: between 200 and 300 former workers received the incorrect amount of redundancy payments, with some staff getting in excess of what they were owed, while others were underpaid.

“A small number of colleagues were impacted by an administrative error which resulted in an incorrect redundancy payment being made to them,” said Tesco in a statement. “Colleagues who were underpaid were paid the correct amount within one to two working days and this issue is now resolved.”

Those who were overpaid, Tesco said, would be treated fairly and the company would take “individual circumstances” into account. The supermarket is applying strange logic to these overpayments, however: anyone who was overpaid by more than £500 will be able to keep £100, but those overpaid by less than £500 will be allowed to keep the full amount.

As AccountingWEB member Chris Mann reflected, “Seems to me that, if you're lucky and, were overpaid by £499, you can pocket the lot. If you're unlucky and were overpaid £501, you can only retain £100? I'm struggling to see how this is ‘reasonable’? Brings a new meaning to creative accounting, if you ask me.”

For individuals who received over the magical £500 barrier, the clawback will likely be a stressful addendum to losing their jobs, said Kate Coles, an FD mentor and coach, and former finance manager for Graze and Innocent.

“The money may well be spent already, or have been earmarked for an expense while they search for a new job. Again, this will be putting these redundant staff under an extra level of stress.”

From Tesco’s side, there needs to be a cost-benefit analysis, however. Any potential clawback of redundancy pay would not only be a potential PR nightmare, it would also be an expensive legal process, said Stephen Ravenscroft, partner and head of employment at Memery Crystal.

“If an ex-employee was unwilling to repay the money, it would require some form of legal action, either in county court or small claims court, on an individual basis,” he explained. Any kind of mass action would be impossible.

Tesco’s only non-legal recourse, Ravenscroft added, would be if the redundancy payment was made under a settlement agreement and there are other payments to be made under that settlement. “If that’s the case, Tesco might be able to deduct money from any payments to be made to them”.

As AccountingWEB member Ireallyshouldknowthisbut observed, instead of chasing down sacked employees for relatively small amounts, Tesco will be better served by reassessing “its control procedures in payroll and who made a mess of it”.

“I'd not try and claw it back as its likely to be not only really bad PR, but whilst you might get back a few [thousand] willingly, its unlikely to be economic to get it out of many peoples hands. Sacked employees don't usually take kindly to a clawback.”

Replies (11)

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By sallycox
27th Jun 2019 12:22

I would have thought that Tesco would risk losing far more in potential lost profits from enraged customers than they would get back from redundant employees.
Probably have more ex-customers than ex-employees.

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27th Jun 2019 12:25

So some were overpaid and others were underpaid therefore the net cost to Tesco could be NIL!!! They should be looking for the employees they underpaid and leave the others alone. Treat any overpayment as a bonus to them!

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By Brend201
27th Jun 2019 12:34

But the article says "Colleagues who were underpaid were paid the correct amount within one to two working days and this issue is now resolved." So, those who were underpaid have now been paid correctly, which means that the net cost to Tesco cannot be nil.

It would be interesting to see the total amount at stake and the number of people who were overpaid by more than £500.

I suppose that a fairly junior person will lose their job over this.

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27th Jun 2019 12:59

I know every little helps but if I were Tesco, I wouldnt air my dirty laundry on this.

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By Mike Nicholas
27th Jun 2019 13:10

The article doesn't explain how the error(s) occurred.
I imagine Tesco will not want to reveal the reason(s) just in case of prejudicing any restitution legal action.
The error rate works out at between 2.2% and 3.3% - perhaps not so bad?
And in my experience finalising termination payments for any number of staff is often conducted against the clock - which is rarely conducive to 100% accuracy.
It's a truism, that it's usually when things go wrong that 'payroll' gets noticed. Is that also true of accountancy, I wonder?

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By [email protected]
27th Jun 2019 13:12

Damned if you do - Damned if you don't!

It seems to me that the equitable thing to do would be to let the amounts under £500 lie - as they've already put that out, and ask for amounts over £500, allowing the ex employee to keep the first £500. Tesco's just needs to take this one on the chin and tighten up it's processes.

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Replying to [email protected]:
By richard.snape
27th Jun 2019 21:20

Yes, and to incentivise repayment they could say that those repaying balance over £500 within agreed period could keep £500, but if legal action were required the full amount would be claimed.

However, unless really substantial amounts are involved Tesco can afford to and probably should just take it on the chin.

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By matthewleitch
27th Jun 2019 13:16

Would you (the journalist) still be taking this stance if it emerged that several of the ex-employees were senior staff who were overpaid several tens of thousands of pounds, and many knew they had been overpaid but said nothing? (I'm not saying that is the situation; just pointing out that we do not know and the truth might be important.)

And why is the situation of the ex-employee so much more important than the other stakeholders in this situation? What about other employees now paid from a pot of money depleted by the undeserved payout to ex employees? What about the savers and pensioners whose wealth is partly tied up in Tesco shares and who will be just a bit poorer because of this money left with ex employees in error? What about customers, struggling to make ends meet by visiting Tesco and buying from their more economical lines, perhaps ending up paying just a bit more on those essentials because some over-paid middle managers were also paid too much in redundancy pay? (Again, I'm speculating a little about who was let go.)

Decisions like this are not just about the little guy versus the 'big corporation', and it's not really fair to care only about those who lose out and happen to be our focus of attention. All the stakeholders are relevant and many of our largest corporations are really the economic interests of many ordinary people.

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By djbrown
27th Jun 2019 13:16

This would be the same Tesco that has made a load of staff redundant from my local store and is now advertising for staff, finding that they made too many redundant....

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By stevenwarboys
27th Jun 2019 14:57

I'm sure I will be corrected if I am wrong, but isn't there something about employers not being able to make deductions from employee's in these cases unless it is specifically covered in the employment contract?

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By rememberscarborough
27th Jun 2019 17:34

"Sacked employees don't usually take kinds to a clawback"

If they were sacked I suspect the unfair dismissal claims would already be winging their way to Tescos!!! Simply put, mistakes happen by both employees and employers but the later have to stand the cost whilst the former benefit every time. It really is true - life isn't fair....

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