Chapter 1: What is a minimum wage

1.6 Payment in kind

Payment in kind is non-cash remuneration received by an employee for work performed. This can include: food, drink, fuel, clothing, footwear, free or subsidized housing or transport, electricity, car parking, nurseries or crèches, low or zero-interest loans or subsidized mortgages.

ILO Convention No. 95

The ILO Protection of Wages Convention, 1949 (No. 95) allows “for the partial payment of wages in the form of allowances in kind in industries or occupations in which payment in the form of such allowances is customary or desirable because of the nature of the industry or occupation concerned” (Article 4.1). In such cases, it calls however for measures to ensure that:

(a) “such allowances are appropriate for the personal use and benefit of the worker and his family”; and
(b) “the value attributed to such allowances is fair and reasonable”.

It must be kept in mind that payment in-kind tends to limit the financial income of workers. This sentiment is captured by the System of National Accounts (SNA 1993):
Income in kind may bring less satisfaction than income in cash because employees are not free to choose how to spend it. Some of the goods or services provided to employees may be of a type or quality which the employee would not normally buy.1

The need for regulation

There is also a risk of abuse. Hence, even in those industries or occupations in which such a method of payment is long-established and well-received by the workers concerned, there is a need for safeguards and legislative protection.

This can be done in different ways:
  • Prohibiting in-kind payments as part of the minimum wage. In Spain, the legislation allows for the inclusion in the wage of payments in kind up to 30 per cent, but prohibits it as part of the minimum wage. In Cambodia, in-kind payment cannot be considered as part of the minimum wage. 
  • Allowing a maximum percentage of the wage: While no Conventions or Recommendations fix a specific threshold for payments in kind, the ILO Committee of Experts has expressed doubt concerning payment in kind that exceeds 50 per cent of the wage.2 Most countries have lower thresholds, with many not allowing in-kind payments exceeding 30 per cent of the wage.
  • Setting a maximum level: Some countries designate the specific value of benefits in kind. In the domestic work sector in Switzerland, food and housing can represent a maximum of 33 CHF per day. A similar system also functions in France.
  • Valuing in-kind payments at cost or less than the cost to employers: In order to preclude employers from profiting from the provision of payment in kind, some countries explicitly state that employers may not charge more than the actual cost of the goods provided. Other countries use the price a worker would pay for a product, service or housing if he or she were to buy it.
  • Limiting the value of in-kind benefits to a multiple of the minimum wage: In Chad and Senegal, the value of one meal is equivalent to one hour worked at the minimum wage.

Social security contributions

Payments in kind are one component of total earnings and for this reason should in principle count as part of the value on which social security contributions are based. For example, if the minimum wage is $100 per month and 30 per cent is paid in kind, social security contributions (employer and employee), should still be based on $100 (as opposed to $70).

1System of National Accounts 1993, paragraph 7.38.