Written by attorney John Thomas Stralen

How to Avoid Wage and Hour Violations in California When Hiring Onsite Apartment Managers

This guide is written for California apartment complex owners employing apartment managers who are required to live onsite. Apartment managers in California may also find this guide helpful for determining whether or not their pay and charges for the onsite apartment complies with California rules. Over the 19 years I have handled wage and hour cases, I have found that this employment situation is particularly troublesome for apartment complex owners.

Owners may incur significant liability for back wages, interest, penalties, and the manager’s attorney’s fees if these set of rules are not followed. For a good discussion of this area, I recommend reviewing Brock v Carrion (2004) 332 F.Supp.2d 1320, which is a case where I represented the plaintiff who was the former onsite manager pursuing a claim against the owners for back wages. The court ruled that an apartment owner’s failure to comply with the rules governing onsite managers resulted in the owner not being able to charge or take a credit against back wages owed for the manager’s use of the apartment.

California Code of Regulations, Title 25, § 42 requires owners of apartment complexes with 16 or more units to have managers living on the properties. In California, this situation falls under the Wage Order No. 5, which strictly limits the amount that the property owner can charge for the apartment and whether a credit for the apartment can be applied as an off-set to the payment of minimum wages. The court’s ruling in the Brock case contains an excellent discussion of the applicable federal and California laws that apply. There are also other legal issues that will also need to be addressed such as those related to landlord-tenant matters that are not covered here.

Be cautious when using forms by organizations for drafting an employment contract with the onsite manager. These forms are helpful as a starting point for many of the terms and conditions that property owners will want to generally include. However, I have encountered forms that are outdated or containing mistakes, which created a wage and hour violation when the form was used without necessary revisions.

Use this checklist to avoid the ten most common wage and hour mistakes I have seen property owners make when employing onsite managers.

1. Properly Classify the Manager as Exempt or Nonexempt.

Recognize that an onsite manager commonly will be a nonexempt or “hourly" employee that will be entitled to be paid at least minimum wage and overtime (when applicable) for all “hours worked." Simply because this employee has the title of manager does not necessarily mean that the manager is an exempt employee and paying a month salary is sufficient to comply with wage and hour rules. Additionally, Wage Order No. 5 has a minimum salary amount that must be paid as a requirement to classifying any employee covered by the wage order as exempt. The wage and hour enforcement agency interprets this requirement to exclude any value of the manager’s use of the onsite apartment from being considered in the calculation whether this condition is satisfied.

2. Have a “Voluntary Written Agreement."

Wage Order No. 5 requires a “voluntary written agreement" between the owner and manager. It must clearly state the manager’s compensation at an amount that meets or exceeds the prevailing minimum wage. If a credit against minimum wages will be applied for the manager’s use of the apartment, the voluntary written agreement must also clearly state the amount that will be used as a credit.

3. Limit Any Credit for the Apartment.

Limit any credit against minimum wages as required by Wage Order No. 5. Currently, the credit is limited to the lessor amount of 2/3 of the apartment’s fair market value or $451.89 for a single employee and $668.46 for a couple if they are both employed.

4. Establish Pay Periods and Pay Timely.

Pay periods of at least twice per month are required for nonexempt employees. Penalties also apply if wages are not paid timely. Monthly pay periods for nonexempt or hourly employees violates Labor Code § 204.

5. Keep Accurate Time Records.

Have the manager submit time records for each pay period. A monthly stated amount (not be confused with a “salary") can be agreed to even for a nonexempt onsite manager if the monthly sum is a reasonable estimate to compensate the manager for at least the prevailing minimum wage for the time the manager will have to devote to his or her job duties. The amount of compensation and the reasonable estimated time must all be clearly stated in the written agreement. It is recommended that the written agreement also state a procedure for the manager to be compensated for additional wages (and overtime if necessary) in the event of an increase or spike in the work load. This is not a salary so have the manager complete and sign a time card for each pay period even if the manager receives the same agreed upon amount. If an estimate is used, the manager should state for each pay period that the amount of the hours worked was within the estimated amount or list any additional time worked beyond the estimated hours.

6. Provide Pay Stubs.

Issue “pay stubs" to the onsite manager with each paycheck that clearly sets forth the all of the required items under Labor Code § 226. Generally, these items are the employer’s legal name, the employee’s name and last four digits of his or her social security number, gross wages earned, net wages earned, any applicable hourly rate, the number of hours worked, the amount of any credit applied for use of the apartment, and the amount of all other payroll deductions. Having a payroll service is recommended.

7. Make Proper Payroll Deductions.

If the apartment is part of the compensation, properly report the amount of compensation for tax purposes and make proper deductions from wages.

8. Keep Employee Records for at Least 4 Years.

Keep time records and all other required employee records for at least 4 years. Wage Order No. 5 states records must be kept for 3 years, which is also the applicable statute of limitations under the Labor Code for minimum wage and overtime claims. However, court rulings have allowed employees to bring wages claims for up to 4 years under Business and Professions Code § 17200, so it is advised to keep the records at least this long.

9. Obtain Worker’s Compensation Coverage.

Obtain worker’s compensation insurance covering the apartment manager. This is required by law and will mitigate risk of a lawsuit against the apartment owner in case the manager is injured on the job. In California, an injured employee is allowed presumptions of negligence in a lawsuit against his or her employer who did not obtain workers compensation insurance. The employee may also make a claim for attorney’s fees against the uninsured employer.

10. Act in Good Faith.

Avoid unnecessary penalties by dealing in good faith with the employee and promptly responding to, and correcting if necessary, any errors that may arise. This often is best accomplished by hiring an attorney with experience in wage and hour matters to initially review the terms of the employment engagement or evaluate the owner’s exposure if a claim is brought by an onsite manager for back wages. Doing this will mitigate the apartment owner’s risk in the long run, and it may also provide a “good-faith" defense to payment of any penalties if the apartment managers establishes that back wages are owed.

By John T. Stralen, Esq., Sacramento, California, February 27, 2013; [email protected].

Additional resources provided by the author

--Brock v Carrion (2004) 332 F.Supp.2d 1320. -- (link to Wage Order No. 5) --The Wage and Hour Manual for California Employers, by Richard J. Simmons.

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