Effect on the minimum wage
This effect of accommodation rates on the National Minimum Wage or National Living Wage 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 £8.20 per day for this.
It does not 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 £7.50 an hour. This is below the National Living Wage (which he should get as he’s over 25).
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 £9.41 an hour, which is above the National Living Wage of £8.72.
£8.20 (offset rate used when accommodation is free) × 7 (days accommodation provided in pay period) = £57.40
£57.40 + (£7.50 × 30 - the total pay in reference period) = £282.40
£282.40 ÷ 30 (total hours in pay period) = £9.41
Example 2: accommodation is charged below the maximum rate
Lisa is 23 and gets £8.30 an hour. This is above the National Minimum Wage.
Her employer charges £3.50 per day for accommodation which is below the threshold of £8.20. No offset rate is applied.
The accommodation charge does not affect Lisa’s pay of £8.30 an hour.
Example 3: accommodation is charged above the maximum rate
Sam is 35 and gets £8.76 an hour. This is above the National Living Wage (which he should get as he’s over 25).
He works 40 hours a week.
He gets paid every 3 weeks (his pay period).
His employer charges £8.50 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 £8.71 an hour, which is below the National Living Wage.
£8.76 (hourly rate) × 120 (total hours in pay period) = £1,051.20
£8.50 (accommodation rate) × 21 (days accommodation provided in pay period) = £178.50
£8.20 (offset rate used when accommodation is free) × 21 (days accommodation provided in pay period) = £172.20
£1,051.20 (total pay in pay period) – £178.50 (total accommodation cost in pay period) + £172.20 (total accommodation offset in pay period) = £1,044.90
£1044.90 ÷ 120 (total hours in pay period) = £8.71