California Resident Property Managers (16 or More Units) - Employment and Labor Laws
This guide is intended for reference by apartment owners, management companies and resident property managers. The purpose of the guide is to provide some general California legal information for reference purposes. This guide, while informative and valuable, is NOT intended as legal advice.
Apartments with 16+ Units MUST Have a Responsible Person (or Manager) Residing ThereatApartment buildings that have 16 or more units are required by law to have either a resident manager or a resident responsible person. Stated otherwise, by law either the owner, a manager or a "responsible person" (e.g., custodian) must live on site. (See CA Code of Regulation Title 25, Section 42.)
Resident Managers are Employees Protected by Minimum Wage and Overtime LawsCalifornia law provides that a resident manager is, by definition, an employee - not an independent contractor. This means, among other things, that the manager is protected by minimum wage laws. Those minimum wage laws provide, among other things, that the employee must be paid no less than $10.50 per hour (effective Jan. 1, 2018), depending on how many employees the employer has. If the employer has 25 or fewer employees, the minimum wage rate is $10.50/hour. Owners with more than 25 employees result in the minimum wage being higher: $11.00/hour.
In addition to minimum wage, the owner will also be subject to overtime, meal and rest period rules, which are beyond the scope of this Guide. Also, the owner will be required to pay Medicare and Social Security-related payroll taxes for the employee and to deduct withholdings from the employee's paychecks, etc.
Owner is Capped as to Amount of Rent He/She/It May Charge the Manager for the Manager's QuartersWith regard to 16 or more unit buildings having a resident manager, California law prohibits the owner from charging more than a certain dollar amount in rent from the manager of the building. In most cases, that maximum rent will end up being $593.05/month (if it is a single manager), although the capped amount could be greater if, for instance, the owner happens to have more than 25 employees. Under this system, where the owner seeks to directly credit the value of the manager's quarters against minimum wages earned by the manager for services rendered (aka the single outgoing check method), the landlord can only take a maximum credit of $593.05 (subject to certain exceptions for couples or larger employers). An exception to the rule is described below.
To be clear, variables that can change the maximum credit amount include: (a) whether the apartment has more or less than 15 units; (b) whether there is a single manager or a couple manager; and (c) the owner has 1-25 employees versus 26 or more employees. Consult an attorney for details.
Notwithstanding the general rule about maximum rent being capped at $X/month for the manager's quarters, there is one exception to that rule: a second methodology, available at the owner's discretion, that allows the owner to charge 2/3rds of the fair market rental value of the manager's unit. Under this alternative methodology, the owner may: (a) elect NOT to do a direct credit (of the $X in maximum rent) against the wages earned by the manager and instead pay the manager the full wages earned for the pay period (i.e., give the manager a check for the net wages, after deductions for taxes, etc.); AND (b) charge the manager 2/3rds of the fair market value of the unit. For example, if the unit is otherwise rentable for $1,800/month, by utilizing this alternative methodology (which is effectively a two check solution: (i) outgoing check for wages; and (ii) incoming check from the manager for the rent), the landlord in this example could charge no more than $1,200/month for the manager's quarters. In higher priced markets like Los Angeles and San Francisco, this second alternative methodology is more landlord-friendly than the direct credit method described earlier in this article. The alternative method is memorialized in Labor Code Sec. 1182.8.
Also, note that in order to barter living quarters as a form of compensation (regardless of which of the two methods the owner elects to utilize), the owner must have a WRITTEN employment agreement with the resident manager and signed by both of them. Without such a properly drafted written employment agreement, the manager is opening him/her/itself up to potential monetary damages in a subsequent wage and hour lawsuit (i.e., failure to comply may effectively result in the manager staying legally in the manager's quarters on a RENT FREE basis). These agreements must be drafted by competent counsel and expressly state how much money is being credited against the manager's rent and specifically state that the credit is being applied toward minimum
Record Keeping Obligation of Property OwnerThe owner is required by California law to keep accurate employee information, including without limitation records concerning when each employee begins and ends each shift, meal periods, total hours worked each day, rate of pay and the total pay for each pay period, including the value of lodging compensation furnished by the owner to the manager.
If the owner is later sued for some violation, these records will be invaluable to the owner to help demonstrate compliance. As such, even if record keeping were not required by law (which it is), it would behoove owners to absolutely mandate their resident managers to keep the records and turn them in to the owner on a regular basis and that those records be kept by the owner for no less than 4 years from the date each such record is prepared.
Risks to Owner for Failure to ComplyAmong other things, where the owner fails to comply with the foregoing laws, the owner risks being sued by the resident manager in a labor and employment action, including for wage and hour violations. Such actions open the owner up to not only compensatory damages, but also liquidated damages on top of the amounts owed and not timely paid.
Also, if the owner fails to obtain a written, executed employment agreement from the resident manager before offsetting rent for the manager's unit from the manager's minimum wage salary, the manager can sue for the amount of the offsets (or amounts actually paid by the manager to the owner for the unit) during the past 36 months. To be effective and protect the manager, the executed employment agreement must expressly provide that the owner will credit the cost of the manager's living quarters against the minimum wage salary otherwise owed by the owner to the manager for hourly services rendered.
Applicable Statutes of Limitations for These Sort of Actions By a Resident ManagerGenerally speaking, where a resident manager's rights have been violated by the owner, the resident manager has a 3 (and sometimes 4) year statute of limitations to file suit. Stated otherwise, the "reach back period" for calculating damages based on wage and hour violations, etc. are usually 3 years and, depending on legal maneuvering, may be as much as 4 years. Consult an attorney.