Benefits in kind and accommodation
Treatment of benefits in kind
Benefits in kind, except accommodation, do not count towards national minimum wage (NMW) pay. It makes no difference whether a value is attached to the benefits. Neither does it make any difference whether the benefit is taxable or not.
It remains open, of course, to you to offer such benefits to the worker. But, if you do, the value or notional value of the benefits cannot be counted towards NMW pay.
Examples of benefits in kind that do not count towards NMW pay, include:
- employer's contribution to the worker's pension fund
- assistance with removals
- medical insurance
- luncheon vouchers
- child care vouchers
The value of meals provided to the worker does not count towards NMW pay.
Living accommodation provided by the employer to the worker is the only benefit in kind that can count towards a worker's NMW pay. You may:
- deduct rent from the worker's pay
- charge a specific amount once the worker has received their pay
- provide accommodation on an uncharged basis as part of a package
In all these cases, the rules allow a notional amount called the accommodation offset to count towards NMW pay.
Where you charge the worker for the accommodation, either by making a deduction from the worker's pay or by accepting a payment from the worker, the worker's NMW pay will only be affected if you charge more than the accommodation offset. The amount of the charge over and above the level of the offset will reduce the worker's pay for NMW pay purposes.
Reasons for the accommodation offset
The accommodation offset is intended to discourage employers from recouping the NMW paid to a worker by levying excessive accommodation charges.
The accommodation offset rate doesn't seek to reflect the actual cost to you or the actual value of renting accommodation for the worker. Allowing a market rate would not recognise the advantages to you of providing accommodation. Also, the standard and types of accommodation and consequently the market value of accommodation can vary considerably.
Any charges the worker is obliged to pay as a condition of being provided with accommodation, including amounts for gas, electricity, laundry and provision of furniture, must be regarded as a charge paid in respect of the provision of accommodation.
Such charges should be taken into account when determining the total charge for accommodation, and when calculating the NMW under the accommodation offset rules.
The accommodation offset provisions apply whenever you provide accommodation to a worker. You will be considered as providing accommodation in the following circumstances whether or not the accommodation is provided by you or a third party:
- the accommodation is provided in connection with the worker's contract of employment
- a worker's continued employment is dependent upon occupying particular accommodation
- a worker's occupation of accommodation is dependent on remaining in a particular job
Where the provision of accommodation by you and the worker's employment are not dependent upon each other, you may be considered to be providing accommodation if one of the following applies:
- you are the worker's landlord either because you own the property or because you are subletting the property
- you and the landlord are part of the same group of companies or are companies trading in association
- yours and the landlord's businesses have the same owner, or business partners, directors or shareholders in common
- you or an owner, business partner, shareholder or director of your business receives a monetary payment and/or some other benefit from the third party acting as landlord to the workers
For the purposes of the accommodation offset rules, third parties will include:
- businesses and companies, which are separate legal entities to the employer
- individuals including those who are family members of a director, business partner, shareholder, or owner of the employing business
- businesses or companies with a director, shareholder, owner or business partner who is a family member of a director, shareholder, owner or business partner of the employing business
The accommodation offset will apply whenever you are providing accommodation regardless of whether the worker can choose whether or not to occupy the accommodation. Even if the provision of accommodation is optional, where the worker chooses to accept the offer, the accommodation offset will apply.
When enforcing the NMW, compliance officers will look at the facts of each individual case before deciding whether an employer is providing accommodation.
Calculating the accommodation offset and the effect on NMW pay
The current accommodation offset is £4.51 for each day - midnight to midnight - that you make the accommodation available to the worker in a pay reference period, up to a maximum of £31.57 a week. The effect on NMW pay depends on whether or not you charge for the accommodation.
|For pay reference periods from and including||Per day (£)||Weekly maximum (£)|
|1 October 2009||4.51||31.57|
See past accommodation offset rates 1999-2008 - Opens in a new window.
Special rules applied prior to 1 October 2003. For details and the appropriate rates, you can call the Pay and Work Rights Helpline on Tel 0800 917 2368.
Where an employer provides accommodation free of charge
Where you provide accommodation to a worker free of charge the notional amount of the accommodation offset counts towards NMW pay. See our examples for calculating NMW pay when accommodation is provided free of charge - Opens in a new window.
Where the employer charges for the accommodation
Where you charge the worker for accommodation, either by making a deduction from the worker's pay or accepting a payment from the worker, then the effect on NMW pay depends on whether the charge is above the accommodation offset.
If the employer charges the same as the accommodation offset or less, the amount charged for accommodation has no effect on the calculation of NMW pay.
If the employer charges more than the accommodation offset, the amount charged over and above the level of the offset reduces NMW pay. In these circumstances the hourly wage rate has to be increased or the charge for accommodation reduced to ensure the worker receives at least the NMW.
See our examples for calculating NMW pay when accommodation is charged for - Opens in a new window.
Treatment of absences and time work
If a worker is paid solely according to the number of hours they are at work, the work is time work. When a time worker is absent from work, the time they are absent and the pay they receive for that absence are excluded when calculating whether they have been paid the NMW.
For more information on time workers and the NMW, see our guide on the national minimum wage - hours for which the NMW must be paid.
Normally, when you provide accommodation to a worker and charge for that accommodation, the amount of the charge which exceeds the accommodation offset will reduce the worker's NMW pay. However, special rules apply when a time worker has been absent from work and the following all apply:
- you are charging for accommodation by making a deduction from the worker's pay or accepting payment from the worker
- the time worker has been absent from work for a day or more in a pay reference period, for example because they have been sick or taken holiday
- the worker has been paid at least the NMW for the hours for which they have been absent
- the hours the worker actually works are less than they would normally be in the pay reference period because of the absence
- the deduction or charge you make for accommodation does not increase because of the worker's absence from work
If the above conditions apply, the deduction or payment for accommodation has to be adjusted before applying the accommodation offset in accordance with the following formula:
- the deduction or payment is multiplied by the number of hours the worker actually worked
- that total is then divided by the total number of hours the worker would have worked, including any hours they actually worked, if they had not been absent
Only the amount of the deduction or payment, which exceeds the accommodation offset will reduce the worker's NMW pay.
See our example of NMW and accommodation offset calculations for a time worker who has been absent - Opens in a new window.
Accommodation offset and workers living in social housing
Where a worker is working for a social housing provider and lives in accommodation provided by their employer but there is no connection between the worker's employment and the fact that they are a tenant of their employer - either a local authority or a registered social landlord - the accommodation offset does not apply.
Where there is a connection between the work and the provision of the accommodation, for example where someone is a care warden and must live on site, the accommodation offset will continue to apply.
Agricultural NMW and the accommodation offset
The Agricultural Wages Order provides that accommodation should be treated as a benefit in kind but only in situations where accommodation is provided in accordance with a worker's contract of employment.
The NMW accommodation offset provides a safety net for agricultural workers in cases where the employer is providing accommodation but the agricultural minimum wage offset does not apply.
The Agricultural Wages Order provisions do not apply where accommodation is provided by the employer outside a worker's contract of employment. In this situation, the worker must be paid at least the NMW in line with this guidance.
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