At first glance, an employer-employee housing agreement appears to be a residential lease tied to an employment contract. It looks as if a person has to remain an employee in order to stay in the residence. Yet this is not always the case. An employer can take two different approaches to offering employee housing: creation of a license or creation of a tenancy.
How a License Works
In this situation, a license is defined as permission to use the property as a residence. An employer can tie a license to the resident’s employment. If the resident stops being an employee, the employer can immediately terminate or revoke their license to use the property as living accommodations.
When an employer offers an employee this type of right, the license created is a revocable license. The downside to a license is that the housing can be treated as part of an employee’s wages, which could increase the amount of overtime the employer has to pay. An employer must be careful not to require an employee to be on call continuously or work under conditions that would violate federal, state and local labor laws.
How a Tenancy Works
A tenancy is an arrangement in which the employee pays rent to the employer to live in the residence. The downside to a tenancy is that the employer cannot evict the former employee immediately after terminating them, but must follow state and local laws regarding eviction.
The employer must also be careful to avoid evictions related to unlawful discrimination, such as eviction for the employee having a certain sexual orientation. Such evictions may violate federal, state and local laws regarding housing and employment. Examples of such laws include the federal Fair Housing Act and California’s Fair Employment and Housing Act (FEHA). Federal laws usually set a minimum threshold of protection; state and local laws may offer stronger protections.
Arrangements Can Be Taxable
The Internal Revenue Service (IRS) refers to employer-provided housing as lodging. An employee can be taxed for the value of the housing if they accept it because the IRS sees housing as a fringe benefit of employment. A state may tax an employee for receiving the value of the rent. Typically, a state considers the value of such a benefit to be part of the employee’s income.
An employee may also be taxed on employer-offered discounted housing. Usually the employer does the work to determine the fair market value of the lodging. The employer will work with a realtor to find comparable rental properties and will then enter the net value of the lodging benefit in Box 1 of the employee’s W-2 form. The employee should declare this as income on Line 7 of IRS Form 1040.
There are situations in which an employee does not have to pay taxes on the value of the housing, but the housing must meet a three-pronged test. The housing must be provided on the employer’s business premises, be for the employer’s convenience, and the employee must accept the housing as a condition of employment. There are different tests for lodging provided by educational institutions.
If the employer allows an employee to choose to receive additional pay instead of lodging, the lodging is not excluded from the employee’s wages. The employer cannot exclude the value of a cash allowance for lodging.
Qualifying and Non-Qualifying Housing
Examples of housing for which an employee would not be taxed include an employer-owned cabin near a remote work site or a berth on a fishing boat on which the employee works. An example of housing for which an employee would be taxed includes a room at a hospital where the employee works, with the employee being offered a choice of living at the hospital for free or given a cash allowance to live elsewhere.
If an employer changes a condition of the job in the middle of the employee’s term so that the employee does not have to live on site as a condition of employment, the employee will be required to pay taxes on the value of the rental for the housing unit for the period that the employee lived on site.
Nature of a Service Agreement
A service agreement is an agreement or contract between two entities. In a service agreement, one party provides a service for the other party. Such an agreement binds both sides. When the agreement is between an employer and an employee, it can be considered an employee service agreement.
Certain service agreements must be in writing. In California, an employment contract that cannot be performed in one year or less must be in writing. It must also be signed by the party against whom it will be enforced. An agreement for a leasing period longer than one year must also be in writing in order to be enforced.
Employer-Landlords Bound By Standards
When an employer offers a residence to an employee, the residence cannot provide substandard living conditions. If the employer attempts to use a license or tenancy to house an employee in a unit that does not comply with the state and locality’s requirements for residences, the court is likely to find the employer in violation of numerous state and local laws. The requirement that a residential unit must be fit for occupancy, or tenantable, is known as the warranty of habitability.
In California, the warranty of habitability maintains that a residential unit is untenantable if it does not meet specific conditions. For example, a landlord has violated the warranty if the doors and windows are broken and the water system is not capable of producing hot and cold running water. Further requirements are that a unit must have heating facilities and electrical lighting maintained in good working order. The building and grounds must be kept clean and free from accumulations of debris and vermin.
Cities and counties may have additional requirements for habitability of residential units. For example, the San Francisco Housing Code requires that a residential unit have a permanent heating source capable of maintaining a minimum room temperature of 70 degrees F at a point three feet above the floor in all habitable rooms, but not bathrooms and hallways.
Payment of Utilities
The lease, or agreement, should state whether the landlord or tenant pays for utilities. State laws may affect which party is required to pay. In California, either a landlord or a tenant may pay for utilities.
Terms of Monthly Rent and Payment
State and local laws determine how much a landlord can charge a tenant in rent. A residential unit may be under rent control. This means that even if the employer gives the employee a raise to pay for an increase in rent, the employer-landlord can still only raise the rent by the percentage that state and local laws allow.
Housing Rules for Tenants
Typically, landlords have rules that tenants in residential units must follow. For example, in an apartment complex, tenants may be required to keep noise down between 10 p.m. and 8 a.m. A tenant who wants to move out must not block other tenants’ vehicles with their moving truck. A tenant may have to limit occupancy to four or fewer people per unit. The lease should state the rules.
A landlord-employer should avoid writing employment-related rules into a residential lease agreement. For example, it could be problematic for an employer-landlord to require employee-tenants to wear work uniforms after their shift is over and while they are outside on the grounds of a residential complex. If the court sees such rules as overreach, it could strike such rules from the lease.
Custodians of the Complex
Some states, such as Arizona, have specific statutes that reveal exceptions to landlord-tenant protection laws. One such exception is when an employer offers housing to an employee who lives on the premises and has a job that involves caring for the premises. Even when the statute contains such an exception, it is a good idea for the employer-landlord to create a written agreement that makes it clear that the employee is not a tenant.
The contract should state that if the employee is terminated, they will have to leave the unit within a specified number of days.
Evictions and Unlawful Detainer Actions
Laws regarding evictions differ by state, and cities and counties may have additional requirements regarding eviction. For example, California requires a landlord to follow these steps in order: The landlord must give notice, fill out forms, file the forms in court, serve the forms on the tenant, await the tenant’s response, undergo an eviction trial, evict the tenant and collect the judgment if rent is due.
When a tenant, including a former employee, remains in a residential unit after they were terminated from employment or they have not paid the required rent, the landlord can make use of particular state laws that allow them to require the tenant to vacate the premises quickly. The names and provisions of these laws vary. In California, it is called the unlawful detainer statute.
An employee who is concerned that they might lose their job and their housing should talk to an attorney who is versed in employment and housing law. Housing law that pertains to rentals is also known as landlord-tenant law.
Lockouts and Personal Property
Even when an employee has been terminated and is no longer allowed to live on the premises, the former employer-landlord should seek to avoid a lockout situation. If the court deems the employer to have cast out a former employee too quickly or not allowed them access to their belongings, it could award damages to the former employee. An employer should also avoid seizing, destroying or selling a former employee’s personal property in the event of an eviction or lockout. Such an action could be seen as unlawful workplace retaliation under certain circumstances.
H-2A Employees and Housing
Employers have unique legal obligations for certain classes of employees with regard to housing. One such arrangement is an employer’s requirement to provide temporary housing at no cost to an H-2A worker. An H-2A worker is an employee from another country who is allowed to stay in the U.S. to engage in temporary, seasonal agricultural work. If an employer does not offer free housing for an H-2A worker, they are not allowed to offer employment to a H-2A worker.
COVID-19 and Housing
The federal government, states and localities have passed specific laws to protect people from being evicted from residences during the COVID-19 pandemic. For example, California has protected renters from eviction for non-payment of rent through June 30, 2021. The law affording the protection is the California Tenant, Homeowner and Small Landlord Relief and Stabilization Act of 2020.
When a court determines that a former employee was a tenant, it is likely to rule that they were protected from eviction until the date the protection expired. It is unclear whether a court will see a former employee who had a revocable license as having the same protections as a tenant. COVID-19 has posed an extreme public health risk, so it is quite possible that a court may treat the two classes of individuals similarly. The details regarding the former employee’s employment, the living arrangement and the conditions under which they were terminated can help the court make its decision.
- U.S. Department of Labor: Fact Sheet #26: Section H-2A of the Immigration and Nationality Act (INA)
- California Courts: New Laws Apply to Eviction Cases
- California Courts: Eviction
- California Civil Code Section 1941: Implied Warranty of Habitability
- Superior Court of California, County of Riverside: Post-Judgment
- Encyclopedia Britannica: License, Property Law
- U.S. Internal Revenue Service: Publication 15-B (2021), Employer's Tax Guide to Fringe Benefits
- California Civil Code: Section 1624 Contracts
- California Civil Code: Section 1941.1 Hiring of Real Property
- San Francisco Housing Code: 2019 Edition
- Arizona State Legislature: Section 33-1308, Exclusions From Application of Chapter
- California Civil Code: Section 1161.4 Unlawful Detainer
- U.S. Internal Revenue Service: Form 1040
- U.S. Department of Housing and Urban Development: Housing Discrimination Under the Fair Housing Act
- California Department of Fair Employment and Housing: Employment Discrimination
Jessica Zimmer is a journalist and attorney based in northern California. She has practiced in a wide variety of fields, including criminal defense, property law, immigration, employment law, and family law.