National Minimum Wage and National Living Wage - calculating minimum wage pay

A worker may want you to deduct other sums from their pay that they are liable to pay to other people, for example, their trade union subscription or pension contribution.

These deductions do not reduce minimum wage pay provided the amounts are not expenditure required in connection with the worker's employment or for your own use or benefit.

Benefits in kind

Benefits in kind, except accommodation, do not count towards minimum wage pay. It makes no difference whether the benefits have a monetary value. Neither does it make any difference whether the benefit is taxable or not.

If you offer such benefits to the worker, the value or notional value of the benefits can’t be counted towards minimum wage pay.

Examples of benefits in kind that do not count towards minimum wage pay include:

• meals
• fuel
• car
• employer’s contribution to the worker’s pension fund
• assistance with removals
• medical insurance
• luncheon vouchers
• child-care vouchers

Living accommodation

Living accommodation provided by you to the worker is the only benefit in kind that can count towards a worker’s minimum wage pay, but only to a limited extent as explained below.

For minimum wage purposes, living accommodation has to provide the worker with unrestricted access to accommodation suitable for day to day living.

When you provide living accommodation you might choose to:

• deduct rent from the worker’s pay
• charge a specific amount once the worker has received their pay
• provide living accommodation on an uncharged basis as part of a package

In all these cases, the rules allow only a notional daily amount to count towards minimum wage pay. See Accommodation rates for more information.

Accommodation offset

If an employer provides a worker with free living accommodation a notional daily amount called the accommodation offset is counted towards minimum wage pay.

This offset amount, which is expressed as either a daily or weekly rate, does not reflect market rates or the actual cost of renting the accommodation.

The offset amount has been put in place to discourage employers from trying to recoup the minimum wage paid to workers by charging excessive accommodation charges.

To view the current and historical accommodation offset rates see National Minimum Wage and Living Wage: accommodation.

Accommodation offset rates are set in April each year.

Where you charge the worker for the living accommodation, either by making a deduction from the worker’s pay or by accepting a payment from the worker, the worker’s minimum wage pay will only be reduced if you charge more than the amount of the accommodation offset. By doing this there is a risk it will reduce the worker’s pay below the minimum wage. There are some limited exceptions applying to a Higher Education Institution, Further Education Institution, a 16 to 19 Academy, a local housing authority or a registered social landlord.

The accommodation offset is intended to discourage employers from recouping the minimum wage paid to a worker by levying excessive accommodation charges.

The accommodation offset rate doesn’t seek to reflect the actual cost to you or the actual value of renting accommodation for the worker. Allowing a market rate would not recognise the advantages to you of providing living accommodation. Also, the standard and types of accommodation and, consequently, the market value of accommodation can vary considerably.

Additional charges, utilities, etc.

Any charges the worker is obliged to pay as a condition of being provided with living accommodation, including amounts for gas, electricity, water and provision of furniture, must be regarded as a charge paid in respect of the provision of living accommodation.

Such charges should be taken into account when determining the total charge for living accommodation, and when calculating the minimum wage under the accommodation offset rules.

When is living accommodation provided by the employer?

The accommodation offset provisions apply whenever you provide living accommodation to a worker. You may provide living accommodation in a wide range of circumstances, not merely where you own the property occupied by the worker.

You may offer living accommodation to workers where the employment is in a remote location, or it is unrealistic to expect workers to travel daily due to distances involved.

You will be considered as providing living accommodation in the following circumstances, whether or not the accommodation is provided by you or a third party:

• the accommodation is provided in connection with the worker’s contract of employment
• the worker’s continued employment is dependent upon occupying particular accommodation
• the worker’s occupation of accommodation is dependent on remaining in a particular job

Even where the provision of accommodation by you and the worker’s employment are not dependent upon each other, you may still be considered to be providing living accommodation if one of the following applies:

• you are the worker’s landlord either because you own the property or because you are subletting the property
• you and the landlord are part of the same group of companies or are companies trading in association
• your and the landlord’s businesses have the same owner, or business partners, directors or shareholders in common
• you or an owner, business partner, member, shareholder or director of your business receives a monetary payment and/or some other benefit from the third party acting as landlord to the workers

For the purposes of the accommodation offset rules, third parties will include:

• businesses and companies, which are separate legal entities to you
• individuals including those who are family members of a director, business partner, shareholder, member or owner of the employing business;
• businesses or companies with a director, shareholder, member, owner or business partner who is a family member of a director, shareholder, owner or business partner of the employing business

The accommodation offset will apply whenever you are providing living accommodation, regardless of whether the worker can choose whether or not to occupy the accommodation. Even if the provision of living accommodation is optional, where the worker chooses to accept the offer, the accommodation offset will apply.

Treatment of absences and time work

If a worker is paid solely according to the number of hours they work, the work is time work. When a time worker is absent from work, special rules about the accommodation offset may apply.

These special rules apply when a time worker has been absent from work and the following all apply:

• you are charging for living accommodation by making a deduction from the worker’s pay or accepting payment from the worker
• the time worker has been absent from work for a day or more in a pay reference period, for example because they have been sick or taken holiday
• the worker has been paid at least the minimum wage for the hours for which they have been absent
• the hours the worker actually works are less than they would normally be in the pay reference period because of the absence
• the deduction or charge you make for living accommodation does not increase because of the worker’s absence from work

If the above conditions apply, the deduction or payment for living accommodation has to be adjusted before applying the accommodation offset by:

• multiplying the deduction or payment by the number of hours the worker actually worked
• dividing that total by the total number of hours the worker would have worked, including any hours they actually worked, if they had not been absent

Only the amount of the adjusted deduction or payment which exceeds the accommodation offset will reduce the worker’s minimum wage pay.