You Can Pay Them (Right) Now, Or You Can Pay Them (A Lot!) Later
by Joby Tapia
One of the most important people involved in the success of your property’s performance is the on-site manager (Resident Apartment Manager). This person is often the face of your property in your absence and may even be THE face of the property. The duties of this individual can range from that of a ‘key-holder’ to that of a full blown property manager that collects rents, performs maintenance and leases vacant units. When it comes to compensation, there are myriad ways that these individuals are paid; cash, rent credit, partial rent credit, bonuses, or some combination thereof, etc. However, in the eyes of the law, there are only two ways that the resident apartment manager can legally be compensated without putting the owner in danger of a wage claim suit. These suits are starting to gain some traction in California, especially San Francisco, with several resulting in six-figure payouts to the (former) employee.
The regulations regarding the compensation of resident apartment managers are not easily located in the Civil Code. In fact, the only reference that is readily found in the California Code of Regulations on the topic of resident apartment managers is Title 25 section 42: [Caretaker (25 CCR § 42)] – A manager, janitor, housekeeper, or other responsible person shall reside upon the premises and shall have charge of every apartment house in which there are 16 or more apartments, and of every hotel in which there are 12 or more guest rooms, in the event that the owner of an apartment house or hotel does not reside upon said premises. Only one caretaker would be required for all structures under one ownership and on one contiguous parcel of land. If the owner does not reside upon the premises of any apartment house in which there are more than four but less than 16 apartments, a notice stating the owner’s name and address, or the name and address of the owner’s agent in charge of the apartment house, shall be posted in a conspicuous place on the premises. This is the part of the law that we’re all familiar with; any building with 16 or more units must have a responsible person living on the premises. However, there are Labor and Wage Code Orders that fill out the rest of the picture when it comes to crediting rent against the earned wages for labor performed.
SO HOW DO YOU PAY THEM?
When it comes to compensation, the body that governs how you pay resident apartment managers is the Industrial Welfare Commission. Resident apartment managers are considered part of the public housekeeping industry. In its directive to govern the public housekeeping industry, Industrial Welfare Commission issued Order No. 5-2001, the Section 10 that provides:
10. Meals and Lodging
(A) “Meal” means an adequate, well-balanced serving of a variety of wholesome, nutritious foods.
(B) “Lodging” means living accommodations available to the employee for full-time occupancy which are adequate, decent, and sanitary according to usual and customary standards. Employees shall not be required to share a bed.
(C) Meals or lodging may not be credited against the minimum wage without a voluntary written agreement between the employer and the employee. When credit for meals or lodging is used to meet part of the employer’s minimum wage obligation, the amount so credited may not be more than the following: Apartment – two-thirds (2/3) of the ordinary rental value (emphasis added), and in no event more than $451.89 per month (one employee); where a couple are both employed by the employer, two-thirds (2/3) of the ordinary rental value, and in no event more than $668.46 per month.
(D) Meals evaluated, as part of the minimum wage, must be bona fide meals consistent with the employee’s work shift. Deductions shall not be made for meals not received nor lodging not used.
(E) If, as a condition of employment, the employee must live at the place of employment or occupy quarters owned or under the control of the employer, then the employer may not charge rent in excess of the values listed herein.
So as of January 1st, 2008, the maximum amount of rent which may be credited against wages is $451.98 per month (or $668.46 if a couple is employed as the resident apartment managers), but may not exceed 2/3rds of the market rate of the unit. That is an important fact to consider if you have a couple in a studio and the market rent is not at least $1,002.69 or more. Also consider the minimum wage in your city; in San Francisco, the minimum wage is $10.74 per hour, so if $451.98 of rent credited against wages per month, the maximum number of hours the on-site employee can work is 42 hours during the period. If the employee works more than that, there is risk that the employee is making less than minimum wage!
To wit, California Labor Code section 1182.8 provides that:
No employer shall be in violation of any provision of any applicable order of the Industrial Welfare Commission relating to credit or charges for lodging for charging, pursuant to a voluntary written agreement, a resident apartment manager up to two-thirds of the fair market rental value of the apartment supplied to the manager, if no credit for the apartment is used to meet the employer’s minimum wage obligation to the manager.
This means that in order for you to credit any rent against wages OR charge any portion of rent, that it is mandatory to have a ‘voluntary written [employment] agreement’ and that there is an explicit amount of rent credited or charged. You also have to ensure that you are meeting the minimum wage obligation with the rent credited.
Many landlords and their agents still rely on both informal and non-compliant agreements with their on-site staff. Recently, there has been an uptick in back wage claims (including a major class-action suit in San Francisco against a well known owner), where aggrieved former or current on-site staff have sought damages in the way of unpaid or underpaid wages (including overtime) and any credits taken as well as the one month delay penalty. Given the employee friendly nature of California laws, without extensive documentation and compliance, an owner could face thousands, if not tens of thousands in back wages and penalties.
EMPLOYMENT AGREEMENTS, TIMESHEETS
So, from the legalese above, we can see the most critical element in employing a resident apartment manager – the Written Employment Agreement. This document is required to be compliant with Wage Order 5 and Labor Code 1182; there is a case (Brock v. Carrion, Ltd. (2004)) where a resident apartment manager and an owner ‘agreed’ to value an apartment at a certain rate and to compensate the employee at the same rate. Missing was a written employment agreement that defined the terms and duties; the decision of the court left owner unable to credit any rent against wages in the labor dispute. The employment agreement is your touchstone document. It should clearly delineate what the expected duties are to be performed, excluding anything not clearly written in the agreement or subsequently assigned in writing. It should also include the expectation of how many hours per month or pay period the tasks should take and what the compensation will be. Since any agreement that would result in the employee being compensated less than minimum wage in violation of Labor Code 1194(a) and would be void, this is an extremely important exercise to complete, especially if crediting rent against wages. The lesson here is to always memorialize your employment agreement with duties and compensation in writing.
Furthermore, the employee(s) must be required to turn in periodic timesheets that they sign and date each pay period. If the employee is entitled to actual wages above and beyond the rent credit, you must pay the employee (at least minimum wage) for all the hours claimed to have worked. If you have a question if the employee actually worked the hours recorded, you should seek advice from an employment attorney or HR consultant to navigate through this tricky situation. Even if you dispute the hours worked, you will still have a record of paid hours in order to limit back pay issues.
What isn’t mentioned in the Wage and Labor orders is the companion document that is STRONGLY recommended: the License Agreement. This document is very important in controlling tenancy in the unit that the on-site staff uses as a condition of employment. Since the license is revocable when employment is terminated, the former employee has a pre-defined period of time to vacate the unit. This will avoid a costly eviction of the former employee; in rent controlled districts, this document will avoid granting tenancy rights to the employee. Always use a license instead of a lease as it will better protect your rights. You can always convert an ex-employee to a tenant, but if you write a lease with below market rates as the compensation, you are stuck with that rate for a minimum of 60 days (if more than 10% under market) and potentially for life if in a rent-controlled district.
Where California law requires a responsible person to live on-site, it is important to ensure that any terms of employment are in writing and clearly defined. When it comes to compensation, it is extremely important that the resident apartment manager is legally compensated to avoid putting the owner in danger of a wage claim suit. There has been increasing numbers of wage claim suits filed against owners; with some relatively simple documentation, you can reduce exposure to large settlements and protect your rights as an owner. Just remember that when it comes to on-site managers, you can pay them (right) now or you can pay them (a lot!) later.
Disclaimer: The information contained in this article is general information and should not be construed as or relied upon for legal or tax advice in any particular circumstance or specific factual situation.