Question: Should You Treat Your Onsite Managers as Employees or Independent Contractors?

Question: Should You Treat Your Onsite Managers as Employees or Independent Contractors?

Avoid One of the Costliest Mistakes Made by Employers: Misclassification of Employees

By Luiza Manuelian, Landegger & Verano, APC

One of the biggest and most expensive mistakes employers in California make is misclassifying their employees. Specifically, whether to designate those property managers who reside within your building, often referred to as “onsite managers,” as employees or independent contractors. The short answer is that “onsite managers,” whose responsibilities are to maintain the residential building and reside within the building, are employees.

 Most importantly, to be labeled an “employee” in California has very significant legal consequences than an independent contractor. For example, employees are entitled to things like paid sick leave, worker’s compensation insurance, overtime pay, meal and rest breaks, amongst other protections provided by the law. However, independent contractors are not entitled to paid sick leave, overtime, etc. Part of the reasoning is that independent contractors provide limited “service” for the entity they are contracted with and may choose (or not choose) to conduct business with those entities.

Employee vs. Independent Contractor? 

Under California law, to designate an individual as an independent contractor, usually they must meet the three-prong criteria often referred to as the “ABC Test[1].” The ABC test, which was established under Assembly Bill 5, indicates that to classify a worker as an independent contractor, all three of the following conditions must be met: (1) the worker must be free from the control and direction of the hiring entity in performing the work; (2) the worker must perform work that is outside the usual course of the hiring entity’s business; and (3) the worker must be engaged in an independently established trade, occupation, or business of the same nature as the work performed.

 On-site resident managers are under the control of the employer (which can be the owner of the building or the property management company that hired them). As such, onsite resident managers are employees under California law. Additionally, on-site resident managers must be paid for all hours worked in maintaining the building. There are very specific laws that address the amount of compensation and the rent “credit” limitations provided to them, which you would need to consult with an attorney as to how to designate those hours and rent credits.

 The rules also vary depending on the local jurisdiction (city or county) of where the onsite resident manager works or resides. It is imperative that all hours “worked” by an onsite resident manager need to be accurately documented, along with their meal breaks, as meal breaks are unpaid, as well as required paid sick leave hours. The specifics of the hours designated to work, duties, along with their rights under the onsite resident management agreement need to be drafted in a proper Onsite Resident Management Agreement. This agreement will ultimately decide the hours that the on-site resident manager is expected to work, the set schedules, including meal and rest breaks, as well as any potential overtime, to avoid any lawsuit regarding wage/hour.

Proper record-keeping is Important

 Another expensive and common mistake made by employers/property management companies is the lack of a proper timekeeping system for the hours “worked” by the on-site resident managers. Any work performed by the on-site resident manager needs to be documented and paid to the minute. If it is not documented, it creates a dispute as to how many hours the onsite resident manager “worked” which may result in expensive litigation.

If the employer/property management company loses on any of the labor code violations such as lack of proper overtime, meal and/or rest breaks, etc., this can result in the employer/property management company paying for the attorney’s fees of the employee / onsite resident manager. As such, having an accurate record using a timekeeping system for the onsite resident managers to report their hours “worked” is crucial to protecting the property owner or property management company from any wage and hour claims.

Additionally, one employee can potentially sue the employer / property management company as a class representative on behalf of former and current employees for the same type of violations, such as missed meal and rest breaks, lack of proper overtime rate, paid sick leave, etc. Class action claims for wage and hour claims go back 4 years (e.g., 4-year statute of limitations) and is one of the most expensive types of litigation for employers. As such, compliance is the key.

 A good start to avoid unnecessarily expensive litigation is to have each of the onsite resident manager agreements identify the hours and duties each onsite resident manager is expected to work, the proper rent credit amount applied towards their rent, hours reported as “worked,” and an explanation of the policy on meal/rest breaks, paid sick leave, etc. A good onsite resident manager agreement, along with documented hours worked, is the key to protecting yourself as an employer in California.

Nothing contained in the article is considered legal advice and is meant as a general overview and opinion of the author. Should you wish to discuss any of the matters addressed herein further or to have an on-site resident manager agreement prepared and or reviewed, don't hesitate to get in touch with the author, Luiza Manuelian, at luiza@landeggeresq.com or via phone at (310) 500-8693. Ms. Manuelian is a labor and employment defense attorney with Landegger Verano, APC, a law firm exclusively representing employers in labor and employment matters. She represents employers in various employment-related matters, including claims for civil rights violations, harassment, discrimination, retaliation, wrongful termination, defamation, and unfair business practices. She also represents employers in class and representative action wage and hour disputes and claims brought under the California Private Attorney General’s Act (PAGA).

[1] There are some circumstances where the Borello test may be applied instead of the stricter ABC test.