By Kari Negri, Chief Executive Officer, SKY Properties, Inc.
(Editor’s Note: The “Ask Kari” now features a new monthly, “Question and Answer” format by Kari Negri, the Chief Executive Officer and Founder of SKY Properties. Ms. Negri has more than two decades of property management experience, is a featured speaker at many real estate industry trade shows and expositions, and currently serves as a member of the Board of Directors of the Apartment Association of Greater Los Angeles. Ms. Negri would like to answer your questions in future articles and asks that you submit your questions to: Kari@SKYprop.LA. Also, you can watch the SKY Properties online video series at www.skypropertiesinc.com
- Question: “Hi Kari, I heard a building owner can be sued for not keeping proper timesheets for their on-site building managers? How can I avoid legal exposure?”
First and foremost, before I can even begin to address your question, you must have a valid, signed contract in place with any onsite manager. You can a form onsite manager contract through the Apartment Association of Greater Los Angeles (or you can pay for an attorney to draft one for you). Having a valid contract in place between you and your onsite manager is not an option – it is mandatory for all onsite employees to have a contract even if you call them a “key holder,” “cleaner,” “security” or even worse, any “friend” or just plain old “tenant.” Even if the building is small and does not require an onsite manager or employee, if you have a person at your building that is designated as such who is performing services in exchange for rent concessions, then there must absolutely be a contract that outlines his or her duties and responsibilities and the days and hours they are expected to work.
You have asked a great question, and although I am certainly not an attorney and cannot offer legal advice, I am aware of owners being sued or turned into the labor board for not keeping proper timesheets of people performing work at their building. This tension is not unique to the real estate industry. Have you ever heard those radio commercials where companies want to audit a person’s hours worked for free so they can offer to sue employers!!! It would seem obvious that litigation attorneys are hunting for employees who want to sue employers for potential back pay. My company, SKY Properties in fact, learned this lesson the hard way when a maintenance worker who had misrepresented the time worked on his timesheets. (These “ambulance chasing” attorneys apparently do not seem to be very picky about who their clients are.) Additionally, once an employee claims that an employer owes backpay, the burden of proof that their information is fraudulent or incorrect falls on you, the employer. So, be sure you are keeping accurate records and that you are updating them regularly and timely.
Following many years in the property management business, I have unfortunately witnessed many devious onsite managers who claim they worked MANY HOURS over the last several years, and no one had accounted for their hours worked and paid them for that time. These characters then suddenly reappear and come back to property owners through their attorney to pursue backpay, overtime, penalties, interest, etc. and they often win if the property owner has failed to keep accurate records. Imagine out of the “blue” being hit with a claim for multiple years of backpay and penalties? The average amount of these types of settlements is about $60,000. Make sure you are doing what you can to avoid this type of legal exposure.
I get it…I know what you are thinking in your head right now – “But, I am just giving them a rent credit.” Yes, a rent credit that is credited towards their wages for the hours that they have worked. You must at a minimum, collect a timesheet monthly to make sure they are not going over their hours which in my calculations should be no more than 10 to 12 hours per week before going over the maximum credit amount which is currently permitted under California state law. The maximum allowable reduction in rent that can be credited toward the minimum wages owed is $734.21 per month for a single manager and $1,086.07 per month where a couple is employed and when the employer has fewer than 26 employees. As of January 1, 2022, minimum wage will increase to $14.00 per hour and then $15.00 per hour as of January 1, 2023 for employers with 25 or fewer employees. Employers with 26 or more employees may charge rent up to $790.67 (single manager) and $1,169.59 (couple). As of January 1, 2022, minimum wage will increase to $15.00 per hour for employers with 26 or more employees.
Based upon California’s current minimum wage as of January 1, 2021 is $13.00 per hour for employers with less than 26 employees, and accordingly, the $734.21 equates to about 56 hours per month. Keep in mind, minimum wage laws vary by jurisdiction. While as of January 1, 2021, the California statewide minimum wage increased to $13.00 per hour for employers with fewer than 26 employees and became $14.00 per hour for employers with 26 or more employees, there are approximately 35 cities that have higher minimum wages such as San Francisco, Oakland, Los Angeles, Berkeley, Santa Monica, Santa Clara, San Diego, Malibu, and Cupertino.
For the City of Los Angeles, specifically, I took the monthly credit toward wages and divided that amount by the current minimum wage which is $15.00. As a result, I came up with the maximum amount they can work per month: (i) approximately 52.5 hours for an individual or 77.5 hours per couple if less than 26 employees, and (ii) 56.5 hours for an individual and 83.5 hours per couple if 26 or more employees.
Any amount of time your onsite employees work over these maximum hours, even a mere 15 minutes over, must be paid in wages Note: (do not pay them in cash – use a payroll company). If you do not pay your onsite personnel for additional time worked every month, then you could be in a position for a wage claim later on down the road. If your onsite employee were to come to you and state that you owe them five years of overtime, do you have timesheet records to disprove that type of claim to a judge? If not, you are at risk of exposure to unpaid wage claims. As a rental property owner (or any type of business owner for that matter), if this risk of exposure amounting to thousands of dollars in potential wage claims fails to motivate you to closely follow this law and maintain adequate records, I am at a loss as to how to convince you.
Here are six important “tips” you might consider:
Tip No. 1: Consult with your attorney to review and better understand the law. It is a very complicated law. Be sure to take the simple step to better understand how you are managing your rental property and learn how you can best follow the law.
Tip No. 2: In the eyes of the State of California, realize that your on-site manager is your employee. According to the state of California, your onsite manager or other onsite personnel is your employee. Some owners find a trustworthy tenant and simply give them a rent credit to collect rents, call in maintenance, etc. If you are doing this, you are directing an employee to perform work and must pay them minimum wage, withhold and remit payroll taxes, obtain workers compensation insurance, etc. Anyone who is not a licensed contractor or does not carry liability insurance or Workers’ Compensation insurance on their own may be considered an employee. Over the years, independent contractor rules have gotten much stricter and more likely than not, your onsite manager or other personnel are YOUR EMPLOYEES.
By the way, one of the many benefits to hiring a professional property management firm like SKY Properties is that the onsite manager becomes our employee, or an employee of the management firm you have hired, and therefore, you have a layer of protection and the peace of mind that proper employment records are being maintained.
Tip No. 3: Know your on-site manager rent credit maximum. Yes, the State of California regulates the maximum rent credit you may offer your onsite personnel. Rent credits can only be given in accordance with the California Industrial Welfare Commission Order, which specifically prescribes amounts of rent that can be offset.
Tip No. 4: The signed management contract is an absolute must! All onsite managers must be given a manager contract, and the work hours and duties should be clearly outlined in the contract , and all work completed must be supported by time sheets. The Apartment Association of Greater Los Angeles offers its members free access to sample onsite manager contracts. At SKY Properties, I believe that best practices dictate the collection of time sheets every two weeks to stay on top of what is happening at every property.
Please note, whether you take a rent credit or not, it is imperative that you still have a written contract in place. The Apartment Association of Greater Los Angeles offers form onsite manager (or other personnel) contracts for small employers (less than 26 employees), and larger employers (26 or more employees) that apply a rent credit to time worked in lieu of wages, and a form onsite manager contract where no rent credit is offset against wages owed.
(Partial Apartment Association of Greater Los Angeles Onsite Manager Form Agreement: Form L.11.2)
Tip No. 5: It is time for timesheets! Be sure your onsite managers, maintenance personnel, and all other onsite personnel are filling out timesheets on a regular basis, preferable daily, but at least weekly, so you have a record of paying them properly according to State and Federal laws. If no timesheets exist, there is a risk of exposure if an employee claims there are wages owed for overtime. If this discrepancy spans over multiple years, you may be “on the hook” for quite a large sum of money.
There are many online time sheet applications available that can be accessed by smart phone or computer, so time sheets do not necessarily have to be kept manually. Go over your employee’s time sheets and make sure they match any notes you have kept to see if they make sense.
Tip No. 6: Stay informed. I cannot stress enough about consulting with your attorney here. Additionally, stay informed by visiting the following State of California website at: http://www.dir.ca.gov/dlse/faq_paydays.htm.
Kari Negri is the Chief Executive Officer of Sky Property Management and is a member of the Board of Directors of the Apartment Association of Greater Los Angeles. Do you have a question for me? Please send your questions and comments to me at Kari@SKYprop.LA.