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Thousands of Sports Direct warehouse workers are set to receive back pay totaling roughly £1m after the retailer admitted breaking the law by not paying the national minimum wage.

The move, which follows an undercover Guardian investigation last year that exposed how Sports Direct workers were being paid less than the legal minimum, is to include payments backdated to May 2012 and could be worth up to £1,000 for some workers, trade union officials estimate.

The agreement, which is understood to have been struck between the union Unite, the retailer and HM Revenue & Customs, includes workers directly employed by Sports Direct and staff hired through temporary employment agencies. Two agencies, The Best Connection and Transline, provide most of the 3,000 workers in the company’s warehouse in Shirebrook, Derbyshire.

Unite said the payments, back dated to May 2012, could be worth up to £1,000 for some workers.

Payments are expected to begin to be made from the end of this month.

Those familiar with the deal, however, say that 1,700 Transline agency workers may initially receive half the back pay they are owed, because the agency is refusing to refund unpaid wages from before it took over contracts from a rival agency two years ago.

Steve Turner, Unite’s assistant general secretary, described the agreement as a significant victory that demonstrated the importance of modern trade unions in Britain.

“Investors and customers alike should not be fooled into thinking that everything is now rosy at Sports Direct’s Shirebrook warehouse. Transline, one of the employment agencies involved, is disgracefully still trying to short-change workers by seeking to duck its responsibilities,”

“Deep-seated problems still remain regarding the use of agency workers with the behaviour of both Transline and The Best Connection further jeopardising Sports Direct’s battered reputation.”

Sports Direct boss Mike Ashley admitted workers were paid below the minimum wage when he faced MPs in June.

The concession, which was made when he appeared before MP’s investigating his firm’s treatment of its workers, confirmed the findings of the Guardian’s investigation, which revealed that warehouse staff were required to go through searches at the end of each shift, during which their time was unpaid. They also suffered deductions from their wage packets for clocking in for a shift a minute late.

The practices contributed to many staff being paid an effective rate of about £6.50 an hour against the then statutory minimum wage rate of £6.70, saving the firm millions of pounds a year at the expense of some of the poorest workers in the UK.