In a series of articles we are looking at how even employers who fully intend to pay their staff NMW are being caught out by the complexities of the legislation. It is costly to get it wrong. Previous articles have looked at providing staff with uniform and trial shifts / inductions.

It is not uncommon for hotels, pubs and bars with living accommodation on site to provide staff with somewhere to stay as part of their package. Here we look at how employers providing staff with accommodation might count this towards the NMW but how they might still fall foul of their obligations.

The only benefit in kind which can count towards a worker’s pay for the purposes of the NMW legislation is the provision of accommodation. The result is that employers who provide staff accommodation may be able to pay workers an hourly rate which is below the NMW, provided the off-set allowances are observed. However, where employers charge employees to live in staff accommodation this may bring their pay below the NMW if the employer does not do the calculations carefully.

Where free accommodation is provided there is a limit on the amount that can count towards a worker’s pay for the purposes of calculating the NMW. This is called the accommodation off-set allowance and is currently a maximum of £49.00 per week or £7 per day rising to £52.85 per week or £7.55 per day from April 2019 (see Example 1 below). In short it is possible for employers to put £7 per day towards meeting the NMW.

Where rent is charged, a worker’s pay is reduced by the amount of rent charged over and above the accommodation off-set for the purposes of calculating whether he is paid the NMW (see Example 2 below).


Examples

Example 1

A 27 year old worker is paid £6.50 per hour for a 30 hour week. He is provided with free accommodation.

  • Gross weekly pay: £6.50 x 30 = £195.00
  • Rent = £0
  • Accommodation offset £7 x 7 = £49.00
  • Add offset to gross pay £195.00 + £49.00 = £244.00

Hourly rate of pay is £244.00 divided by number of hours worked i.e. 30 = £8.13 per hour. The worker is therefore currently paid above the NMW for his age which is £7.83 (he is over 25).


Example 2

 A 30 year old worker is paid £7.85 per hour for a 40 hour week. He is provided with accommodation 7 days a week for which he is charged £75.00 per week.

  • Gross weekly pay: £7.85 x 45 = £314.00
  • Rent = £75
  • Accommodation offset £7 x 7 = £49.00
  • Amount charged in excess of offset £75 – £49.00 = £26.00
  • Subtract excess from gross pay £314.00 – £26.00 = £288.00

Hourly rate of pay is £288.00 divided by number of hours worked i.e. 40 = £7.20 per hour. The worker is therefore paid below the NMW (of £7.83) even though his hourly rate is £7.85 per hour. If the worker was 19 with an hourly rate of £5.90 per hour then he would be receiving more than the NMW.


These examples show how an employer needs to be careful to make calculations on an individual basis taking into account age, hours worked, rate of pay and accommodation provision to make sure that every employee is being paid the NMW.

Advice

  • Robust processes need to be put into place to avoid administrative oversights resulting in the employer failing to pay the NMW.
  • Employers must closely monitor when employees move from one age band to the next.

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