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HMRC internal manual

National Minimum Wage Manual

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HM Revenue & Customs
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Accommodation and accommodation offset: considering the charge for living accommodation against the offset; scenario 2, time work being performed with paid absence

Relevant legislation

The legislation that applies to this page is as follows:

For pay reference periods commencing

* on or after 6 April 2015; National Minimum Wage Regulations 2015, regulation 15
* before 6 April 2015; National Minimum Wage Regulations 1999, regulation 37 

Explanation

Whenever an employer provides living accommodation to a worker in a pay reference period it is necessary to consider the accommodation offset. Normally, the amount charged for providing living accommodation which exceeds the accommodation offset will reduce the worker’s pay for national minimum wage purposes. However, special rules apply when a worker performing time work (NMWM07040) has been absent from work and the following all apply:

  • 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 national minimum wage for the hours for which they have been absent,
  • the hours the worker actually worked are less than they would normally be in the pay reference period because of the absence, and
  • the charge made for the accommodation does not increase because of the worker’s absence from work.

If all of the above conditions apply, the deduction or payment for accommodation is adjusted before applying the accommodation offset in accordance with the following formula:

  1. the charge for the accommodation is multiplied by the number of hours the worker actually worked, and
  2. 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 adjusted deduction or payment, which exceeds the accommodation offset, will reduce the worker’s pay for national minimum wage. This adjustment means that those employers who provide living accommodation are not penalised for providing payment in respect of absences. Remember that a payment for absence is reduced when calculating pay for national minimum wage (NMWM09080).

In this example, covering 2 performance reference periods, the rates are based on those that applied for the 2012/13 rate year:

  • Main rate: £6.19
  • Accommodation offset rate: £4.82 per day (£33.74 weekly maximum)

Example, Week 1

A worker performing time work is entitled to be paid the national minimum wage at the main rate. Their pay reference period is a week and they are paid £8.00 an hour for a 40 hour week (8 hours per day). Accommodation is provided by their employer five days a week who deducts £95 per week from their wages for rent.

Total weekly pay: £8.00 x 40 = £320

Rent charged: £95

To calculate their national minimum wage pay:

  1. Identify the applicable offset: £4.82 x 5 = £24.10
  2. The amount charged for accommodation in excess of the accommodation offset is:
* £95 - £24.10 = £70.90
  1. Subtract the excess from total pay to calculate the worker’s pay for national minimum wage in a normal week:
* £320 - £70.90 = £249.10
  1. Find their hourly rate by dividing national minimum wage pay by hours worked in a normal week:
* £249.10 ÷ 40 = £6.23. The worker is paid more than the national minimum wage.

Example, Week 2

The following week, the same time worker is absent for two days because they are sick. They are however still paid £320 for the week. Special rules apply in these circumstances.

Number of hours normally worked: 40 hours

Number of hours actually worked: 24 hours (40 hours - (8 hours x2))

Weekly pay remains: £320

Worker’s pay for the time actually worked is: 24 x £8.00 = £192.00

Rent charged remains: £95

The applicable offset remains: £4.82 x 5 = £24.10

The amount charged for accommodation in excess of the accommodation offset does not remain as £70.90; an adjustment has to be made.

To calculate the national minimum wage pay:

  1. Adjust the amount of rent to apply against the offset.
* Multiply the rent charged by the number of hours the time worker actually worked and divide this by the number of hours they would have worked had they not been absent: (£95 x 24) ÷ 40 = £57. 
* This adjusted figure is used in place of the rent actually charged to calculate the amount charged for accommodation in excess of the accommodation offset: £57 - £24.10 = £32.90.
  1. The pay in respect of an absence is reduced from national minimum wage pay (16 x £8.00) leaving the worker’s pay for the time they actually worked:
* £320 - £128: £192.00.
  1. Subtract the adjusted figure in excess of the accommodation offset from pay for the time actually worked to calculate national minimum wage pay in that week:
* £192.00 - £32.90 = £159.10
  1. Find their hourly rate by dividing national minimum wage pay by hours worked in a normal week:
* £159.10 ÷ 24 = £6.63. The worker is paid more than the national minimum wage.

Example, Week 2 if no payment for absence

If the worker is not paid for the two days they are absent the special rules to adjust the amount charged to apply against the offset will not apply.

Weekly pay: £8.00 x 24 = £192.00

Rent charged: £95

To calculate the national minimum wage pay:

  1. Identify the applicable offset: £4.82 x 5 = £24.10
  2. The amount charged for accommodation in excess of the accommodation offset is:
* £95 - £24.10 = £70.90.
  1. The pay in respect of an absence is reduced from national minimum wage pay (16 x £8.00) leaving the worker’s pay for the time they actually worked:
* £320 - £128: £192.00.
  1. Subtract the excess from the worker’s pay to calculate national minimum wage pay:
* £192.00 - £70.90 = £121.10
  1. Find the worker’s hourly rate for the week:
* £121.10 ÷ 24 = £5.05.

For national minimum wage purposes the worker’s hourly rate is £5.05 per hour despite the worker being paid £8.00 per hour. The rent charged in excess of the accommodation offset brings pay below the national minimum wage. The employer will need to correct any underpayment and increase the hourly rate to at least national minimum wage.