National Minimum Wage and Accommodation Offset
(This post is based on rules as at 1 October, 2015)
Accommodation provided by an employer can be taken into account when calculating the minimum wage.
The offset rate for accommodation charges from 1 October, 2015 is £5.35 a day or £37.45 a week. If an employer charges more than this, the difference is taken off the worker’s pay which counts for the minimum wage.
This means the higher the accommodation charge, the lower a worker’s pay when calculating minimum wage.
If the accommodation charge is at or below the offset rate, it doesn’t have an effect on the worker’s pay.
If the accommodation is free, the offset rate is added to the worker’s pay.
No other kind of benefit (eg food, a car, childcare vouchers) counts towards the minimum wage.
Use the National Minimum Wage calculator to check if the minimum wage has been paid.
What counts as accommodation charges
Include these costs as part of your overall accommodation charges:
- charges for gas, electricity, furniture, etc
Working out if the employer provides the accommodation
The employer is providing accommodation if any of these apply:
- the accommodation comes with the job
- the employer (or a connected person or company) owns or rents the property the worker lives in, even if there’s no direct link between the job and the accommodation
- the employer (or an owner, business partner, shareholder or director) gets a payment or benefit from the worker’s landlord or a member of the landlord’s family
Accommodation costs count towards the minimum wage even if the worker doesn’t have to use the accommodation to do the job. If the accommodation is optional, it only counts as a cost if the worker uses it.
Accommodation charges: effect on the minimum wage
This depends on how much an employer charges for accommodation.
It’s calculated by ‘pay period’, the intervals at which someone is being paid. This can be weekly, monthly or in irregular intervals like every 10 days.
If the accommodation is free, it still affects the minimum wage. There is an offset rate of £5.35 per day for this.
It doesn’t matter if the cost of the accommodation is taken from the worker’s wages beforehand or if the worker pays the cost after they get their wages.
Example 1: accommodation is free
John is 27 and gets £5.50 an hour. This is below minimum wage.
He works 30 hours a week.
He gets paid every 7 days (his pay period).
His employer provides free accommodation 7 days a week.
This brings John’s pay up to £6.75 an hour which is above the minimum wage rate of £6.70.
- £5.35 (offset rate used when accommodation is free) × 7 (days accommodation provided in pay period) = £37.45
- £37.45 + (£5.50 × 30 – the total pay in reference period) = £202.45
- £202.45 ÷ 30 (total hours in pay period) = £6.75
Example 2: accommodation is charged below the maximum rate
Lisa is 30 and gets £6.71 an hour. This is above minimum wage.
Her employer charges £3.75 per day for accommodation which is below the threshold of £5.35. No offset rate is applied.
The accommodation charge doesn’t affect Lisa’s pay of £6.71 an hour.
Example 3: accommodation is charged above the maximum rate
Sam is 35 and gets £6.75 an hour. This is above minimum wage.
He works 45 hours a week.
He gets paid every 3 weeks (his pay period).
His employer charges £7.00 per day for accommodation.
Sam lives in the accommodation full time which is 21 days for his pay period.
This brings Sam’s pay down to £6.49 an hour which is below the minimum wage.
- £7.00 (accommodation rate) × 21 (days accommodation provided in pay period) = £147.00
- (£6.75 × 135 – hourly rate × total hours in pay period) – £147.00 = £764.25 + (£5.35 × 21 – offset rate × days in pay period) = £876.60
- £876.60 ÷ 135 = £6.49
Please get advice from your accountant or payroll bureau before taking action based on the above content.