NMW strikes again: The perils of National Minimum Wage and living accommodation offsets

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By Justine Riccomini, Head of Tax (Employment and Devolved taxes)

2 November 2022

Justine Riccomini explains how there are traps for the unwary in the provision of living accommodation to people who are on National Minimum Wage

Many employers fall into various traps when paying employees whose salaries or wages fall just above or at the National Minimum Wage (NMW). This article highlights how workers who do not fall into the norm, such as seasonal workers or part-year workers who are provided with living accommodation, can catch employers out (the recent case of Harpur v Brazel serves as a useful example of a part-year worker). A seasonal worker might be provided with living accommodation by the employer for the period they work for them. Typically, employees who are affected are employed in agriculture, agritourism, tourism and hospitality, orin landed estates work, but this is not an exhaustive list.

Work covered by NMW legislation

BEIS and HMRC guidance states:

“Anyone who is employed as an employee or worker must get the National Minimum Wage or National Living Wage.

This is whether they are:

• full time
• part time
• doing training essential for the job
• working in a small or ‘start-up’ business

It also applies to:

• agency workers
• agricultural workers
• apprentices
• casual labourers, for example someone hired for one day
• casual workers
• employees on probation
• foreign workers
• home workers
• offshore workers
• seafarers
• workers paid by commission
• workers paid by the number of items made (piece work)
• zero-hours workers

Work not covered by NMW legislation

• self-employed (by choice)
• a volunteer (by choice)
• a company director
• in the armed forces
• doing work experience as part of a course
• work shadowing
• under school leaving age”

Workers living in the employer's home

These individuals are entitled to the correct minimum wage unless:

• they are a family member, or
• they are not a family member, but partake in the family’s work and leisure activities and are not charged for meals or accommodation. An example of this is an au-pair.

Living accommodation offset and NMW

Living accommodation benefit is the only benefit in kind which can count towards the NMW. This is called the “living accommodation offset” and there are specific rules around it. The rates are set in April each year, and the 2022 rate is a daily rate of £8.70 or a weekly rate of £60.90.

Using the offset rate to work out NMW

Employers must be careful when charging employees a contribution for living in their accommodation.  If an employer charges more than the statutory offset rate, that difference is deducted from the worker’s pay, which could bring it below NMW if the employee is borderline.

This means the higher the accommodation charge, the lower a worker’s pay could result in when calculating the NMW. If the accommodation is free of charge however, the offset rate is instead added to the worker’s pay. Note that rent, charges for utilities or furniture and laundry charges are included when calculating the overall deemed accommodation charge.

Deemed living accommodation provision

An employer is deemed under the NMW legislation to be providing living accommodation where:

• the accommodation comes with the job
• the employer (or a connected person or company) owns or rents the property the worker lives in, even if there’s no direct link between the job and the accommodation
• the employer (or an owner, business partner, shareholder or director) gets a payment or benefit from the worker’s landlord or a member of the landlord’s family

It is important to note that where living accommodation is deemed to be provided, any accommodation costs count towards the NMW even if the worker does not have to use the accommodation to do the job. If the accommodation is optional however, it only counts as a cost if the worker uses it.

When someone working for a local housing authority or social housing provider lives in employer-provided living accommodation from their work, this does not automatically count towards the NMW, unless the accommodation is directly linked to the individual’s employment. For example, a care warden who has to live on site is deemed to be provided with qualifying living accommodation.

It is also worth noting that living accommodation is not counted when working out the NMW if it’s provided by a higher or further education institution to a worker who is enrolled on a full-time course with that institution.

Examples of calculations can be found on GOV.UK, which show how NMW can be breached inadvertently when it interacts with living accommodation.

No mercy

NMW penalties are punitive – they begin at 200% of the arrears as calculated by the NMW compliance officer. In addition, remember that HMRC has a so-called “naming and shaming” list which they produce at regular intervals by way of a press release, which is publicly available and can ruin the reputation of the employer. As a result of this, the business’s risk rating across all the taxes is affected, which means that HMRC will be watching all aspects of that business’s tax compliance closely for a number of years.

Finally, here's a reminder of the current (2022/23) NMW rates:

Conclusion

NMW is complex. Payroll professionals, employment tax professionals and ICAS Members are advised to take advice from an NMW expert if in any doubt.

If you wish to contribute to the debate…why not join an ICAS tax committee and bring your expertise straight to the Tax team?