Farmers warned to avoid accommodation offset pitfalls

Farmers who supply accommodation to workers as part of their job need to check that any charge made for housing does not push wages below the National Minimum or National Living Wage thresholds.

Accommodation provided by an employer can be taken into account when calculating the National Minimum Wage or National Living Wage.

But Clare Waller, partner in the employment team of Hewitsons solictors, said employers providing rent-free or heavily subsidised accommodation as part of their terms and conditions of employment should check their numbers.

See also: Analysis: How the National Living Wage will hit horticulture hard

A trap that some employers could fall into was keeping wages down, because they were offering a valuable accommodation package, not realising that there is a low limit on the value that can be ascribed to this benefit.

The government sets the maximum monetary value equivalent to providing housing – known as the accommodation offset – which is £5.35/day at present, rising to £6/day from 1 October 2016.

“An issue can arise in terms of the extent to which the value of that accommodation can be offset in satisfaction of the employer’s obligation to ensure that a worker is paid at least the relevant level of National Minimum Wage for every hour worked,” said Miss Waller.

“Given the introduction of the higher rate National Living Wage of £7.20/hour for workers aged 25 and over from April 2016 and increases to the general levels which will apply from 1 October 2016, continued vigilance is required to ensure that the minimum pay levels are maintained at all times.”

How does the accommodation offset work?

The following are examples taken from www.gov.uk

Example 1: Where accommodation is free

John is 27 and gets £6 an hour. This is below the National Living Wage (which he should get as he’s over 25). He works 30 hours a week and gets paid every seven days (his pay period). His employer provides free accommodation seven days a week. This brings John’s pay up to £7.25/hour, which is above the National Living Wage of £7.20/hour.

Calculation:

£5.35 (offset rate used when accommodation is free) × 7 (days accommodation provided in pay period) = £37.45

£37.45 + (£6 × 30 – the total pay in reference period) = £217.45

£217.45 ÷ 30 (total hours in pay period) = £7.25/hr

Example 2: Where accommodation is charged above the maximum rate

Sam is 35 and gets £7.50 an hour. This is above the National Living Wage (which he should get as he’s over 25). He works 40 hours a week and gets paid every three weeks (his pay period). His employer charges £7.80/day for accommodation and Sam lives in the accommodation full time, which is 21 days for his pay period. This brings Sam’s pay down to £7.07/hour, which is below the National Living Wage.

Calculation:

£7.50 (hourly rate) × 120 (total hours in pay period) = £900.00

£7.80 (accommodation rate) × 21 (days accommodation provided in pay period) = £163.80

£5.35 (offset rate used when accommodation is free) × 21 (days accommodation provided in pay period) = £112.35

£900.00 (total pay in pay period) – £163.80 (total accommodation cost in pay period) + £112.35 (total accommodation offset in pay period) = £848.55

£848.55 ÷ 120 (total hours in pay period) = £7.07/hour

OCTOBER
29

Farm succession planning during the Covid-19 crisis

Register now

Webinars on demand

Several Farmers Weekly webinars are available to view including topics such as Agribanking, Succession and Tax, OSR yields and more.
Watch now