Minimum wage benefits in kind dont count

By Philip Clarke

NEXT months introduction of the national minimum wage contains pitfalls for the unsuspecting employer, warn accountants Grant Thornton.

Even though most farmworkers are paid above the £3.60/hour threshold, (including casual labourers following last weeks 14.5% pay increase), care needs to be taken when assessing things like time spent “on-call”, benefits in kind and the effects of seasonal work patterns.

In its simplest form, the hourly rate is calculated as the total remuneration over the normal pay period, divided by the hours worked.

But time on call also counts towards this, if the employee is at his place of work. This may have the effect of diluting the hourly rate, so it is important to keep proper records.

(Time spent on call in the employees house does not count towards the total hours worked.)

Benefits in kind are likely to be more of a problem, as these are commonplace in agriculture.

“You can provide your employee with meals, a car, or a van, but even though you carry the cost, they dont count towards the minimum wage,” says senior tax manager Carlton Collister.

Providing board and lodging could lead to further difficulties.

The standard Agricultural Wages Board deduction amounts to £62.28/week, whereas the new minimum wage regulation only allows for £19.95/week. In the example shown (right), a typical pay packet of £166.08/week is knocked back to £123.75/week, after allowing for accommodation.

Effect of board and lodging
Basic pay for 39-hour week £166.08 or £4.26/hour
Less board and lodging £62.28
Plus accommodation allowance £19.95
Net pay £123.75 or £3.17/hour
Additional £16.65 needed to achieve NMW of £3.60/hour
Source: Grant Thornton

This is below the minimum wage for a 39-hour week, with the farmer needing to pay another £16.65 to meet the new rules.

“We dont yet know how this will be resolved,” says Mr Collister.

“The current charge is already below the going rate for board and lodging. It may be that the AWB will have to say the maximum you can knock off is £40/week, though this would not be popular with farmers paying higher wages.”

Further problems may arise from seasonal working patterns.

“Most farmers pay overtime, so there wont usually be a problem,” says Mr Collister. But where workers are paid a salary, the effect of longer working hours at harvest or lambing time may mean they do not earn a minimum wage in a particular reference period.

The farmer may have to devise an alternative method of payment, making an annual salary more accurately reflect the number of hours worked in a single period, say Grant Thornton.

The penalties for failing to pay the minimum wage are considerable – up to £5000 for serious offenders. “In practice it will be fairly unusual for a farm worker to take it up on his own,” predicts Mr Collister. But the TGWU will be keeping a watching brief.

Similarly, Grant Thornton do not predict many problems in the case of family labour, with children unlikely to sue their parents.

“Only in divorce settlements might it come up as a problem,” says Mr Collister, though a successful claim would depend on the spouse having detailed records of the hours worked.

See more