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HMRC internal manual

National Minimum Wage Manual

From
HM Revenue & Customs
Updated
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Accommodation and accommodation offset: considering the charge for living accommodation against the offset; scenario 3, accommodation charges apply to multiple occupants

Explanation

Whenever an employer provides living accommodation to a worker in a pay reference period, it is necessary to consider the accommodation offset. Often it will be straightforward to identify what charge, if any, is attached to the provision of living accommodation. However there may be occasions where an employer enters into a joint tenancy arrangement with two or more workers, such as a husband and wife team employed as pub managers. In such cases, it is appropriate to consider the position of each worker separately (NMWM10060).

In these two examples 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 1

An employer engages two workers to act as wardens at a charity hostel. The workers enter into a joint tenancy arrangement to live in a flat owned by the employer. The charge for the flat is £450 per month. Each worker is entitled to be paid the national minimum wage at the main rate. Their pay reference period is a calendar month.

They are each paid £7.75 an hour for working 160 hours per month. Living accommodation is provided for 31 days in a month.

The workers make their own arrangements to pay rent to the employer; normally one worker gives cash for half the rent to the other worker who then pays the whole months rent to the employer.

Total monthly pay: £7.75 x 160 = £1240.00

Rent charged: £450

To calculate their national minimum wage pay:

  1. Identify the amount of rent to apply against the offset.
* In this example, the employer is entitled to receive £450 rent from the workers. The 2 workers have joint liability for the rent so it is reasonable to attribute the cost of half the rent to each worker. This will be the case even though only one of the workers is actually paying the employer.
* 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: £450 ÷ 2 = £225.
  1. Identify the applicable offset:
* £4.82 x 31 = £149.42
  1. Identify the amount that the charge exceeds the offset:
* £225 - £149.42 = £75.58
  1. Reduce the monthly pay by the amount charged in excess of the offset
* £1240 - £75.58 = £1164.42
  1. Find their hourly rate by dividing national minimum wage pay by hours worked:
* £1164.42 ÷ 160 = £7.28 per hour

For national minimum wage purposes, each worker’s hourly rate is £7.28 an hour so they are being paid more than the national minimum wage. In this example, the employer chose to attribute the accommodation charge 50:50 but it would have been possible to attribute alternatively, such as 75:25 or 100:0 - as long as the full charge for the accommodation is taken into account and does not exceed the total amount the employer is entitled to receive (i.e. the costs cannot be attributed to £450 each as this represent a total charge of £900, which exceeds the amount the employer is entitled to receive). However the employer attributes the cost of the accommodation, they must still ensure that each worker is paid at least national minimum wage.

Example 2

One of the workers ceases to work for the employer but still resides in the employer’s flat under exactly the same arrangements. To calculate the national minimum wage pay for the remaining worker it is necessary to reconsider the amount of rent to apply against the offset.

The remaining worker’s monthly pay is: £7.75 x 160 = £1240.00

To calculate the national minimum wage pay:

  1. Identify the amount of rent to apply against the offset.
* The employer is still entitled to receive £450 rent from the worker but for the purposes of considering national minimum wage pay can no longer attribute any charge for the accommodation to other workers. This means that it is not appropriate to adjust the charge for the accommodation when considering the accommodation offset.
  1. Identify the applicable offset:
* £4.82 x 31 = £149.42
  1. Identify the amount that the charge exceeds the offset:
* £450 - £149.42 = £300.58
  1. Reduce the monthly pay by the amount charged in excess of the offset
* £1240 - £300.58 = £939.42
  1. Find their hourly rate by dividing national minimum wage pay by hours worked:
* £939.42 ÷ 160 = £5.87 per hour. 

For national minimum wage purposes, the worker’s hourly rate is £5.87. This rate is less than the national minimum wage and the employer will need to correct any underpayment and increase the hourly rate to at least national minimum wage.