Employees sometimes live in residential accommodation that is provided by their employer. Living onsite can help them perform their job more effectively as is the case with carers, housekeepers or hotel managers. As rents continue to rise and property becomes more and more difficult to buy, it can also be a welcome perk.
But if an employer goes down this route, it is vital to document the situation as a key concern will always be whether the employee will actually vacate the property when their employment comes to an end.
Under landlord and tenant law, it can be notoriously difficult to evict tenants who do not want to leave. But employers may need the accommodation returned as soon as possible for use by a replacement employee and will certainly not want a disgruntled former staff member lingering around the premises.
As a result, if possible, they should classify the employee’s residency as a “service occupancy”, which is a particular type of licence under which an individual can live in their employer’s property
It arises if an employer requires their staff member to reside in that property in order to help them perform their duties more effectively.
Helpfully, a service occupancy terminates automatically when the a staff member’s employment contract ends. In other words, the employee has a licence to occupy the accommodation concerned only for as long as their employment continues.
The concept of a service occupancy is a rather old-fashioned one. It is based on a service occupier being considered a “servant” who occupies their “master’s” premises to perform their duties as a servant. The “servant’s” work is performed on behalf of their “master”, which means they do not have exclusive possession of the property.
In what circumstances does a service occupancy apply?
In the case of service occupancies, an employee’s residence in the property must be closely linked to their employment and be of “material assistance” in carrying out their duties. It must either be essential if they are to perform those duties, or their employment contract must expressly require them to reside there in order to perform their duties more effectively.
But in either situation, the important thing is what happens in reality, not the label applied to it in any documentation.
If the above test is not met, or stops being met during the course of employment, for example should the staff member’s duties change, it may no longer be possible to class their residency as a service occupancy. Instead the occupancy is likely to take the form of a tenancy that does not automatically end with the termination of employment, which makes it more difficult for employers to regain possession of their property.
What happens when employment ends?
A service occupancy automatically terminates when an employee’s employment contract ends. There is no need to serve a notice to quit. This situation contrasts with a general requirement to give a licensee at least four weeks’ notice. If the service occupier/staff member refuses to move out when employment terminates, employers may be able to treat them as a trespasser. The procedure for regaining possession of the property is quicker in the case of trespassers than it is for tenants.
Can the provision of accommodation count towards wages?
It is common (but not an essential requirement) that an employee who is a service occupier does not pay rent to their employer. Accommodation can, therefore, be a valuable part of a staff member’s remuneration package.
Employers may pay a lower salary than they would otherwise to take account of this benefit. But care needs to be taken that the employee still receives the national minimum wage (NMW).
Accommodation provided by an employer can count towards the NMW but only up to a very limited maximum amount. The full market value of the accommodation cannot be used to make up the NMW. This situation often comes as a surprise to employers, particularly if the total package is generous by the time accommodation is taken into account.
But this scenario links with the tricky, and still evolving, legal issue for live-in employees as to whether on-call or stand-by time should be treated as ‘working time’ and, therefore, be payable as part of the NMW.
How should service occupancy be documented?
If an employee’s status is deemed to be one of service occupancy, it is helpful to include a provision in their employment contract requiring them to both sign a separate service occupancy agreement that sets out the main terms of that occupancy, and to live in the property concerned.
In addition to making it clear that their right to live in the accommodation is based on a service occupancy agreement subject to certain conditions, doing so can also protect employers by addressing matters such as:
• Who (if anyone) other than the employee is also permitted to reside at the property, including, for example, family members. If this situation is permitted, employers will need to conduct pertinent immigration checks on any pertinent adults;
• The staff member’s obligations regarding, for example, paying bills, cleaning and repairs; • Clarifying which parts of the property the employee may access.
Areas of difficulty may arise if a staff member takes a period of maternity leave or is suspended from employment pending a disciplinary procedure. Although the law is unclear in these situations, as a general rule employers are in no worse a position if staff are service occupiers than if they are not.
Anne-Marie Balfour is a legal director in the employment, pensions and immigration team at Charles Russell Speechlys LLP. She advises employers, senior executives and recruiters on all aspects of employment law, including contracts of employment, dismissals, employment tribunal litigation, TUPE, restructuring, discrimination, whistleblowing and working time issues. She has particular expertise in dealing with immigration-related employment law issues and has a particular interest in the impact of Brexit on employment law. Anne-Marie regularly speaks on employment law topics at conferences and other events. Her articles have appeared in both national newspapers and legal and HR trade publications.
Employees sometimes live in residential accommodation that is provided by their employer. Living onsite can help them perform their job more effectively as is the case with carers, housekeepers or hotel managers. As rents continue to rise and property becomes more and more difficult to buy, it can also be a welcome perk.
But if an employer goes down this route, it is vital to document the situation as a key concern will always be whether the employee will actually vacate the property when their employment comes to an end.
Under landlord and tenant law, it can be notoriously difficult to evict tenants who do not want to leave. But employers may need the accommodation returned as soon as possible for use by a replacement employee and will certainly not want a disgruntled former staff member lingering around the premises.
As a result, if possible, they should classify the employee’s residency as a “service occupancy”, which is a particular type of licence under which an individual can live in their employer’s property
It arises if an employer requires their staff member to reside in that property in order to help them perform their duties more effectively.
Helpfully, a service occupancy terminates automatically when the a staff member’s employment contract ends. In other words, the employee has a licence to occupy the accommodation concerned only for as long as their employment continues.
The concept of a service occupancy is a rather old-fashioned one. It is based on a service occupier being considered a “servant” who occupies their “master’s” premises to perform their duties as a servant. The “servant’s” work is performed on behalf of their “master”, which means they do not have exclusive possession of the property.
In what circumstances does a service occupancy apply?
In the case of service occupancies, an employee’s residence in the property must be closely linked to their employment and be of “material assistance” in carrying out their duties. It must either be essential if they are to perform those duties, or their employment contract must expressly require them to reside there in order to perform their duties more effectively.
But in either situation, the important thing is what happens in reality, not the label applied to it in any documentation.
If the above test is not met, or stops being met during the course of employment, for example should the staff member’s duties change, it may no longer be possible to class their residency as a service occupancy. Instead the occupancy is likely to take the form of a tenancy that does not automatically end with the termination of employment, which makes it more difficult for employers to regain possession of their property.
What happens when employment ends?
A service occupancy automatically terminates when an employee’s employment contract ends. There is no need to serve a notice to quit. This situation contrasts with a general requirement to give a licensee at least four weeks’ notice. If the service occupier/staff member refuses to move out when employment terminates, employers may be able to treat them as a trespasser. The procedure for regaining possession of the property is quicker in the case of trespassers than it is for tenants.
Can the provision of accommodation count towards wages?
It is common (but not an essential requirement) that an employee who is a service occupier does not pay rent to their employer. Accommodation can, therefore, be a valuable part of a staff member’s remuneration package.
Employers may pay a lower salary than they would otherwise to take account of this benefit. But care needs to be taken that the employee still receives the national minimum wage (NMW).
Accommodation provided by an employer can count towards the NMW but only up to a very limited maximum amount. The full market value of the accommodation cannot be used to make up the NMW. This situation often comes as a surprise to employers, particularly if the total package is generous by the time accommodation is taken into account.
But this scenario links with the tricky, and still evolving, legal issue for live-in employees as to whether on-call or stand-by time should be treated as ‘working time’ and, therefore, be payable as part of the NMW.
How should service occupancy be documented?
If an employee’s status is deemed to be one of service occupancy, it is helpful to include a provision in their employment contract requiring them to both sign a separate service occupancy agreement that sets out the main terms of that occupancy, and to live in the property concerned.
In addition to making it clear that their right to live in the accommodation is based on a service occupancy agreement subject to certain conditions, doing so can also protect employers by addressing matters such as:
• Who (if anyone) other than the employee is also permitted to reside at the property, including, for example, family members. If this situation is permitted, employers will need to conduct pertinent immigration checks on any pertinent adults;
• The staff member’s obligations regarding, for example, paying bills, cleaning and repairs; • Clarifying which parts of the property the employee may access.
Areas of difficulty may arise if a staff member takes a period of maternity leave or is suspended from employment pending a disciplinary procedure. Although the law is unclear in these situations, as a general rule employers are in no worse a position if staff are service occupiers than if they are not.
Anne-Marie Balfour is a legal director in the employment, pensions and immigration team at Charles Russell Speechlys LLP. She advises employers, senior executives and recruiters on all aspects of employment law, including contracts of employment, dismissals, employment tribunal litigation, TUPE, restructuring, discrimination, whistleblowing and working time issues. She has particular expertise in dealing with immigration-related employment law issues and has a particular interest in the impact of Brexit on employment law. Anne-Marie regularly speaks on employment law topics at conferences and other events. Her articles have appeared in both national newspapers and legal and HR trade publications.
