Staffline, the AIM listed recruitment and temping firm, has set aside an additional £3.5m to cover long term underpayment of national minimum wage (NMW), after a whistleblower tipped off its auditor about problems with payroll and underpayment. And surprise, surprise: workwear crops up once again.
It’s not been an easy year for Staffline. The company requested to be suspended from AIM in January, right before it was due to publish its preliminary year-end results, after it had identified issues with invoicing and payroll practices within its recruitment business.
The crisis stemmed from a late night, anonymous email sent to Staffline’s auditor PWC. The email, according to The Times, made substantial allegations about Staffline’s invoicing and payroll practices.
The tip-off came the night before the accounting giant had been due to sign off on the accounts. Specifically, the email made detailed allegations about Staffline’s compliance with NMW regulations.
The allegations prompted the company to suspend trading “pending further investigation of these matters, including the impact on the company's profitability and existing forecasts”. Trading has now resumed and Staffline’s board said it “remains confident that its policies in relation to these matters are appropriate”.
With one notable exception, however: national minimum wage. A Staffline statement clarified that it “has been engaging with HMRC in order to quantify underpayments made in the past to workers, over a number of years prior to 2018”.
Hidden among the statement is another interesting detail, though. Once again, workwear crops up in the context of a NMW controversy. The potential underpayments relate to a number of food production facilities and the payment for preparation time, which is generally the time spent donning workwear.
“What we’re talking about here is when you go to a food production site, you have to wear special clothing for hygiene purposes,” explained Alastair Kendrick, a tax director at MHA Macintyre.
“How long does it take you to put on that clothing and take it off? You have to take that time into account. If a worker’s hours in a factory are from 9am to 5.30pm but they are required to get there and be ready for 9am, at say 8.45am and then another 15 minutes after work, that’s part of their duties.”
Staffline was particularly vulnerable to this technical mistake because it’s a big recruiter that places thousands of workers. So these small underpayments of NMW quickly mounted and led to the crisis in January.
According to Kendrick, the mistake is common, especially in the retail sector. “A shop opens at 9.30am, but employees are required to go through security. So they’re probably on the premises at 9 and remain on the premises afterwards, too.
“It’s an easy target for HMRC to pick up on these employers. When HMRC does a NMW inspection, the first thing the inspector asks employees is ‘When are you required to be here and when do you leave?’ And then they compare it to the hours paid.”
From the extra £3.5m Staffline has set aside, it’s clear what it believes the final bill to be. This figure will be tacked onto an existing £4.4m provision made for estimated additional costs in the group’s accounts for the year ended 31 December 2018.
This has also been an awkward episode for PwC, which has been Staffline’s auditor since 2015. Two members of Staffline’s board previously worked at the firm, raising questions over conflicts of interest, a claim which PwC strongly rebutted.
PwC said in a statement this month: ‘We have followed procedures and satisfied ourselves that we are independent. As auditor, PwC is independent. Our work is ongoing on the current audit.”