In all of these cases accommodation can be provided as part of the employee’s overall package. Often the salary is adjusted downwards to reflect the financial benefit of the accommodation but rarely is thought given to a number of key issues that can cause immense problems in the event that something goes wrong.

For example, the financial benefit of the accommodation in an employment Tribunal claim would be argued as the open market value of finding replacement accommodation. This may well be reflected in the salary amount paid. So for example, a salary of £10,000 per annum plus the value of the accommodation may be say £1000 per month so £12,000 per annum equates to an overall employment package of £22,000. However, the national minimum wage (NMW) calculates the value of the accommodation benefit for the purposes of calculating the minimum wage very differently. From 1 October 2010, the maximum amount your employer can count towards NMW pay as an accommodation offset is £4.61 a day or £32.27 a week. Add in that the live in employee may be working longer hours, on call etc all of which may well count as working time and then subject to payment of wages and it is easy to see how a breach of the National Minimum Wage can take place.

It makes no difference whether you take rent out of your employee’s wages, he has to pay rent to you after receiving his wages or you simply provide the accommodation as part of a package. In all cases, the accommodation offset rate is the most the employer can count towards NMW pay. It is therefore very easy to see how the national minimum wage can easily be breached and with the penalties of such a breach being both public and criminal;  it is key to get it right. As from 1 January 2011, employers who break the law on basic pay will find their names published on the Department for Business website and given three months in which to correct the breach. The HMRC can order payment of the underpayments with a 50% penalty and at its worse can criminally prosecute employers. 

Something often missed in such employment contracts is what happens when the employee’s employment is terminated and you need to recover the accommodation from the employee employment.

There are various considerations which may affect the employee’s rights but there are two main ones that will dramatically affect the situation. 

First, if it is essential for the better performance of the employee’s duties that he should live in particular accommodation or in a particular area or, second, it is an express term of the employee’s contract that he lives in a particular property and by so doing can better perform his duties, this should genuinely create a service occupancy.

However, in all other circumstances, the employee will usually occupy the accommodation as a tenant. If, for example, the employee chooses to live in the accommodation because of the financial benefits but is not expressly required to do so, the employee may well be a tenant.

The two areas need to be carefully linked and cross referenced. What if you wish to dismiss the employee for theft but then find that you cannot evict them from your house for some time as they have received automatic rights of tenure, which they acquired from day one! Conversely, if indeed it is a genuine service occupancy would it frustrate the contract if the employee moved out but wished to remain employed. Is this eventuality dealt with in the employment contract?

The difference between the two scenarios is profound. If the employee genuinely has a service occupancy his right to occupy the accommodation will usually automatically come to an end on the termination of his employment without the need for him to be given any notice even if he has been unfairly dismissed.

If the employee does not have a genuine service occupancy, then he will most likely have an Assured Shorthold Tenancy or AST. An AST cannot be ended by the Landlord until at least 6 months have passed from the start of the tenancy agreement and even then the Landlord may only be able to end it by giving at least 2 months notice in writing. This is the case even if you dismissed the employee fairly and can be a particular problem where an employee has to be dismissed during or at the end of a probationary period.

Then there are the terms of the actual occupancy. Is it just for the employee; their family – immediate family or could it be argued their entire family including second cousins can move in; does it include pets etc? Do you wish them not to smoke in the accommodation, what about any damage done to the property; do you intend to take that from their wages? This in itself will create possible unlawful deduction from wages issues and again it could tip you into a breach of the minimum wage.

It is important to note that in most circumstances it is a criminal offence to try to obtain possession of residential premises from an occupier without first obtaining a court order or to harass such an occupier. This protection applies to anyone residing at the premises and not just the employee. Harassment can be very broadly defined by the courts and could include, for example, carrying out an entirely necessary inspection of the premises without first telephoning or writing to ask for the occupier's permission. Locking the occupier out temporarily which can easily be done inadvertently in the case of a caretaker could be an unlawful eviction and will almost inevitably amount to harassment.

The issues involved are ones backed up by rafts of legislation and case law and are far reaching in their possible consequences. Can you afford to get it wrong?