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Employee Housing Assistance – Legal Considerations for California Public Agencies
In light of California’s housing shortage and high housing costs, public employees and candidates struggle to find affordable housing options. In turn, public agencies may be considering measures to help employees find viable housing options near the workplace, and may even consider investing in employee housing.
Investing in employee housing may serve important agency objectives. For example, it can improve employee recruitment and retention, strengthen the connection between employees and the community they serve, increase employee availability for overtime shifts, reduce traffic congestion, and keep tired shift workers off the road.
However, public agencies should be aware of a myriad of legal considerations and compensation issues when offering employee housing as a fringe benefit. Employers should evaluate the following.
Is the Value of Employee Housing Taxable?
Most likely. Under IRS regulations, employees are generally required to report the fair market value of employer-provided lodging in gross income. However, employees may exclude the value of such lodging if it is located on the employer’s business premises, provided for the convenience of the employer, and if the employee is required to accept lodging as a condition of employment. In California, even lodging that complies with these requirements is subject to State Unemployment Insurance, Employment Training Tax and State Disability Insurance.
Does the Value of Employee Housing Affect Regular Rate of Pay Calculations?
There are potential impacts. Fair Labor Standards Act (FLSA) regulations require that the reasonable cost or fair market value of employee lodging be included in the regular rate of pay for the purpose of overtime calculation.
Possible exceptions exist where a collective bargaining agreement excludes the cost of lodging from wages, and where the arrangement primarily benefits the employer. However, this is somewhat unchartered territory. Employers are advised to seek legal counsel to assess regular rate calculations related to employee housing.
Is the Value of Employee Housing Pensionable Compensation?
Probably not. For “new members” under Public Employees’ Pension Reform Act (PEPRA), any employer-provided allowance, reimbursement, or payment for housing is excludable from pensionable compensation. This is also true for “legacy” members in a 1937 Retirement Act (’37 Act) system, which expressly excludes the value of lodging from pensionable compensation.
With the exception of State employees, the CalPERS retirement system does not consider employee housing costs to be compensation earnable for “classic” employees.
Do Public Agencies Have to Negotiate With Labor Unions Over Employee Housing as a Fringe Benefit?
Yes. Under federal labor law, employee housing as a fringe benefit falls within the scope of bargaining and is considered to be integral to the employee-employer relationship. The Public Employment Relations Board (PERB) has recognized such cases. Where employees are required to live on employer premises for the convenience of the employer, the impacts and effects of such a requirement may also be subject to bargaining. However, legal guidance on this question is limited.
Where housing is a fringe benefit, negotiable issues may include: employee eligibility, method of allocation, rental costs, security deposits, utilities and upkeep costs.
Does This Change the Nature of the Employment Relationship?
Yes. Depending on the nature of employee housing, you may be establishing a landlord-tenant relationship. Employers should obtain a signed employee housing agreement from each individual employee, prepared by legal counsel.
An employee housing agreement should address issues such as: What happens if an employee separates from employment? Can employees be evicted, and under what circumstances? How much time will employees have to vacate? Can an employee’s family members/roommates/pets live there? Who is liable for damage caused by the employee or their family members, roommates, or pets? Can employees sublet the unit or part of the unit? What rules apply while they live there? What happens if the employee or a family member/roommate violates the housing rules?
For represented employees, while employers should provide a labor organization with the opportunity to bargain over housing as a fringe benefit, they are also advised to obtain an employee housing agreement with each affected, individual employee.
Some of the issues to be addressed in an employee housing agreement could be found to fall under the scope of bargaining. Because employers must take care to avoid direct dealing, and because there is a lack of legal guidance distinguishing between these two types of agreements, employers are advised to seek legal counsel to navigate these arrangements.
Yes. Be aware that under the California Constitution, local public agencies cannot require their employees to reside within their jurisdiction. However, agencies may require employees to reside within a reasonable distance of a designated location. In some cases, as a recruitment tool, agencies can offer interest-bearing housing loans contingent on the property being within the city limits.
Besides Providing Housing, What Else Can a Public Agency Do to Ease the Housing Crisis for Its Employees?
Other options may help public employees live closer to their workplace. Agencies can look to these potential strategies:
- Offer housing assistance grants for rent, security deposits, down payments, closing costs, and moving expenses. Potential funding sources include an agency’s general fund, fee revenue, federal, state or private grant money, and even employee contributions;
- Work with developers and local housing authorities to attain public employee access to affordable “workforce housing;”
- Partner with lending institutions to establish revolving loan programs for employees;
- Solicit third parties, such as educational institutions and non-profits, to offer affordable housing and access to sleeping quarters for employees, especially shift workers; and
- Offer home ownership education and counseling for employees.
Finally, transportation subsidies, telework options, and flexible shifts can alleviate the impact of draining commutes on employees. Be sure to work with legal counsel to evaluate housing assistance strategies for liability issues.
While employee housing can be an effective recruitment and retention tool, be prepared to address legal issues ahead of time to avoid potential liability.