It is not uncommon for an employee’s employment to include the provision of accommodation. This may come about in many different ways – for instance –
- Residential tutors in the Education setting
- Accommodation on site for a school caretaker
- Chefs with Rooms in the hotel/hospitality sector
- Farm workers who have a cottage on the farm grounds.
Each and every situation is different and invariably these arrangements are quite ad hoc and informal and it only becomes an issue when the employee resigns or their employment is terminated.
In all cases there will be a business justification for the provision of the accommodation and in return, the employee is often available 24/7 – so, when a school alarm goes off out of hours, the Caretaker sorts it and if a cow or sheep goes into labour in the middle of the night, the Farm worker will attend.
Also, these arrangements have developed through informal means – almost “custom and practice” and it is not uncommon for these employees not to have a contract of employment so the most complicated situation arises when an employee’s employment is terminated and they have no contract of employment, no tenancy agreement and their understanding is that accommodation comes with the job.
First and foremost, there should be a clause in the contract which makes it clear that they will have the benefit of accommodation (or even a house in some situations) as long as they remain employed by the Company or the nature of their duties justifies such accommodation.
What happens to the accommodation when employment terminates?
In some situations, especially in the hospitality situation, it will be very straight forward and the employee – often a Chef – will have to vacate their room when employment terminates and in most cases, this will be understood and straight forward.
There will be situations – primarily where houses are concerned, where there is a tenancy agreement and this may give the employee the right to stay in the property after employment has terminated or until notice to vacate the property has been served by the landlord, which might not necessarily be the employer.
In some extreme cases, connected with Agriculture, the Farm labourer may have rights under historic legislation to occupy the farm cottage until death despite having retired years before.
What should you do as an employer?
Arrangements should be documented and ensure;
- that there is a clause in the contract of employment that provides for accommodation to be provided during employment and clarify what would happen in the event of termination of employment
- that you have engaged RICS qualified property professionals who can advise on the appropriate type of tenancy agreement to put in place and the rights of the employee/tenant after employment has terminated
- that there is clarity about the right of the employee to live in the accommodation with other members of their family. Sometimes, this may be further complicated by the fact that a family member may also work for the employer.
In an ideal scenario, as a minimum, there should be a contract of employment and a professionally drawn up tenancy agreement.
Deductions from salary for rent
In many cases, the employee may pay a very nominal amount for rent, definitely not market value, and rent will be deducted from the employee’s salary.
Ensure that you have employee authorisation to cover deductions from salary and check that this authorisation is updated if the amount of rent increases and the deduction from salary changes.
Ensure that there is clarity about whether the rent is inclusive or exclusive of utility bills and/or council tax.
Insurance and Tax benefit
There should also be clarity about Insurance and specifically personal property and possessions of the employee – the employer may not want to accept liability for loss or damage to personal property.
In some situations, the provision of accommodation for an employee could be perceived as a P11D benefit in kind and most employers conveniently take a creative view to avoid declaring a benefit in kind, although HMRC is likely to take a different view. Seek advice from Accountants.
Summary of employment that comes with accommodation
Accommodation and employment arrangements are excellent whilst the employment relationship is “hunky dory” but as soon as that relationship ends or turns sour, the whole thing gets messy, legal and acrimonious – and hence costly.
Any such arrangements should be contractually documented through the employment contract in conjunction with tenancy agreements drawn up by professionals to ensure that there is alignment between the employment contract and the tenancy agreement and it is clear what should happen on termination of employment.
If you want help with any of the issues raised, Adrian Berwick gives practical advice and support – either call 07885 714771 or e-mail – firstname.lastname@example.org