Whistleblower alerts employment outsourcer to minimum wage underpayments

AIM-listed outsourced workforce supplier Staffline has revealed it has set aside an additional £3.5m to cover potential underpayments of national minimum wage (NMW) going back years, after a whistleblower tipped off auditors PwC about potential problems

The company asked to be suspended from AIM at the end of January, shortly before it was due to publish its preliminary year end results, saying it had identified concerns relating to invoicing and payroll practices within its recruitment division.

Staffline has now been restated on AIM and in an update has said the allegations were raised by a third party to its auditors, PwC. As a result, a review was instigated which included the appointment of independent legal advisers to conduct an investigation, as well as instructing PwC to extend their scope of work.

The company says the independent legal investigation has delivered its key findings, and Staffline is now engaging with HMRC to resolve one allegation concerning the group's historical compliance with NMW regulations. These go back over a number of years prior to 2018.

In a statement Staffline said: ‘Potential underpayments identified by the group relate to a limited number of food production facilities and the payment for preparation time, which is generally the time spent donning workwear.

‘A provision of £4.4m had been made for estimated additional costs in the group's accounts for the year ended 31 December 2018. This provision was included as part of the £20m of exceptional costs announced in the company's trading update on 8 January 2019.

‘However, as a result of legal advice, the board has revised its estimate and deems it prudent to increase that charge by £3.5m taking total exceptionals in the period to £23.5m.

‘The additional provision referred to above is exceptional and is the only change against market expectations identified by the board.’

John Crabtree, non-executive chairman of Staffline, said: ‘We have taken this opportunity to review thoroughly the implementation of our policies as we strive to set the highest standards.

‘We look forward to publishing Staffline's results for the year ended 31 December 2018 in due course and continuing to focus on delivering across our key growth objectives.’

Once the additional audit work is completed, the group expects to report revenues of about £1.1bn and net debt of around £63m.

There had been media comment about a potential conflict of interest by PwC, which has been Staffline’s auditor since 2015. Two members of Staffline’s board previously worked at the firm.

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.’

According to the 2017 annual report, PwC was paid £13,750 as auditors of the parent company, and £166,250 as auditor of subsidiary companies.  Non-audit remuneration in respect of potential acquisitions totalled £75,000, together with £11,000 for tax compliance services, and £50,000 for other advice.

Founded in Nottingham in 1986, Staffline has two divisions.  The recruitment division supplies over 60,000 blue collar works a day to around 1,500 private sector clients, across a wide range of industries including agriculture, drinks, driving, food processing, logistics and manufacturing.  It operates from over 400 locations in UK, Republic of Ireland and Poland.

Its PeoplePlus division is a leading adult skills and training provider in the UK, delivering apprenticeships, adult education, prison education and skills-based employability programmes across the country.

Staffline was floated on AIM in 2004.

Report by Pat Sweet

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