Since the introduction of the National Minimum Wage, accommodation has been the only benefit-in-kind that may count towards the calculation of minimum wage pay. For this report, we reviewed the operation of the accommodation offset and considered whether the provisions remain appropriate. We also considered whether there was a case for allowing other benefits-in-kind, including those offered by means of a salary sacrifice arrangement, to count towards the minimum wage.

We received evidence from employer representatives who argued that low-paid workers should be able to participate in salary sacrifice schemes, even if it caused their cash wages to fall below the minimum wage. They suggested it was unfair that these workers were denied the opportunity to exchange some of their pay for an attractive benefit with a preferential tax and national insurance treatment. Trade unions argued, however, that employers should not be able to offset benefits such as childcare vouchers against minimum wage pay. In their view, it would erode the value of the minimum wage and undermine its simplicity.

We acknowledge that some low-paid workers would benefit from participating in a salary sacrifice arrangement. But the evidence indicated that most low-paid workers would be better off claiming support for childcare through the Working Tax Credit system than by joining a company salary sacrifice scheme for childcare vouchers. We found that salary sacrifice schemes for home computers, bicycles to work and other benefits were less common and less well developed, and employee take-up rates in firms that offered these benefits were often quite low. In addition, many part-time low-paid workers would gain no advantage from these schemes. We conclude that allowing further benefits-in-kind to count towards minimum wage pay would undoubtedly complicate the National Minimum Wage while only benefiting a small number of workers. It would also introduce new risks: some workers might see their wages reduced in return for a benefit of little or no value. We recommend that salary sacrifice schemes should not count towards the minimum wage.

Our review of the accommodation offset found that, although many employers in sectors where accommodation has traditionally been provided were aware of the offset, awareness and understanding could still be improved. We recommend that the Government take greater steps to publicise the offset and to improve the scope and quality of existing guidance. There was a range of views about the appropriateness of its current level, but we continue to believe that an offset of £3.90 per day (rising to £4.15 in October 2006) represents a fair balance between the interests of workers and those of employers.

We received evidence that accommodation charges in excess of the maximum permitted under the offset provisions were common in agriculture and food processing. Employer representatives and trade unions both reported that an increasing number of migrant workers were employed in these sectors, often on the minimum wage, and were typically charged £40-60 per week for accommodation provided by their employer. Until recently the Department for Environment, Food and Rural Affairs (Defra) had advised agricultural employers that, based on its reading of the Agricultural Wages Order for England and Wales, the accommodation offset rules did not apply to agricultural workers when accommodation was provided under a stand-alone agreement. Following a review by the relevant government departments, Defra has now revised that view and confirmed that no worker may be paid less than is due under the National Minimum Wage accommodation offset provisions.

Some respondents from the agriculture sector argued, however, that the offset should only apply to workers who were required to occupy accommodation under the terms of their employment contract. They suggested that, in most cases, migrant workers were offered accommodation because of the difficulties they faced securing the deposits and documents required by most landlords. In their view, accommodation provided by employers in these circumstances was an optional service that workers could choose to decline, and therefore the two parties should be free to agree a rent between them. Trade unions, on the other hand, cited cases of severe overcrowding combined with high accommodation charges, and called for a greater emphasis on enforcement of the existing provisions.

We accept that there is a distinction in principle between accommodation that is offered to workers as an optional service independent of the job offer, and accommodation that workers are required to occupy as a condition of their employment. But we are not convinced that such a distinction could work effectively in practice due to the difficulty of establishing whether the worker had been given a genuine choice. We are also concerned that some employers have been exploiting vulnerable migrant workers by applying high charges for poor quality, overcrowded accommodation - in excess of the maximum allowed under the accommodation offset rules. We recommend that the offset provisions should continue to apply to all workers housed by their employer in all circumstances and that the Government should ensure that employers are fully aware of the legal requirements. We would also like to draw the Government's attention to evidence that existing housing standards are not being enforced consistently at a local authority level. We propose to continue to keep the accommodation offset under review, in particular the treatment of housing offered as an optional service not tied to the job.

Our consultation also revealed that some employers have deliberately sought to circumvent the existing offset rules by setting up a separate company to arrange accommodation for their workers. We recommend that the Government take the steps necessary to avoid abuse of such arrangements. Employers may make a variety of other arrangements with third party landlords, and in some cases there may be some doubt whether the accommodation offset applies. We believe that the employer should be regarded as the accommodation provider where a worker's ability to remain in a particular job, or to remain in particular accommodation, is dependent one upon the other. We believe that the offset should also apply if the employer receives a financial benefit from an accommodation arrangement. We recommend that the Government provide further guidance on these matters.

In our view there is a need to tackle overcharging for accommodation and evasion of the accommodation offset as part of a more concerted effort to ensure that migrant workers receive the minimum wage to which they are legally entitled. We recommend that the Government take action to prioritise targeted enforcement of the minimum wage in those sectors that employ significant numbers of migrant workers.

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Introduction

4.1 Our 2005 Report recorded that a number of large retailers had raised concerns that, as a result of the requirements of the minimum wage, their lowest-paid employees were prevented from taking up some of the non-cash benefits that were available to their higher-paid colleagues. Employees in these companies were offered the opportunity to take childcare vouchers, home computers or other benefits in exchange for an agreement to give up part of the pay normally due to them. This is generally known as a 'salary exchange' or 'salary sacrifice'. The difficulty arose because participation in this type of arrangement would have caused the wages of lower-paid employees to fall below the National Minimum Wage. The British Retail Consortium (BRC) called for a change to the regulations to enable salary sacrifice schemes to form part of the minimum wage calculation.

4.2 In the run-up to our 2005 Report, the Government became aware of the difficulties that some employers had encountered arising from the treatment of salary sacrifice schemes under the minimum wage. In October 2004 the Government had asked us to advise, by the end of 2004, whether salary sacrifice schemes involving childcare vouchers should be allowed to count towards minimum wage pay. We felt that this timescale was too short to consult, consider the issue properly and take full account of a number of complex factors (which we will go on to examine in this Chapter). Instead, we proposed in our 2005 Report that the Government invite us to review the issue of salary sacrifice in depth and report back by February 2006. The Government accepted our recommendation, but widened the scope of our review to cover the minimum wage treatment of all benefits-in-kind. We welcomed the opportunity to examine salary sacrifice schemes within this broader context.

4.3 Our consultation over the last year revealed that, while there were significant concerns from employers in some sectors with respect to salary sacrifice, there was very little pressure for change to the treatment of benefits-in-kind more generally (with the exception of accommodation which we consider separately later in this Chapter). Consequently, our review focused on the interaction between salary sacrifice schemes and the minimum wage. We looked in particular at the provision of childcare vouchers and home computers because these were the salary sacrifice schemes that caused the most concern for the employers and trade unions who responded to our consultation.

4.4 The Government also asked us to look at the treatment of accommodation and to consider if any changes to the regulations governing the accommodation offset were necessary. Since the introduction of the National Minimum Wage in 1999, accommodation has been the only benefit-in-kind that may be counted towards minimum wage pay¹, and even then only up to a specified maximum amount. This is known as the accommodation offset. We have concluded in previous reports that the offset was working reasonably well, particularly following the implementation of a simplified daily calculation in 2003. However, our most recent consultation revealed that there were problems with its operation when applied to the housing of migrant workers by employers operating in agriculture and related industries such as food processing. We consider accommodation in detail in the second half of the Chapter.

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The Definition of the National Minimum Wage

4.5 In our First Report (1998), we considered in detail the definition of earnings that should count towards the National Minimum Wage. Our overriding concern was to recommend a definition that would be '...simple and fair, easily enforceable and consistent with the needs of business and the low-paid'. The First Report concluded that most low-paid workers received only a basic rate of pay with few additional benefits (although the payment of tips and gratuities has continued to feature in certain sectors such as hospitality). In line with the principle of 'simplicity and enforceability', as well as a concern about the difficulty of estimating and monitoring the value of many benefits, we recommended - and the Government accepted - that all benefits-in-kind with the exception of accommodation should be excluded from the calculation of the National Minimum Wage. We believed that if the value of the minimum wage was to be preserved, workers should be remunerated in money not in kind. We look at the reasons for the particular treatment of accommodation later in this Chapter.

4.6 The Government accepted our recommendations and the principles we set out in our First Report have continued to guide our thinking. We have found that, in general, the minimum wage definition we recommended in our First Report has worked well. However, as we noted above, consultation with the retail sector in the run-up to our 2005 Report revealed that a few large retailers were experiencing problems because the definition of National Minimum Wage pay excludes non-cash benefits provided under salary sacrifice schemes. In the next section, we describe how salary sacrifice arrangements operate and look at some of the more popular schemes.

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The Minimum Wage and Salary Sacrifice Schemes

4.7 Sometimes known as a salary exchange, a salary sacrifice is an arrangement whereby a worker agrees to forgo a portion of their pay in exchange for another benefit. Her Majesty's Revenue and Customs (HMRC, undated) defines it as follows:

• salary sacrifice happens when an employee gives up the right to receive part of the cash pay due under his or her contract of employment. Usually the sacrifice is made in return for the employer's agreement to provide the employee with some form of non-cash benefit. The "sacrifice" is achieved by varying the employee's terms and conditions of employment relating to pay. Salary sacrifice is a matter of employment law, not tax law. Where an employee agrees to a salary sacrifice in return for a non-cash benefit, they give up their contractual right to future cash remuneration.'

4.8 Workers who participate in salary sacrifice arrangements are required to give up their contractual right to a portion of their pay for an agreed period, in some cases for a year or longer. However, if their gross pay were to fall below the National Minimum Wage as a consequence, their employer would be acting unlawfully. The non-cash benefit received instead - for example, a childcare voucher or home computer - has no value for the purposes of calculating minimum wage pay. (We have already noted that the only benefit-in-kind that may be offset against the minimum wage is accommodation. In addition, no vouchers may count towards the minimum wage.) While employers are free to offer childcare vouchers and other benefits on top of normal pay if they wish, many have found it more cost-effective to offer them as a replacement for part of an employee's existing pay package via a salary sacrifice arrangement.

4.9 Salary sacrifice schemes are generally designed to take advantage of the fact that, unlike cash wages, in certain circumstances some non-cash benefits offered by employers are exempt from liability for income tax and National Insurance Contributions (NICs). The exemption applies whether the benefit is offered via a salary sacrifice arrangement or on top of pay. These benefits include childcare vouchers, loaned home computer equipment, loans for bicycles to travel to work, employer contributions to occupational pensions and mobile telephones for personal use. By 'sacrificing' part of their gross pay, workers can receive a benefit that has a greater value than the net cash pay they would have received, after tax and NICs, if they had retained their original salary. However, part-time workers who do not earn enough to be liable for tax and NICs will not make these savings through a salary sacrifice arrangement.

4.10 Salary sacrifice schemes are also attractive from an employer's perspective as they offer savings through reduced employer NICs. There are also less tangible benefits. These schemes can be a useful tool to distinguish a company from its competitors and enhance the overall employee benefits package at little or no additional cost to the employer. This can be attractive for employers operating in a tight labour market. There may also be advantages in terms of reduced staff turnover, particularly in the case of home computer loans which typically require employees to sign an agreement which lasts for two or three years.

4.11 The concept of salary sacrifice is not new: pension arrangements, which take advantage of the more generous NICs treatment afforded to employer pension contributions compared to employee contributions, have existed for some time. Similarly, the Government introduced measures to boost 'green' transport and reduce reliance on cars for travel to work in 1999. Often known as 'cycle to work' schemes, employers can loan their staff a bicycle as a tax and NICs-free benefit-in-kind.

4.12 However, salary sacrifice schemes appear to have gained greater impetus since 2004 due to two recent government initiatives. In January 2004, the Government issued guidance to promote a £500 annual exemption from the taxable benefit on loaned home computing equipment. The exemption, designed to boost home computer ownership and improve computer literacy, was introduced in 1999 but employer take-up had been low. The 2004 Home Computing Initiative (HCI) guidance promoted the use of salary sacrifice by employers, which offers a direct cost benefit through savings in NICs (estimated at about £64 per annum per employee). In April 2005, the Government introduced reforms to encourage employers to offer childcare vouchers as part of its strategy to increase the availability of affordable childcare and remove barriers to work for parents. Employers are able to offer childcare vouchers worth up to £50 per week per employee, free of income tax and NICs. Basic rate taxpayers can save up to £858 per year and higher rate taxpayers up to £1,066 per year. Again, employers can also save on their NICs.

4.13 We are also aware of other salary sacrifice schemes, for example mobile phones and car parking spaces at the workplace, but the evidence indicates that these are less common and, unlike some of the other schemes, we are not aware of a direct link with a specific government initiative.

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The Evidence

4.14 Our 2005 Report established that the interaction between salary sacrifice schemes and the National Minimum Wage was causing difficulties for a few large retailers. In the preparation of this report, we have sought to investigate the extent of the problem within the retail sector and to discover whether other low-paying sectors are similarly affected. We invited written evidence from interested parties and heard oral evidence from employer representatives and trade unions covering a number of sectors. We visited companies in different parts of the country including retailers in Hastings, Manchester, Lincolnshire, Northern Ireland and Nottingham. We invited a group of retailers that had implemented salary sacrifice schemes to give a presentation to the Commission. The group included House of Fraser, the John Lewis Partnership and Tesco. Dixons had also been involved in the preparation. We received a separate presentation from Whitbread on its benefits package and salary sacrifice schemes.

4.15 We also wanted to investigate whether there had been a change in the pattern of provision of non-cash benefits to low-paid workers that might be linked to an increase in the prevalence of salary sacrifice schemes or to increases in the level of the minimum wage. Our First Report (1998) and the subsequent occasional paper, Pay Structures and the Minimum Wage (Low Pay Commission, 1999b), concluded that low-paid workers tended to receive few additional benefits-in-kind from their employer (although it was also noted that government statistics and commercial surveys collected little relevant information). During our meetings with employers in recent years, some had suggested that successive minimum wage upratings were driving them to review their benefits packages with a view to identifying possible savings. We look next at the data available to us from statistical sources and research, before considering the evidence we received from our consultation.

Employer Provision of Non-cash Benefits

4.16 Official data on non-cash benefits are limited and there is almost no information available on the prevalence of salary sacrifice schemes. However, the Department for Work and Pensions' Family Resources Survey (FRS) asks respondents about the non-cash benefits received from their present employer in the last six months. As shown in Table 4.1 below, 76 per cent of jobs paying less than £4.60 per hour² offered no benefits-in-kind in 2003/04, compared with 56 per cent of jobs paying more than £10.00 per hour. Apart from a slight decline in the provision of free or subsidised meals, or other meal provision, across all the hourly wage bands we examined, there has been very little variation in the provision of benefits-in-kind in the surveys undertaken between 1997/98 and 2003/04 (the latest year available). More detail is shown in Appendix 3. This suggests that the minimum wage has had little impact on the provision of non-cash benefits. The FRS indicates that most low-paid workers continue to receive few non-cash benefits on top of basic pay and that they are less likely to receive them than higher-paid workers.

Table 4.1 Proportion of Jobs Providing Any Payments-in-kind by Gross Hourly Pay, UK, 2003/04

Source: Department for Work and Pensions, Family Resources Survey, UK, 2003/04.

Notes:

1. Some jobs may provide more than one payment-in-kind, or none at all, so the categories are not mutually exclusive and will not add up to 100 per cent.

2. '-' denotes grossed cell sizes below 30,000.

4.17 The FRS gives no indication of the frequency with which salary sacrifice schemes are offered, although it does show that childcare vouchers were received by very few workers in any of the income bands (the 2003/04 survey predates the introduction of new tax rules in April 2005 designed to boost uptake of the vouchers). The data also show that very few non-cash benefits other than those specified were received.

4.18 Commercial surveys of pay and benefits tend to focus on larger companies (partly because they are more likely to respond and because they tend to offer more benefits) and are not well-targeted at low-paying employers. Small sample sizes mean that the outcomes vary considerably. It is difficult to draw firm conclusions, but surveys such as the Employee Benefits/Halifax survey of voluntary benefits (Centaur Communications Ltd, 2005c), as well as articles in the press, suggest that interest in salary sacrifice schemes is increasing and that childcare vouchers is the most popular scheme, followed by pensions and home computers, with few employers offering bicycle loans or mobile phones. This is consistent with the other evidence presented to us.

4.19 The Government was not able to provide conclusive information on take-up of salary sacrifice schemes in its evidence because these data are not collected. It estimated that around 600 organisations have adopted HCI schemes and that about half a million individuals have taken up the offer in the UK. A snapshot survey undertaken in November 2005 by the HCI Alliance (established by BT, Intel and Microsoft to promote the initiative to employers) suggested that over 1,250 organisations implemented HCI schemes between January 2004 and November 2005 and just over 475,000 computers were loaned to employees who participated. The average employee take-up rate in the organisations surveyed was just over 10 per cent. We met two large retailers who reported similar take-up rates for the home computer schemes that they had implemented.

4.20 The Government's evidence noted that the largest Cycles to Work provider estimated that it would issue at least 30,000 certificates for new cycles in 2006. Taking into account other providers, it is estimated that around 100,000 people will be in a cycle scheme in 2006. The Government does not know how many childcare vouchers have been issued, although HMRC plans to conduct surveys to evaluate the impact of the changes implemented in April 2005.

4.21 In view of the lack of official information on the extent to which salary sacrifice schemes are being offered by employers, we commissioned Incomes Data Services Ltd (IDS, 2005a) to undertake research on this topic. A summary of the project is contained in Appendix 2. IDS examined the provision of non-cash benefits and salary sacrifice schemes in four low-paying sectors: retail, hospitality, leisure and care homes. These sectors were chosen because we judged that they were most likely to offer non-cash benefits, including accommodation, as part of the remuneration package. Three thousand postal questionnaires were distributed to firms of different sizes in the UK, resulting in 341 responses. Nearly half of the respondents were from the retail sector and the median number of employees in each firm was 200. Ninety per cent of respondents said that they had employees who earned £6.00 per hour or less, confirming that the survey had been successful in targeting low-paying employers.

4.22 The main postal survey found that three in ten respondents offered at least one kind of salary sacrifice scheme, rising to four in ten retailers. Nearly half of large organisations (with 500 or more employees) offered a scheme. The most popular types were childcare vouchers (offered by 15 per cent of respondents), pension contributions (13 per cent of respondents) and home computer loans (6 per cent of respondents). Very few offered mobile phones or bicycles. A follow-up telephone survey with 29 employers that offered a salary sacrifice scheme established that employee take-up varied considerably from firm to firm and scheme to scheme, but overall the median take-up rate was just under one per cent.

4.23 The proportion of respondents operating a salary sacrifice scheme in the IDS survey seems high when compared to the evidence we gathered from other sources. We think these results are unlikely to be representative, and may reflect the high proportion of firms in the retail sector in the survey (which we believe are more likely to offer these schemes than firms in other low-paying sectors), or indicate that companies offering salary sacrifice schemes were more likely to respond. In particular, the administrative burden associated with operating a salary sacrifice scheme would suggest that far fewer small firms will offer them to staff. Nevertheless, the IDS findings do support other evidence that the most significant salary sacrifice schemes are those for childcare vouchers and home computers.

4.24 Pension salary sacrifice schemes were also found to be relatively common in the IDS survey. However, they were referred to infrequently by respondents to our written consultation, and seemed to cause few problems for employers in low-paying sectors. This may reflect the fact that these schemes have been around for some time and so firms may have been able to adjust to any impact of the minimum wage. In addition, workers who participate in a pension salary sacrifice scheme tend to sacrifice an amount which is fixed in direct proportion to their total pay, making it less likely that participation will cause their wages to fall below the minimum wage.

4.25 Although not specific to salary sacrifice schemes, it is notable that 86 per cent of respondents to the IDS survey said that the minimum wage had not caused them to make any changes to their overall non-cash benefits package. Six per cent said it had led to a decrease in the level of benefits provision, while seven per cent said it had led to an increase. This supports evidence from the FRS, which suggested that the minimum wage has not had a significant impact on benefits provision.

4.26 In summary, it is difficult to draw firm conclusions about the prevalence of salary sacrifice schemes in low-paying sectors. Nevertheless, commercial surveys and our own research suggest that these schemes are being offered by firms with low-paid employees and that interest is increasing, particularly in large firms and in the retail and leisure sectors. However, employee take-up rates in individual companies generally appear to be low.

Our Consultation

4.27 We received opposing views on the question of whether salary sacrifice schemes should count towards the minimum wage in future. In general, employers' representatives were in favour of change, particularly in the retail sector. Most of those employers who commented on the issue argued that specific salary sacrifice schemes, particularly those for childcare vouchers and home computers, should count towards minimum wage pay. A smaller number advocated a greater relaxation of the rules, either in relation to particular non-pay benefits or other salary sacrifice schemes. Conversely, three hospitality associations were not in favour of changing the definition of the minimum wage to accommodate salary sacrifice schemes. Trade unions and other worker representatives were generally opposed to allowing any benefits-in-kind other than accommodation to count towards minimum wage pay. Both sides of the debate presented persuasive arguments to support their position, which we considered carefully.

4.28 A number of trade unions were concerned that allowing salary sacrifice schemes to count towards the minimum wage would complicate the definition of minimum wage pay. They argued it would open up the potential for abuse by allowing employers to replace cash pay with benefits of less transparent value. The TUC's evidence argued that the enforceability of the minimum wage depended largely on its simplicity and it was concerned that a change would 'make it harder for workers to know their rights and to enforce them'. The TUC also noted that salary sacrifice schemes could tie a worker into an arrangement for a number of years and concluded that 'the problems of allowing these schemes to cut below the minimum wage would be very likely to outweigh any benefits'.

'Although there would be potential benefits for workers in that they may be able to access goods and services at lower prices, the system would be open to abuse in that employers could be passing these goods and services on at a profit in an attempt to offset wage bills.'

Scottish Low Pay Unit evidence

4.29 Others feared that allowing salary sacrifice schemes to count towards the minimum wage could open the door to further allowable deductions in future, thus eroding the value of the minimum wage. The Union of Shop, Distributive and Allied Workers (Usdaw) pointed ou that many low-earners would be better off receiving support for childcare through the Working Tax Credit (WTC) system than by taking part in a childcare voucher salary sacrifice scheme. It was also concerned that some Usdaw members who had taken childcare vouchers had unwittingly built up large overpayments of WTC that they then had to pay back, causing financial hardship. The available literature had not made clear that workers who received childcare vouchers should report this to HMRC so that their entitlement to the childcare element of the WTC could be adjusted. The GMB was concerned that workers could find their entitlement to other state benefits reduced as a result of a salary sacrifice arrangement if they were not advised properly about the implications. We look at the impact that salary sacrifice schemes can have on entitlement to WTC support and other state benefits later in this Chapter.

'The minimum wage is based on simplicity. It is easy to understand because, apart from the accommodation offset, no other benefit-in-kind is allowed to be deducted and we believe this should remain the case.'

Usdaw evidence

4.30 In contrast, employers responding to our consultation emphasised that low-paid workers could be better off financially by 'sacrificing' part of their salary, because of the preferential tax and NICs treatment of the benefit in comparison with cash. Retailers provided examples illustrating the significant savings that could be made by participating in a HCI scheme, compared to the purchase of a home computer on the high street. They also noted that participation in a HCI scheme allowed employees to purchase a computer package from a trusted source and pay for it over an extended period, without being subject to a credit check (which may be attractive in itself, even without the associated tax and NICs savings).

4.31 Employer representatives also argued that low-paid workers should be entitled to dispose of their wages as they chose and on the same basis as any other worker. Some suggested that it was illogical for one government policy - the National Minimum Wage - to prevent employers offering benefits that the Government itself had been seeking to encourage through the introduction of tax and NICs exemptions.

'Participation in these schemes is entirely voluntary and the decision not to participate should be through individual choice rather than statutory exclusion.'

BUPA Care Services evidence

4.32 Some employers told us that they had decided not to introduce salary sacrifice schemes at all rather than offer them only to higher-paid workers as they felt this was unfair to those who were excluded and contrary to their company ethos. However, we also came across examples of employers who had decided to introduce salary sacrifice schemes that were restricted to higher-paid employees.

4.33 The CBI wrote that the most significant problems arose with childcare vouchers and pointed out that non-cash benefits enabled employers to offer a distinctive package to attract and retain employees in a tight labour market. It also suggested that this flexibility was threatened by the rising level of the minimum wage. The Association of Convenience Stores, representing smaller retailers, stated in its written evidence that salary sacrifice schemes were not generally used by its members at present, although it was in favour of allowing them to count towards the minimum wage.

4.34 The BRC argued strongly for change, and that at the very least, it should be possible to count childcare vouchers and home computer schemes towards the minimum wage. Its written evidence, based on a detailed analysis of three large retailers, suggested that many retail employees were excluded from participating in salary sacrifice arrangements and that part-time workers, who make up the majority of the retail workforce, were particularly affected.

'Employers are frustrated that in complying with one area of Government policy in relation to the National Minimum Wage they must then disadvantage their staff in respect of different policy initiatives designed to increase the provision of good quality childcare, get more mothers back into the economy, protect the environment and improve computer literacy.'

Institute of Payroll and Pensions Management evidence

4.35 Our own analysis of retail sector pay supported the BRC's findings, although it is important to note that most low-paid part-time workers would gain little or no benefit from a salary sacrifice arrangement because they pay little or no income tax or NICs. To participate in a home computer salary sacrifice scheme over three years involving the loan of equipment worth £1,000 in total (requiring a 'sacrifice' of about £6.40 per week), a worker would need to earn 16 pence per hour more than the minimum wage (based on 40 hours per week) or 32 pence per hour above the minimum wage (based on 20 hours per week). According to the Annual Survey of Hours and Earnings 2005, 20 per cent of employees (391,000) aged 22 and over in the retail sector earned less than 32 pence above the minimum wage in April 2005. (Of these, 54,000 earned less than the then adult minimum wage of £4.85, although some of these are likely to have been apprentices or subject to the accommodation offset deductor.) Many more retail employees would not earn sufficient to sacrifice the maximum £50 per week in return for a childcare voucher.

'The impact of successive NMW increases is effectively denying many low-paid employees access to salary sacrifice schemes from which they could benefit.'

British Retail Consortium evidence

4.36 While the main pressure for change came from the retail sector, we did receive evidence from employers in other sectors, including Sanctuary Housing Association, Nestor Healthcare Group and the charity Rethink. BUPA Care Services estimated that 20 per cent of its 21,000 workforce would be unable to participate in the salary sacrifice schemes that it was looking to introduce. In its evidence, the Institute of Payroll and Pensions Management wrote that 'many of our public sector members employ large numbers of workers subject to these restrictions. Feedback from our members is that this issue predominantly affects the provision of childcare'. Within the hospitality sector, views were mixed. Some employers were in favour of change, but three major hospitality employer associations - the British Beer and Pub Association, British Hospitality Association (BHA) and Business in Sport and Leisure - were not. They were concerned about the potential administrative burden for employers associated with demonstrating continued compliance with the minimum wage and questioned whether it would lead not only to employees expecting more benefits, but also to a demand for a higher minimum wage to compensate for employers' ability to offset part of the costs through a salary sacrifice scheme. The BHA found little demand for change from members.

4.37 The Government's evidence to the Commission recognised the value of benefits provided under a salary sacrifice arrangement and the opportunities these schemes offered to employers, but stated that it did not believe that there was a strong enough case for allowing them to count towards the minimum wage at the present time. It was concerned about 'complicating the rules and potentially undermining enforcement' of the minimum wage.

4.38 We examined carefully the arguments presented both for and against allowing salary sacrifice schemes to count towards minimum wage pay. We paid particular attention to childcare vouchers because the evidence suggested that this was the most common form of salary sacrifice arrangement. It was raised most frequently by employers as something that was causing difficulties for them. We also recognised that childcare support was an extremely valuable benefit for some families. But as we have indicated, there were further complicating factors to consider. Participation in a salary sacrifice scheme may affect a worker's entitlement to government WTC support and we look at this next, before considering the effects that salary sacrifice schemes can have on entitlement to state benefits.

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Childcare Vouchers and Working Tax Credits

4.39 Many low-paid workers, and particularly those with children, will be entitled to Working Tax Credit (WTC), an in-work benefit paid by the Government to people on low-incomes. WTC is made up of a number of distinct elements, including a specific element designed to subsidise childcare costs for working families. Participation in any salary sacrifice scheme may actually increase a worker's entitlement to the main element of WTC. Because the worker has agreed to accept a reduced wage in return for a non-cash benefit, the income on which they are assessed for WTC purposes is also reduced, which may result in a higher award. But a worker with children taking childcare vouchers from their employer is likely to find that their entitlement to the childcare element of the WTC is reduced, as the rules stipulate that they may not claim support for the same childcare costs twice over. Therefore a key question for the Commission in deciding whether to recommend that salary sacrifice schemes for childcare vouchers should count towards the minimum wage was: how many low-paid workers would actually benefit?

4.40 The Government told us in its evidence that '...for the vast majority of low-paid workers, accepting a childcare benefit from their employer in return for a salary sacrifice will not provide any advantage over claiming the childcare element of WTC'. During the year to April 2006, the childcare element of the WTC enabled those who were eligible to save up to 70 per cent of their childcare costs, up to a maximum limit. Precisely the same percentage saving was available by taking childcare vouchers, due to the combined effects of reduced income tax and NICs payments and increased entitlement to other elements of WTC support. However, the Government has announced that from April 2006 the maximum subsidy available through the childcare element of the WTC will rise to 80 per cent of childcare costs (up to the maximum limits of £175 for one child and £300 for two or more children), which will mean that childcare vouchers will be less attractive for many low-paid workers. Table 4.2 illustrates the effect on family income of participation in a childcare voucher salary sacrifice scheme, compared with support for childcare through the WTC system. In families with parents who earn around the level of the minimum wage, WTC childcare support usually offers greater assistance.

Table 4.2 Childcare Voucher Salary Sacrifice Schemes Compared with Working Tax Credit Support for Childcare: Effect on Income for Low-earners with Children, April 2006-April 2007

Source: HM Treasury calculations for the LPC.

Notes:

1. In each example, 'original income' represents income after tax and NICs and the value of entitlement to the main (non-childcare) element of WTC support have been taken into account, and before childcare costs. In Example 1 original income also includes the typical value of Housing Benefit and Council Tax Benefit awards for a family in these circumstances.

2. In each example, income after childcare costs includes adjustments to (a) tax and NICs due (b) entitlement to the main element of WTC (c) any entitlement to the childcare element of WTC. Thus 'post-sacrifice income' plus 'amount sacrificed' do not add to 'original income'.

3. There is a £50 per week limit on the tax and NICs exemption for childcare vouchers.

4. Calculations are effective from April 2006-April 2007.

4.41 Nevertheless, there are some groups of low-paid workers who could benefit from a childcare voucher salary sacrifice scheme, including those with a higher-paid partner whose earnings make the family ineligible for WTC support. We believe that the number of families in this category who have childcare costs is likely to be fairly small. From April 2006, a family with one child incurring £50 of childcare costs each week would not gain from participating in a childcare voucher salary sacrifice scheme over claiming support through the WTC system until the family's income reached £21,500. This figure would rise to around £26,300 if there were two children and to around £31,100 if there were three children. A further group of low-paid workers that could benefit from the childcare vouchers are those with high childcare costs in excess of the WTC limits. Those who work less than 16 hours per week and are thus ineligible for WTC might also benefit, although they would need to earn over £6.00 per hour in order to start to make tax or NICs savings through a salary sacrifice arrangement.

4.42 There are clearly some important considerations that low-paid workers need to weigh up before agreeing to give up part of their pay in exchange for a childcare voucher. But there are also some more general implications arising from all salary sacrifice schemes that are likely to affect low-paid workers in particular. We look at these next.

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Salary Sacrifice Schemes and the Lower Earnings Limit

4.43 The Government's evidence noted that many people on the minimum wage work part-time and thus will pay very little, if any, income tax and NICs. A worker aged 22 or over who earns the National Minimum Wage must work nearly 19 hours per week in order to become a taxpayer (based on the adult minimum wage of £5.05 per hour in October 2005 and the Lower Earnings Limit (LEL) of £94 per week in 2005/06). Thus many low-paid part-time workers would make little or no savings by sacrificing salary in return for childcare vouchers, or indeed for any other benefit under a salary sacrifice scheme.

4.44 Even for those workers who do earn enough to be liable for tax and NICs, there are complications. As entitlement to some state benefits is based on the amount of NICs paid or on earnings, a salary sacrifice could affect a worker's current or future entitlement to these state benefits. In many cases, entitlement will be protected as long as the worker's earnings remain above the LEL, but some benefits such as the State Second Pension may be affected by a salary sacrifice arrangement even above this level. Work-related payments such as Statutory Maternity Pay, which is based on average earnings over a fixed period before the payment is received, may also be reduced. However the effect is likely to be small, unless a worker chooses to sacrifice a substantial proportion of pay, particularly over an extended period.

4.45 A salary sacrifice arrangement may also affect a worker's terms and conditions of employment. Some employers will use a 'notional' pre-sacrifice level of salary to calculate contributions to occupational pension schemes and other entitlements such as holiday pay, while others will base these on the lower post-sacrifice level of pay. This is a matter for individual employers to agree with their staff and is not just an issue for those on the minimum wage. But it does demonstrate that there are a number of complex factors that workers need to consider before deciding whether to give up part of their pay in return for another benefit under a salary sacrifice scheme.

4.46 Having reviewed the evidence from our consultation and other sources and considered some of the implications of participation in a salary sacrifice scheme, we now draw together our conclusions on whether there is a case for recommending that these schemes should count towards the minimum wage.

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Childcare Voucher Salary Sacrifice Schemes

4.47 The evidence we received indicated that childcare voucher salary sacrifice schemes were the most prevalent and were causing the most difficulty for employers. There are probably a number of reasons for this. Childcare costs are rarely an optional item of expenditure for working parents and it follows that providing support to meet existing costs is an attractive benefit for employers to be able to offer. There was considerable publicity surrounding the introduction of new rules for childcare vouchers in April 2005 and the tax and NICs savings are potentially significant. In addition, the maximum amount of salary that may be sacrificed each week or month is much higher than for a typical home computer or bicycle scheme. This means that employees earning rather more than the National Minimum Wage may be affected by the current minimum wage rules, particularly if they work part-time. For these reasons, and because we recognised that the vouchers were an important and valuable benefit for some families, we considered very carefully whether to recommend that they should count towards minimum wage pay.

4.48 We note the low take-up rates of salary sacrifice schemes in individual firms indicated in the IDS research (IDS, 2005a). Evidence from our oral hearings and meetings with individual employers suggested that take-up rates of between 0.5 and 2 per cent were typical for childcare vouchers and that take-up rates for HCI were typically around 10 per cent. Two large retailers told us that although a small number of their employees would benefit, take-up rates for their childcare voucher and home computer schemes were not expected to increase significantly even if the minimum wage rules were changed. This was because these companies had put in place their own hourly pay thresholds to ensure that the earnings of their employees did not fall below the LEL as a result of a salary sacrifice. We believe that similar restrictions are likely to affect many more low-paid workers. We have also noted that many part-time workers, who make up the majority of those on the minimum wage, would not benefit from salary sacrifice arrangements even if the minimum wage rules were changed, because their earnings already fall below the LEL, making them non-taxpayers.

Low Pay Commission Research

Part of the telephone survey focused on advice given to employees... and, specifically, if they were advised whether they would be better off claiming tax credits than taking [childcare] vouchers.... Seven out of 29 employers ... said it was the individual's responsibility, while 13 employers...provided advice help-line numbers, put a ready reckoner on the company intranet, or referred employees to the organisations running the scheme. Two further respondents said they did not know what the situation was....
IDS, 2005a.
Non-pay Benefits in Low-paying Organisations

4.49 The interaction between the two forms of government childcare support - childcare vouchers and the childcare element of the WTC - is complex and we are concerned that less responsible employers might fail to ensure that their staff receive the information they need to make the most appropriate decision in the light of their own personal circumstances. This may be because some employers do not fully understand the implications themselves. The IDS research project provides some evidence that the level of advice offered by employers varies considerably, although the results were based on a small number of firms.

4.50 We have stated that some people on low wages would benefit from childcare voucher salary sacrifice schemes. But the evidence shows that the majority would be at least as well off getting support through the childcare element of the WTC. In the case of childcare vouchers, we do not believe there is sufficient justification to complicate the minimum wage for all workers in order to benefit a small number. We recommend that childcare vouchers should not count towards the National Minimum Wage.

4.51 The Government wrote in its evidence that it is 'considering issuing some best practice guidance [for employers] as part of the detailed guidance on the childcare vouchers'. While this falls outside our remit, our consultation points to significant confusion and we would strongly support any moves to help workers fully understand the implications of opting to participate in a childcare voucher scheme and to help employers to advise them appropriately.

'We understand that the Government is worried that, because some employees are better off claiming the childcare element of the working tax credit, allowing childcare vouchers to count towards the NMW will encourage employers to offer them and therefore leave some families worse off. CBI members believe that it is Government's responsibility to ensure that the policy measures it puts in place are properly communicated to families.'

CBI evidence

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Other Salary Sacrifice Schemes

4.52 We recognise that the Home Computing Initiative (HCI), cycle to work schemes, pension salary sacrifice arrangements and some of the other schemes mentioned in this Chapter could be beneficial to some low-paid workers. But the evidence we received indicates that these salary sacrifice schemes are less common or are causing fewer difficulties for employers (partly because the sums sacrificed are usually smaller). The HCI has presented problems for some employers but we believe that it is in its early stages of development. It was not until the Government issued new guidelines in 2004 that significant employer interest was generated. We have concluded that a compelling case for changing the composition of minimum wage pay to include salary sacrifice schemes has not been made. Therefore we recommend that salary sacrifice schemes should not count towards minimum wage pay. We set out the reasons for our conclusion below.

4.53 We have already stated that one of our guiding principles from the early days of the Commission has been that of simplicity. We strongly believe that the minimum wage should be as simple as possible for employers and workers to understand, and for HMRC to enforce. We believe that this is one of the reasons why the National Minimum Wage has been effective as a wage floor. It is clear to us that allowing salary sacrifice schemes to count towards the minimum wage would depart from the principle and would complicate the definition of the minimum wage.

4.54 We want to ensure that the value of the minimum wage is protected and believe that, with the exception of accommodation, it should not be possible to substitute benefits-in-kind for cash pay to make up the minimum wage. We are in no doubt that the vast majority of employers would offer salary sacrifice schemes in good faith. But we remain concerned that if non-cash benefits offered through salary sacrifice schemes were to be allowed to make up minimum wage pay, a minority of employers might attempt to misuse this flexibility by reducing the cash wages of employees and offering a non-cash benefit of dubious or no value instead, or might offer staff little or no choice to participate in a salary sacrifice arrangement.

4.55 Some employers have suggested to us that it would not be possible to exploit salary sacrifice schemes to the detriment of workers because the schemes are in some way approved or monitored by HMRC. However, this is not an accurate reflection of the position. According to HMRC, salary sacrifice arrangements are an entirely contractual matter between a worker and an employer. In this context HMRC's concern is solely directed to ensuring that the correct tax and NICs treatment is applied to the benefit-in-kind. Employers are not required to seek approval for their salary sacrifice schemes from HMRC or to submit details of their schemes. Indeed, HMRC will not comment on draft proposals. In practice, many employers are concerned that they might set up their schemes incorrectly so they may choose to set up a pilot scheme which HMRC inspectors are then willing to comment on.

4.56 We know that some employers have put in place measures to ensure that their employees understand fully the implications of participation in a salary sacrifice scheme, including the potential impact on entitlement to WTC support, state benefits and their individual terms and conditions of employment. But we are concerned that other employers may not ensure that their employees are able to take such a fully informed decision, or that employers themselves may not fully understand the complex interactions and consequently give poor advice. Of course, some of the issues we have raised could apply to any worker who participates in a salary sacrifice scheme and not just to the low-paid, but we believe that low-paid workers are more vulnerable to exploitation by unscrupulous employers and more at risk of reducing their entitlement to state benefits. Any negative consequences of opening up the definition of minimum wage pay to accommodate salary sacrifice schemes would fall hardest on the lowest-paid.

4.57 We have some particular concerns in relation to the HCI. This scheme involves the loan of home computer equipment, normally over a three-year period, although sometimes two years is offered. As noted by the Public and Commercial Services Union in its evidence, a worker is tied into an agreement for the duration of the loan, and may have to pay back any remaining instalments immediately if he or she moves to another employer. In addition, the value of computer equipment is less transparent than that of other benefits such as childcare vouchers (which are a close substitute for cash), thus there is a greater potential for abuse.

4.58 We are also aware that the Treasury has instigated a review of the HCI in response to a report on the Government's digital strategy (Cabinet Office Prime Minister's Strategy Unit and Department of Trade and Industry, 2005), which might lead to reform of the scheme. Connecting the UK: the Digital Strategy contains a commitment to bridge the 'digital divide' and encourage wider take-up of computer equipment and internet access, particularly among low-income groups. According to the report, the Treasury review will consider the 'impact and cost of the Home Computing Initiative to ensure that it is targeted most effectively at those with the lowest take up'.

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Conclusion: Salary Sacrifice Schemes

4.59 We have listened to the views of employers, trade unions and other interested parties and made careful note of the benefits and drawbacks of allowing salary sacrifice schemes to form part of minimum wage pay. We considered childcare vouchers to be the most important scheme for us to examine because the availability of affordable childcare can be central to an individual's ability to enter or remain in the workforce. But we have concluded that most low-paid workers have access to an equally good, if not better, form of childcare support through the WTC system. Therefore we believe that the case for changing the minimum wage rules on childcare vouchers in order to benefit a small group is weak.

4.60 The evidence suggested that salary sacrifice arrangements for home computers, cycles to work and other benefits were of a smaller scale and that employee take-up levels were, on the whole, low. We have noted that many part-time low-paid workers would derive no benefit from participating in a salary sacrifice scheme, even if the minimum wage rules were changed, as they pay little or no tax or NICs. Indeed, they might actually be worse off if they joined a scheme. In our view, the advantages that these schemes would offer to some low-paid workers do not outweigh the disadvantages associated with complicating the definition of minimum wage pay. It is important that workers know what they are entitled to, employers are easily able to demonstrate that they have met their legal obligations, and that HMRC is able to enforce the National Minimum Wage effectively.

4.61 In addition to the salary sacrifice schemes that have been brought to our attention, there may well be other arrangements that develop in the future, particularly if the Government were to change the tax or NICs treatment of other benefits-in-kind. Furthermore, we made our recommendation on childcare vouchers in the context of the current system of support and this too could change. The fact that the tax and NICs treatment of non-cash benefits and the state benefits system do change relatively frequently is perhaps one reason not to alter the minimum wage rules to fit the current circumstances. But equally we think that it is important to keep the issue of salary sacrifice and the minimum wage under review.

4.62 If new salary sacrifice schemes affecting low-paid workers develop in the future, we would want to consider them on their individual merits, while bearing in mind the views we have expressed in this Chapter. And if evidence emerges to indicate that salary sacrifice schemes are becoming significantly more widespread, we would want to review the position. Should these circumstances arise, we suggest that the Government ask us to return to this topic in a future report to check if the conclusions we have reached remain valid.

4.63 We now turn to the one benefit-in-kind that can already count towards minimum wage pay and to our review of the operation of the accommodation offset.

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The Accommodation Offset: Introduction

4.64 We recommended an accommodation offset when the minimum wage was first introduced and we have continued to review it in subsequent reports. We were pleased that the Government asked us to look at it in detail, alongside our broader review of the treatment of benefits-in-kind and salary sacrifice arrangements. We were asked to examine the operation of the accommodation offset and to consider whether any changes to the relevant regulations were necessary. During our consultation we asked employers, trade unions and other interested parties - particularly those with knowledge of the low-paying sectors where accommodation is most commonly provided by employers - to tell us how the offset was working in practice. We asked if the provisions and guidance were sufficiently straightforward to understand and comply with, and whether there was any evidence that they were not being interpreted in a consistent manner or not being complied with.

4.65 In the course of our analysis of the evidence it became apparent that there were two distinct issues to be addressed:

• the operation of the accommodation offset in the circumstances which the Commission had in mind at the time of our First Report (1998) (i.e. when accommodation is provided as an integral element of the employment package); and
• whether and how the accommodation offset should be applied in cases where the provision of accommodation by an employer, and its acceptance by the employee, is not an explicit condition of employment. This issue has arisen in particular in relation to the provision of accommodation to migrant workers in agriculture and in the food processing and packing industries.

4.66 We begin by reviewing the decision made in our First Report (1998) to recommend the introduction of an accommodation offset, and we comment briefly on consideration of the offset in our subsequent reports. Next we examine the data available on accommodation provision in low-paying sectors, drawing on the Labour Force Survey (LFS). We then discuss the evidence received during our most recent consultation and we consider the provision of accommodation in both sets of circumstances highlighted above. Finally, we examine enforcement of the accommodation offset and of the minimum wage more broadly, particularly in relation to migrant workers.

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Discussion in Previous Reports

4.67 When the Commission considered which elements of pay should count towards the National Minimum Wage in its First Report (1998), it recommended one exception to the general principle that benefits-in-kind should not form part of the definition of minimum wage pay. We believed that a special case should be made for accommodation because of its significance as a benefit-in-kind in particular low-paying sectors such as hospitality and agriculture. A special report on accommodation (LPC, 1999a) noted that the former Wages Councils allowed an accommodation offset and that the Agricultural Wages Boards continued to do so. We took account of these and industry practices at the time in determining an appropriate offset level. We were concerned that not allowing an offset could disadvantage low-paid workers should employers choose to introduce high cash charges for accommodation. Accordingly, a weekly maximum offset of £19.95 was introduced in 1999. Since then, we have reviewed the level of the offset in the light of evidence submitted to our consultations and it has generally increased in line with upratings of the adult minimum wage.

'...there has been a widespread acceptance of the existing accommodation offset by both employers and workers in the formal economy.'

TUC evidence

4.68 Most recently, our 2005 Report noted that we continued to receive calls for a significant increase in the offset from some employer representatives, while some trade unions, concerned about the poor standards of some accommodation, argued for no increase. On the basis of the evidence received, we concluded that the offset was working well, was generally understood by employers and represented a reasonable balance between the interests of employers and workers. The report stated that we continued to believe that our approach to the offset was a fair one and we recommended that it should increase in line with the adult rate of the minimum wage in October 2005 (to £3.90 per day) and in October 2006 (to £4.15 per day). The Government subsequently accepted our recommendation.

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Provision of Accommodation by Employers

4.69 Information about the provision of accommodation by employers is limited. The LFS asks employees if their accommodation is tied to their job and it can give us an indication of the number of workers who may be affected by the accommodation offset, but there are problems with the data³.

4.70 Figure 4.1 below illustrates that the total number of employees in tied accommodation has been falling for some years, although the numbers levelled off in 2002 and 2003 (at around 250,000) and have since risen (by 44,000 between Autumn 2003 and Autumn 2005). This was largely driven by increases in sectors outside those we would normally consider as low-paying. However, there were small increases in agriculture, hunting and forestry; wholesale and retail; and hospitality between Autumn 2003 and Autumn 2005, contrary to the long-term trend in these sectors. Over half of the total number of employees in tied accommodation are employed in public administration and defence; health and social work; education; or real estate, renting and other business activities.

4.71 The low-paying sectors where accommodation is most significant are hospitality and agriculture, hunting and forestry. According to the LFS, about 24,000 workers (15 per cent) in agriculture, hunting and forestry were in tied accommodation in Autumn 2005. Although far more people are employed in the hospitality sector, both the number and proportion of workers in tied accommodation are significantly smaller. Later in this Chapter we consider evidence of an increase in the number of migrant workers taking up low-paid and often temporary employment in the UK, some of whom will have been provided with accommodation by their employer. We do not know how many of these workers are captured by the LFS tied accommodation data, particularly as some are likely to be employed on a temporary basis.

Figure 4.1

Number of Employees in Tied Accommodation, UK, 1998-2005

Source: LFS, 1998-2005.

Note: Four quarter moving average.

4.72 We also asked IDS to examine the provision of accommodation as part of the research project on non-pay benefits referred to earlier in the Chapter (IDS, 2005a). The research targeted low-paying sectors that were thought likely to provide benefits, including accommodation, and so is not representative of all employers. The average proportion of firms providing accommodation to their employees across the 303 firms that responded to the survey question was 12 per cent, with little variation by firm size. IDS found that 13 per cent of care homes, 42 per cent of hotels and hospitality firms and 21 per cent of leisure firms in the sample provided accommodation.

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Our Consultation

4.73 Our consultation on the accommodation offset raised a number of issues, including the offset level and whether the amount allowed at present was too much or too little. Respondents also raised points about the interpretation of the offset regulations and accompanying guidance, both in terms of some quite specific technical questions about calculating the offset and more general questions about the circumstances in which the offset does and does not apply. We also received comments concerning awareness of the offset and the effectiveness of enforcement. Some of the topics raised were new, while others have been considered in previous reports.

4.74 We begin by reviewing the evidence we received on the accommodation offset level, before going on to consider understanding and awareness of the offset rules and guidance. We then examine the provision of accommodation to migrant workers employed in agriculture and the food industry, where problems were reported to us that related to the offset level, understanding and awareness of the provisions, and the effectiveness of enforcement of the offset. In particular, we received evidence that some employers in these sectors were charging workers on the minimum wage more than the maximum offset for accommodation. In some cases, this may have been due to confusion about the legal requirements.

4.75 We also look at the application of the accommodation offset where it is not immediately evident if the employer or a third party has provided accommodation, including evidence that some employers have deliberately sought to circumvent the offset provisions by setting up a separate company to provide accommodation to their workers. We conclude by examining some more general issues relating to the enforcement of the minimum wage for migrant workers.

'In our opinion, employers are expected to subsidise any live in staff by at least 50 per cent of the real costs involved, a situation which is totally unacceptable.'

The Scottish Licensed Trade Association evidence

The Offset Level

4.76 As in previous years, we received a number of comments about the level of the offset, particularly from the hospitality and leisure sector. In general, employers in these sectors favoured a significant increase in the level of the offset, with some commenting that it represented only half of the actual costs of provision. Two charities also expressed concerns that the offset did not reflect the value of the accommodation provided to their employees. We visited a hotel chain that operates across the UK and were told that the company offered accommodation to workers in locations where it was otherwise difficult to find, but that it was becoming increasingly difficult to continue this practice as costs were outstripping the offset limit. A small number of employers suggested a system of variable offset levels, depending on the quality or value of the accommodation. On a Commission visit to Manchester, a group of pub companies suggested a distinction should be made between a self-contained flat or house (which in the pub sector often becomes the pub manager's family home) and a room in a house or hotel with shared facilities. Others were wary of introducing a more complex system.

'...as we have said in previous submissions, we believe the time is right for a freeze to the level of the deductor....'

GMB evidence

4.77 In contrast to other employer representatives, the CBI recommended that the offset should continue to increase in line with adult minimum wage upratings and the British Holiday & Home Parks Association regarded the offset as a reasonable measure that balanced the employer's need for a residential presence and the employee's need for reasonably priced accommodation. Trade unions were opposed to any increase, citing evidence of poor standards of accommodation and overcrowding.

4.78 Much of the evidence we have reviewed so far was from employers in sectors that have traditionally offered accommodation to employees because they are needed on site or at a convenient location nearby in order to perform their duties effectively - the first category of accommodation provision that we identified in the introduction to this topic. Typically these workers are required to live in the employer's accommodation as part of their terms and conditions of employment. There are usually advantages to both worker and employer. While the worker may have no choice but to live in a particular place, the accommodation is often subsidised by the employer in some way. The package might also include council tax, water rates, or other utility payments.

4.79 We have always maintained that in these circumstances the offset is not intended to reflect the full costs of providing accommodation or rents on the open market, since this would fail to recognise the advantages to the employer of housing workers at, or close to, their place of work. Rather the offset has provided a mechanism to reflect employers' costs in part, while also ensuring that low-paid workers who are housed by their employer are not subject to high charges for accommodation that could reduce their cash pay substantially. We believe that the accommodation offset works well in this context and that it is set at an appropriate level. Furthermore, we continue to believe that the simplicity of the minimum wage is crucial to its success and so we do not see a case for more than one offset level. This would inevitably be more complicated for employers and workers to understand and more difficult to enforce.

Awareness, Understanding and Guidance

4.80 A few employers raised some technical issues in relation to the calculation of the offset, for example where a worker is sick or, in the context of care services, a worker living long-term with a service user. Within the hospitality sector, some employers felt that the guidance was unclear and short on examples. They also suggested that publicity was insufficient and that the offset level should be displayed more prominently on the Department of Trade and Industry (DTI) minimum wage website, particularly before new rates come into effect each October. On the other hand, the British Beer & Pub Association, British Hospitality Association and Business in Sport and Leisure felt the offset rules were reasonably clear and did not need to be changed and similarly the CBI wrote that '...members believe that, for those employers that use the offset, it works well and should not be changed'.

'...we do not think that the NMW [accommodation offset] regulations require amendment....'

British Hospitality Association evidence

4.81 Citizens Advice Northern Ireland, which runs the minimum wage helpline for Northern Ireland, wrote that it had received no specific calls complaining about deductions for accommodation, but callers enquiring about their wages in general sometimes revealed a lack of understanding of the deductions for accommodation which had been made. Similarly, the results of a small number of telephone interviews conducted by IDS (IDS, 2005a) suggested that awareness of the offset was not as high as it could be. The GMB called for greater publicity to encourage compliance and the Small Business Service stated that it would be happy to help improve the quality of guidance available to employers on the offset.

'The accommodation offset regulations would benefit from clarification and better publicity - even to the point that the rate is not mentioned on the main NMW page of the DTI Employment Relations website.'

National Trainers Federation evidence

4.82 The GMB also highlighted the question of what is and is not included within the term 'accommodation'. The offset provisions do not contain a specific definition of accommodation. The GMB argued that employers should not be able to apply separate charges for utilities in addition to the accommodation offset deductor.

4.83 In our view it would not be sensible or feasible to set out exhaustively in regulations exactly what is and is not included within the definition of accommodation and thus what provision would fall within the scope of the accommodation offset. But the official guidance could be clearer and more helpful with respect to deductions or payments - such as utility charges or other charges for services - that are connected to the provision of accommodation. Furthermore, in our view, employers ought to be able to demonstrate that, where workers are subject to any deductions for services connected to accommodation, these have not been applied by the employer for his or her own financial benefit.

Low Pay Commission Research

From our telephone survey, eight of the 14 employers...said that the NMW offset did not apply in their organisation. Three further employers...indicated that the accommodation offset did apply, although only the leisure organisation specified the previous £26.25 maximum. For the remaining employers, one in the hotels and hospitality sector did not know whether the offset applied in their organisation and two others in the care and leisure sectors did not respond, which perhaps suggests that these respondents were similarly unsure.
IDS, 2005a.
Non-pay Benefits in Low-paying Organisations

4.84 We believe that there is a reasonable level of awareness and understanding of the offset in low-paying sectors such as hospitality, leisure and social care and that the offset has provided an important protection for low-paid workers who are provided with accommodation as part of the overall employment package. Our consultation has indicated, however, that some employers were not clear how to apply the calculation to some more complex or unusual situations. Some of these issues might be resolved by a call to the National Minimum Wage helpline, but further examples of the offset calculation in the DTI guidance would probably be welcomed by some employers.

4.85 However, this level of understanding was not consistent across all low-paying sectors affected by the accommodation offset. Our consultation revealed that there was significant confusion about the amount employers could charge for accommodation in those sectors that lie across the interface between the National Minimum Wage and the separate system of agricultural minimum wages. We received evidence that some low-paid workers employed in agriculture and food processing were being charged significantly more than the maximum offset of £3.90 per day (equivalent to £27.30 per week) that has been effective since October 2005. In some cases, employers may have believed that the offset provisions did not apply in their particular circumstances. We examine some of the reasons for this confusion, and the impact it has had on workers - particularly migrant workers - in these sectors next.

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The Accommodation Offset, Free Choice and Migrant Workers

4.86 In this section, we describe the new issues relating to the accommodation offset which have emerged as the role of migrant workers, particularly in agriculture and related sectors such as food processing, has increased. We describe first the guidance which has until recently been provided to agricultural employers by the Department for Environment, Food and Rural Affairs (Defra), relating to the provision of accommodation where the employee can exercise a choice as to whether or not to accept it. We then describe the growing role of migrant workers in these sectors, the new pattern of accommodation provision which has emerged, and the case put forward by relevant employer groups for a change to the existing regulations in the face of these new developments. Our conclusion on the appropriate way forward is followed by comments on the enforcement of the accommodation offset, particularly in those low-paying sectors where migrant workers are concentrated, and comments on the wider issue of the enforcement of the minimum wage itself in relation to migrant workers.

Accommodation Charges in the Agriculture Sector: Past Government Guidance

4.87 The Agricultural Wages Boards for England and Wales, Scotland, and Northern Ireland respectively are responsible for determining statutory minimum pay rates and other conditions of employment for workers in the agricultural sector. The National Minimum Wage underpins the system of agricultural minimum wages such that the Agricultural Wages Boards cannot set an agricultural minimum pay rate which is below the National Minimum Wage. Agricultural employers are in a unique position in that they must comply with the provisions of the Agricultural Wages Orders as well as the National Minimum Wage.

4.88 During 2005 we were made aware of inconsistencies in the advice and guidance issued by different government departments concerning the amount that employers could charge workers for accommodation. The Agricultural Wages Order for England and Wales contains its own provisions relating to accommodation which differ in some respects from those contained within the National Minimum Wage legislation. We were informed that, until April 2005, Defra had advised agricultural employers that they could deduct more than the accommodation offset from the pay of agricultural workers, as long as accommodation was provided under a stand-alone agreement separate from the employment contract and the worker could choose whether to occupy the accommodation concerned. Many temporary and seasonal workers - and the labour providers who supply workers to farmers, producers and other labour users - operate across agriculture and other sectors such as food processing. This means that the Defra advice is very likely to have reached employers active in other sectors, even though the Agricultural Wages Order for England and Wales only applies to agricultural employers.

4.89 DTI guidance based on the National Minimum Wage regulations makes no such distinction, however, and states that employers who provide accommodation cannot reduce the wages of those on the National Minimum Wage by more than the accommodation offset. The guidance notes that employers may deduct an amount from wages or charge a specific amount once wages have been received, or may offer accommodation on an uncharged basis; in each case, the offset rules apply.

4.90 Once this discrepancy in advice was recognised, all involved parties in government reviewed the position early in 2005. Following a re-examination of the relevant provisions, all government departments concerned agreed that, regardless of the sector of employment and regardless of whether the worker has agreed to take accommodation under a stand-alone agreement, the present National Minimum Wage regulations provide that a worker must not receive a wage that is less than the National Minimum Wage, minus the maximum accommodation offset where applicable. Employers are free to charge workers more for accommodation if they earn more than the National Minimum Wage. This includes workers on the higher agricultural minimum rates that apply to more skilled or experienced workers. Although the Government had clarified the legal position, its subsequent decision to include a review of the accommodation offset in our remit in July 2005 recognised that the issues that had come to light were complex - as we will discuss below - and merited further investigation by the Commission.

4.91 One consequence of Defra's interpretation of the Agricultural Wages Order for England and Wales, and the advice it had previously given to agricultural employers, was that some students coming into the UK under the Seasonal Agricultural Workers Scheme (SAWS), who signed stand-alone contracts for accommodation, might have been charged more than the maximum allowed under the National Minimum Wage provisions. Others may have received their legal entitlement to the National Minimum Wage despite the higher accommodation charges because they were paid at a higher agricultural minimum pay rate. According to the Government's evidence, accommodation charges for SAWS workers averaged £30-40 per week, with a minority charged £55-£75 per week. SAWS temporary work permits are issued by scheme operators under the auspices of the Home Office and according to the Government's evidence, some 16,250 foreign students came into the UK under the 2005 scheme.

4.92 Evidence from the Association of Labour Providers (ALP), trade unions and other organisations indicated that accommodation charges that are significantly higher than the maximum offset permitted under the National Minimum Wage provisions are common in agriculture and related sectors such as food processing. We were informed that employers in these sectors typically charge low-paid workers around £40-60 per week (often inclusive of utility bills) for a shared room in a shared house. Of course, some of these workers will be earning more than the National Minimum Wage, but Defra-sponsored research that examined the use of temporary and gang labour in agriculture and food processing (Precision Prospecting Ltd, 2005a, 2005b) suggests that many will not. In addition, accommodation charges at these levels are less likely to apply to some permanent members of the agricultural workforce - such as skilled farm labourers - who have been provided with a traditional tied cottage on the farm for many years.

4.93 Consultation responses suggested that many of those affected by accommodation charges in excess of the accommodation offset were migrant workers. Some employer respondents from the agriculture sector argued that the position that had been taken by Defra was the most logical approach and was helpful to both employers and workers. They suggested that the offset was set at an uneconomic level and that migrant workers would benefit if restrictions on the deductions that employers were able to make for accommodation were removed in certain circumstances. Trade unions and worker representatives, however, were concerned about cases of overcrowding and poor housing conditions combined with high rents. They urged a greater focus on enforcement of the existing offset provisions, particularly in relation to migrant workers. We consider the arguments put to us on both sides of the debate. As background, we begin by examining the increasing role of migrant workers in agriculture and the food industry and the problems that some have faced in finding suitable accommodation.

The Growing Role of Migrant Labour

4.94 There has been a significant increase in the employment of migrant workers in the UK, particularly Eastern Europeans who have had the right to work in the expanded European Union since May 2004. A number of trade unions and employer representatives commented on this trend in their evidence. According to the Accession Monitoring Report May 2004-September 2005⁴ (Home Office et al., 2005), there were 293,000 applicants to the Workers Registration Scheme between 1 May 2004 and 30 September 2005. Twenty-three per cent of registered workers were employed in hospitality and catering, 13 per cent in agriculture, 8 per cent in manufacturing and 5 per cent in food, fish and meat processing.

4.95 There has always been a need for seasonal and temporary workers in sectors such as hospitality and agriculture, but research commissioned by Defra (Precision Prospecting Ltd, 2005a, 2005b) suggests that over the past few years native workers have increasingly withdrawn from the labour market in agriculture and related sectors such as food processing and packing. The ALP stated in its evidence that labour providers⁵ and other employers operating in the agriculture and food industries were increasingly recruiting workers directly from Eastern Europe, particularly Poland, so that their clients - labour users - could be sure of a reliable and highly efficient workforce, with very low absence rates and a strong work ethic.

Provision of Accommodation to Migrant Labour

4.96 We met employers in the hospitality and social care sectors who had recruited significant numbers of overseas workers and found it necessary to offer them accommodation. We are also aware that some migrant workers have found employment in other low-paying sectors such as retail. However, reported difficulties with the accommodation offset in this context primarily came from employer representatives in agriculture and the food industry. This may reflect a significantly greater reliance on temporary overseas labour, and the more rural locations in which some workers in these sectors are based. According to research for Defra, 18 per cent of sampled labour providers operating in agriculture and on-farm primary food processing provided accommodation (Precision Prospecting Ltd, 2005b) and in a separate survey of workers, 23 per cent of seasonal workers engaged in secondary food processing used labour provider accommodation (Precision Prospecting Ltd, 2005a).

'Foreign workers...find it difficult to seek private rented accommodation independently because they have come from a country in which incomes are much lower than in Britain and therefore are unlikely to have accumulated the deposit (typically one month's rent) that landlords require...they cannot provide references acceptable to landlords...have difficulty establishing their identity and...may well not have a bank account.'

Association of Labour Providers evidence

4.97 Evidence submitted to our consultation revealed that many migrant workers find it difficult to save enough money to supply a deposit and a month's rent in advance when they first arrive in the UK. They may also struggle to provide the references, proof of identity and bank details required by most landlords. Labour providers and other employers who wish to take on migrant workers to fill gaps in the labour force have therefore found it necessary to provide them with accommodation. Both the ALP and the National Farmers' Union (NFU) drew our attention to this development in their evidence and argued that the accommodation offset provisions should recognise the particular circumstances in which accommodation is offered to migrant and temporary workers by employers.

Proposals for Redefining the Scope of the Accommodation Offset

4.98 In its evidence, the NFU noted the wording used in the Agricultural Wages Order for England and Wales, which suggested that the accommodation offset applied only to accommodation provided in accordance with the worker's contract of employment. The NFU suggested that it was unhelpful that the National Minimum Wage regulations referred only to accommodation provided by the employer, with no further clarification. It argued that accommodation offered under a separate stand-alone agreement (i.e. where the employee did not have to take the accommodation in order to be employed) should not be subject to the restrictions of the accommodation offset.

4.99 Similarly, the ALP drew a distinction between two categories of accommodation provision: the traditional model of tied accommodation that we discussed earlier in the Chapter, and accommodation offered as an optional service to workers. In the traditional model, workers normally had no choice but to live in the employer's accommodation as it was a requirement of their terms and conditions of employment. The ALP argued that the provision of accommodation by employers in these circumstances was very different from the situation of labour providers who offered workers a choice to take up an offer of accommodation if they wished.

4.100 The ALP suggested that labour providers supplied accommodation - sometimes at considerable inconvenience to themselves - as a service that workers were free to accept or decline, because of the difficulties that migrant workers would otherwise face in securing accommodation on the open market. The ALP proposed that the offset should not apply in such cases. Instead, it argued that accommodation provided in these circumstances should be treated like other goods and services under the minimum wage. Under the National Minimum Wage provisions (Regulation 35(e)), workers may choose to purchase goods and services other than accommodation from their employer with no reduction in pay for the purposes of the minimum wage calculation, provided that there is no obligation placed upon the worker concerned and it is a completely free choice.

'Where an employee has freedom of choice as to where he can live, the rental arrangements and the amount of rent charged should be left free for negotiation between the parties.'

National Farmers' Union evidence

4.101 The ALP and NFU argued that not only was it more logical and consistent that the offset should not apply where accommodation was offered as an optional service independent of the employment contract, but that workers would also benefit if employers were able to charge a rent closer to the market rate. They suggested it would make employers more likely to provide accommodation and provide an incentive to improve its quality. The NFU wrote that it would encourage workers to take jobs in sectors with labour shortages and reduce the risk that workers would be given notice to quit their accommodation in future because employers would be unwilling to provide it at a rate that they considered to be uneconomic.

'If labour providers do not provide accommodation then workers may have difficulty in obtaining accommodation and will be paying substantially more than £26 a week [the then offset] unless they are prepared to accept overcrowding.'

Association of Labour Providers evidence

4.102 Similarly, the ALP argued that greater flexibility would reduce the risk that migrant workers would be forced into the hands of unscrupulous landlords who might exploit their limited access to alternative sources of accommodation by offering overcrowded and substandard housing. We were told by another interested party that migrant workers' interests might not be best served by a growing reluctance by their employers to provide them with accommodation as this would lead to a division of responsibility for their welfare. We met one labour provider who told us that his company carried out checks to ensure its accommodation was of a good standard because his clients were concerned about their reputation. These clients did not want to risk losing contracts to supply the major supermarkets as a consequence of evidence of poor treatment of workers.

'We understand that there are concerns over the abuse of the accommodation offset and would support any enforcement activity which would prevent this. However we believe that these cases are isolated....'

CBI evidence

4.103 However, we also received evidence from a number of trade unions and worker representative bodies expressing concern about the charges applied for accommodation by some employers and calling for greater enforcement activity, particularly in the agriculture and food processing and packing sectors. The TUC and other organisations were particularly concerned that high charges for accommodation were sometimes combined with poor standards and overcrowding. The Transport and General Workers' Union (T&G) cited an example of ten migrant agency workers sharing three rooms who were paying on average £57 per week for accommodation, despite being on the National Minimum Wage. The GMB described cases of up to six people sharing a room, and deductions of £120 per week for accommodation. The T&G suggested these practices were becoming more common among employment agencies that specialised in providing migrant labour and proposed that a detailed study was needed, as did Citizens Advice Scotland. However Citizens Advice Scotland acknowledged that it was not always clear if such charges were 'due to lack of knowledge or blatant exploitation'.

4.104 The TUC argued that employers should only be able to apply the offset to accommodation that met minimum housing standards and that HMRC should, having consulted local authority officers, have 'the clear power to disallow the accommodation offset in cases where accommodation does not meet legal standards'.

'Anecdotal evidence from CAB managers suggests that, since 2004, the number of employment-related advice enquiries being made to Citizens Advice Bureaux (CABx) by migrant workers has continued to increase, to the point where, for example, migrant workers now account for more than 25 per cent of all the advice enquiries made to some CABx in East Anglia. And the making of excessive (and in most cases patently unlawful) deductions in respect of poor standard and/or overcrowded accommodation remains a key theme of this strand of advice work.'

Citizens Advice evidence

Scope of the Accommodation Offset: Our Conclusions

4.105 We concluded earlier in the Chapter that, on the basis of the evidence we received, there was no strong reason to recommend changes to the offset provisions for workers who are required to occupy accommodation provided by their employer as part of the conditions of their employment or for the effective performance of their duties. As we have noted in previous reports, the offset is intended as a measure to recognise both the advantages an employer derives from having workers housed in a convenient location, and the benefits to the worker.

4.106 However, we recognise that employment conditions in some sectors have changed since the Commission first recommended an accommodation offset. Recent increases in the employment of migrant workers in low-paying sectors, and their consequent need for suitable housing, have meant that some employers are offering accommodation in circumstances that differ from the traditional model of tied accommodation. We accept that there is a distinction in principle between the type of situation we envisaged when we first recommended an accommodation offset, and that described by the ALP and NFU in their evidence.

4.107 Accepting such a distinction between accommodation that is provided as an integral part of the employment package - often as a benefit-in-kind - and accommodation provided as an optional service that a worker is free to accept or decline with no consequences for the job offer, we considered carefully whether this distinction should be recognised within the accommodation offset provisions. We considered whether accommodation provided in the latter circumstances should be treated in the same way as goods and services under Regulation 35(e) of the minimum wage legislation.

4.108 We noted the arguments put forward by the ALP and NFU that employers would be more likely to offer accommodation to migrant workers (who would find it difficult to obtain reasonably priced housing of their own accord) if they could apply charges that would cover the costs of renting, furnishing and maintaining the property on behalf of their workers. It might also provide an incentive to improve the quality of the housing offered and to reduce overcrowding. We also considered the risk that, due to difficulties in accessing alternative accommodation, migrant workers might have no choice but to take poor housing from unscrupulous landlords willing to overlook deposits and references in return for high rents. We balanced these arguments against the evidence put forward by worker representatives who were concerned that, despite the offset rules, some employers were taking advantage of the weak bargaining position of some migrant workers by charging high rents for overcrowded accommodation of poor quality, leaving these workers with very low net cash wages on which to live.

4.109 Having weighed the options carefully, our conclusion is that, while there is a case in principle for distinguishing between workers who are given a free choice about accommodation and those obliged to accept housing from their employer, there are significant practical difficulties associated with any such distinction.

4.110 Our consultation revealed that many low-paid migrant workers face significant problems when they first arrive in the UK in finding accommodation on the open market, and that there is a shortage of affordable rental accommodation in certain areas of the UK. It is likely that a good number of migrant workers will have little real choice but to accept accommodation from their employer in order to work in the UK. This is a very different situation from a worker who chooses to buy goods such as clothes or groceries from his or her employer, but could just as easily walk down the high street to purchase similar items elsewhere. Having considered the issue at length, we came to the conclusion that it would be very difficult to devise a simple, robust test of choice to apply where an employer has provided accommodation to a worker. Signatures on an employment contract and on a separate accommodation agreement do not necessarily demonstrate that the worker has been offered a meaningful choice and that the job and accommodation offer are genuinely independent of each other, particularly if these documents were signed prior to arrival in the UK.

4.111 We have described the concerns of trade unions and Citizens Advice with respect to high charges for often substandard and overcrowded accommodation. The fairness or otherwise of an accommodation charge is dependent to a significant extent on the quality of the accommodation. This is not something that can be controlled effectively through the minimum wage. Under housing legislation there are minimum standards already in place designed to prevent overcrowding and poor conditions, but the evidence we have received suggests that they are not being enforced consistently by local authorities.

'The last several years have seen a dramatic increase in the employment of migrant workers throughout Northern Ireland. Generally such workers are employed through an increasing number of local employment agencies.... Many employment agencies will recruit their migrant workforce in Europe and fly them directly to Northern Ireland. The control exerted by the agency is total in that workers have no option but to use the agency's transport and accommodation.'

Citizens Advice Northern Ireland evidence

4.112 We acknowledge that there are good employers who would charge a fair rent for decent accommodation if the offset restrictions were not applied to cases where free employee choice could be demonstrated. But we are concerned that without effective enforcement of minimum housing standards, and better enforcement of the minimum wage for migrant workers, any relaxation of the offset rules would introduce a greater risk of exploitation of some of the most vulnerable workers. Workers who are housed by their employer - and may also use their employer's transport for travel to work - are in an unusually dependent position. They are more vulnerable than most, since they may risk losing their home and their employment too if they try to exercise their legal rights. In addition, in such circumstances it is usual for employers to require a worker to leave the accommodation if they find a new job.

4.113 Without the protection of a maximum deduction for accommodation afforded by the offset, it is possible that some employers could use high accommodation charges as a means to undercut the minimum wage, thus undermining the principle of a wage floor for all workers. In the light of these considerations, we believe there remains a strong case for treating accommodation differently to other goods and services.

4.114 We therefore recommend that the accommodation offset provisions should continue to apply to all workers housed by their employer in all circumstances, regardless of whether accommodation is provided in an agreement separate to the employment contract and regardless of whether the employee is offered a choice about whether to occupy the accommodation. This is consistent with the current National Minimum Wage legislation and the guidance now being provided by both the DTI and Defra. It means that employers and workers alike should be in no doubt about the maximum deduction that an employer may make for accommodation in all circumstances.

4.115 If, however, a simple and robust test of choice could be devised that could be applied in a straightforward and effective manner, and if our concerns about cases of exploitation were allayed, we would be prepared to review the case for an amendment to the offset arrangements. In such circumstances we could see potential benefits of an approach which reflected the ability of some workers to make a free choice to accept an offer of accommodation from their employer, independent of their contract of employment. A mechanism to ensure that the length of the employment contract and that of the housing tenure were completely independent of the other might prove conclusive in deciding whether a worker had a genuine choice with respect to living in the employer's accommodation.

4.116 We will therefore continue to monitor closely developments relating to migrant labour, and to the provision of accommodation. We note that the Gangmasters Licensing Authority (GLA), which came into being in Apri