It’s hard to believe another year has gone by. Although a lot has changed over this past year, one sad constant has been the steady stream of lawsuits I am seeing filed by unhappy resident managers. On the brighter side, though, I believe many of these lawsuits likely can be avoided in the future with careful attention to the rules spelled out below. So let’s get to it.
Overview of the 2024 Laws
The Basics: Apartments with 16 or more units without an owner on site must have a “manager, janitor, housekeeper, or other responsible person” living on premises. There continues to be considerable elasticity in this role, although some cities, like West Hollywood, impose their own requirements, so be careful to check for them. Also remember that, if you need to have someone on-site, then that person’s title – whether it be “key holder” or “do-it-all-manager” – does not impact their status as an employee. In other words, when it comes to you needing to follow the guidelines below, “in for a penny in for a dollar,” these laws apply regardless of how much or little you ask of your on-site person.
Wages: Make sure you update your contracts to comply with the new minimum wage. As of January 1, 2024, the State minimum wage is increased to $16 per hour, and many cities and some counties have their own minimum wage requirements – including Los Angeles, Santa Monica, San Francisco, Oakland and San Diego. As of July 1, 2023, the minimum wage in the city of Los Angeles became $16.78 per hour (updated annually based on a Consumer Price Index for the Los Angeles metropolitan area) and it is now $16.90 in unincorporated areas of Los Angeles County. Unlike in the past, it does not matter how many employees you have.
You need to pay your resident manager at least the minimum wage. Failing to pay the minimum wage will entitle your manager not only to the amount needed to make up the shortfall, but also to “liquidated damages” equal to that amount. So, for example, if the minimum wage is $16 per hour and you pay only $12, you may end up owing $8, not just $4.
Also, be mindful of overtime. Someone who works more than eight hours in a day, 40 hours in a workweek, or seven days in the same workweek, is entitled to be paid overtime. Therefore, if you want to avoid paying the seventh-day overtime, make sure your managers take a documented day off each week. Overtime typically must be paid at time-and-a-half, meaning if you are paying $16.78 per hour, the overtime rate would be $25.17.
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Payment Options: Paying resident managers properly is far more complicated than paying most employees, because more than one set of rules governs how you can pay them – rules that sometimes appear inconsistent with each other.
Cutting through it all, the law allows you to pay a resident manager with a rent credit – which means, in effect, a discount off the manager’s rent, with the discount being allocated toward payment of wages. But you can only use a rent credit if you have a properly drafted written contract that allows you to do so. In fact, the consequences can be draconian if you pay using a rent credit without a written contract. The law will not give you credit for any portion of the value of the apartment you provided and will view you as owing the manager unpaid wages and various liquidated damages and penalties.
But even if you have a proper written contract allowing you to use a rent credit, the law places a cap on how much rent credit you can apply towards wages. As of January 1, 2024, this “rent credit cap” is the lower of (1) 2/3 the ordinary rental value of the apartment, and (2) $903.60/mo. for an individual manager. Because this latter number ($903.60) comes from a publication commonly referred to as “Wage Order No. 5,” I will refer to it as the “Wage Order number.” The Wage Order number as of January 1, 2024 for a couple is $1,336.65/mo.
To illustrate how all this works, and assuming we are dealing with an individual manager, if the ordinary rental value of the apartment you are offering is $1,200, then the rent credit cap would be $800 (2/3 of $1,200), which will be lower than the Wage Order number ($903.60). But if the ordinary rental value of the apartment you are offering is $3,000, then the rent credit cap for an individual would be the Wage Order number ($903.60) – which obviously is lower than $2,000.
So how many hours of work can you require per month from your resident manager and still be under the rent credit cap? That, of course, depends on the hourly rate you are paying and, if you are paying minimum wage, what the minimum wage is in your location.
Assuming your resident manager must live on-site, the law also limits the amount you can charge for use of the apartment you provide. I will call this the “rent cap.” The “rent cap” numbers follow the same formula as the “rent credit cap” numbers, meaning you must limit your rent to the lower of (1) 2/3 the ordinary rental value of the apartment, and (2) the Wage Order number.
The interplay between the rent credit cap and rent cap can be confusing. Therefore, if you want to use a rent credit to pay your resident manager’s wages and charge him rent, I suggest you consult a lawyer to discuss different approaches. Make sure you find a lawyer who knows how this all works; many – I dare say most – employment lawyers do not.
You also can pay your manager through a “check exchange,” which means you pay your manager for his time (not in the form of a rent credit, but out of pocket) and, separately, the manager pays rent. There is no offsetting one for the other. If you use a check exchange, you can charge rent of up to two-thirds of the fair market rental value of the apartment (and are not limited by the rent cap). Therefore, depending on the apartment’s value, using a check exchange instead of a rent credit may be financially advantageous.
One important point to note – people often think that using a rent credit means you are “not paying” the resident manager. That is not correct. You may not be paying out-of-pocket (since you are using a rent credit) – but you most assuredly are paying him.
Time Records: It is mission critical that you collect and maintain time records from your resident manager. There are two reasons for this. First, the law requires it. Second, these records will be your front-line defense against claims, often brought years after-the-fact, that you did not pay the manager for all the hours worked. These records are supposed to show when your manager started and stopped working – including for meal breaks – and, of course, his total hours.
Please note that if you hire a couple, you must separately pay each member of the couple for his or her time. So you should collect time records from each of them and pay each of them accordingly.
Payment and Wage Statements
You must pay resident managers – like almost every other employee in California – at least twice per month. With each payment they should receive a “wage statement” that includes, among other information, the total hours worked (another reason you need the time records) and their hourly rate. It is important to remember, as I noted above, that even if you pay with a rent credit (and do not write a check), you still are paying wages; the rent credit is payment. The wage statement should show the rent credit as payment.
Meal Breaks: Those resident managers who work more than five hours in a given day must be provided a 30-minute meal break no later than their fifth hour of work. This means someone who starts working at 9 a.m. and continues to work straight must be afforded a meal break no later than 2 p.m. Make sure your resident manager knows he can and should take a meal break in such situations, that you document that he knows, and that he records the meal breaks on his time records. If someone is entitled to a meal break and his time records do not reflect one, the law presumes he did not receive it. Which could be a problem for you, the employer.
Arbitration Provisions: A hot topic in the employment world for several years has been whether an employer (which includes you, if you have a resident manager) can force employees to arbitrate any claims they make (instead of going to court). It finally appears to be settled – at least for now – that you can do so (with some exceptions), and so you should at least consider including an “arbitration” provision in your written resident manager agreements. There are both advantages and disadvantages, though, to “arbitration” provisions, so you should consult with a lawyer before you decide to add one and, if you decide to include one, before you grab an out-of-date online sample to use.
Sick Leave
As of January 1, 2024, California requires employers to provide at least 40 hours of paid sick leave (up from 24 hours). Keep in mind, though, that many locations within California have their own local sick leave requirements.
I wish you a wonderful year of health, peace, and prosperity.
Gary Ganchrow chairs the Litigation Department at the 110-year-old downtown Los Angeles law firm of Parker Milliken Clark O’Hara and Samuelian, has served as an Adjunct Professor at the USC School of Law, and is a frequent contributor to AOA Magazine. He regularly advises on, litigates and writes about a variety of employment, property management and business matters, and can be reached at 213-683-6535 and [emailprotected]. This article is for informational purposes only and should not be considered legal advice or establishing an attorney-client relationship.
