The National Minimum Wage is very much in the spotlight at the moment with operators in the hospitality sector understandably concerned about how they will comply with the requirement to pay the National Living Wage (a higher NMW for over 25s) from April 2016.  In this article we look at the related issue of the Accommodation Offset.  The National Minimum (and in the future National Living) Wage is not just the hourly rate that you pay staff, but can be affected by whether or not you provide staff accommodation.  The rules on applying the accommodation offset are not new but do contain some inconsistencies.  More than one operator has recently struggled to apply the rules with the result that they were failing to pay staff the NMW – which can prove a costly mistake.

Why provide staff accommodation?

Many hoteliers, restaurant and pub operators provide staff accommodation because it is a factor in attracting and retaining staff.  For example, there has been a huge increase in the numbers of Eastern Europeans working in the hospitality sector in the UK and for many of them the offer of accommodation is crucial if they are to be able to come to the UK and start work quickly.  In addition when staff live on site it is easier to manage changing shift patterns, and if weather is bad or travel is difficult staff are on site; critical to keeping your business operating.

How much do you charge for a room?

Providing staff accommodation represents a cost for a business and many operators try to cover at least some of this cost by charging staff rent.  However, it is crucial to make sure that staff who are paying for accommodation (offset against their pay) are still receiving the national minimum wage.

Accommodation Offset – how does it affect the National Minimum Wage?

HMRC carry out regular and unannounced inspections of businesses to ensure they are complying with their obligations to pay the national minimum wage to staff.  One area where there is a high risk of non-compliance is the application of the accommodation offset.

Every worker is entitled to be paid the national minimum wage by his employer.  The rates from October 2015 are as follows:

Age Hourly rate
Over 25 National Living Wage £7.20 from April 2016
Over 21 £6.70
18-20 £5.30
Under 18 £3.87
Apprentice £3.30

 

Getting the calculation right

The question is, does accommodation that is provided count towards the hourly rate? In short, it depends how much you charge for the accommodation.

The accommodation offset rate is £5.35 per day or £37.45 per week and in some circumstances this can be added to a worker’s pay and will count towards the NMW.

You need to work out the worker’s pay period which could be weekly, monthly or irregular and then calculate their hourly rate after any accommodation charges.

IF accommodation is provided FREE of charge:

You can add the accommodation offset to the workers pay.

Example – Gary who is over 21 gets paid £5.50 per hour which is below the NMW.  However, he is provided with accommodation free of charge.

Pay period – weekly (every 7 days).  He works 30 hours per week.

Pay over 7 days – £5.50 x 30 = £165.00

PLUS

Accommodation offset x 7 days = £37.45

Total = £202.45

Hourly rate over 7 days = £202.45divided by 30 hours.

Gary’s hourly rate is £6.75 which is more than the NMW.

If accommodation is charged at BELOW the offset rate:

If an employer charges say £30 per week for accommodation then as this is below the offset rate so no offset rate is applied and the accommodation charge does not affect the employee’s pay.

If accommodation is charged ABOVE the offset rate:

If an employer charges more than the offset rate for accommodation then the extra charge is taken off the worker’s pay that counts for the NMW.  NB a worker who appears to be earning more than the NMW may not be once the accommodation charges are taken off and this is how many in the leisure sector fall foul of the NMW regulations.

Example – John, aged 27, earns £7.00 per hour which is above the NMW.   He pays £7.20 per day for accommodation.

John works a 40 hour week.  Pay – £7.00 x 40 = £280 per week

Accommodation rate £7.20 x 7 =£50.40 per week

Offset rate £5.35 x 7 =£37.45 per week

Difference between actual cost of accommodation and offset = £50.40 – £37.45 = £12.95

Pay less cost of accommodation £280-£12.95 = £267.05

Pay (after accommodation) £267.05 divided by hours in pay period 40 =£6.67 per hour which is below the NMW.

Points to note

  • It doesn’t matter whether you deduct the cost of accommodation from the worker’s wages or if s/he pays for accommodation after they get paid – the rules are the same.
  • Rent, gas and electricity and laundry all count as accommodation charges.

Penalties for non-compliance

Where HMRC find an employer to be in breach of the NMW regulations it will issue a notice for underpayment and will also impose a penalty for non-compliance.  The penalty can be up to 100% (set to rise to 200% next year) of the underpayment up to a maximum of £20,000 per underpaid worker.  These tougher penalties are clearly designed to encourage employers to comply with their obligations.  In addition the Government has announced plans to double the enforcement budget saying that the NMW and national living wage (from next April) will only work if it is enforced properly.

 


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