Employee Housing Assistance—legal Considerations for California Public Agencies

• Publication year: 2020
• Author: By Kelly Tuffo, Heather DeBlanc, and Oliver Yee

Employee Housing Assistance—Legal Considerations for California Public Agencies

By Kelly Tuffo, Heather DeBlanc, and Oliver Yee

Heather DeBlanc and Oliver Yee are Partners and Kelly Tuffo is an Associate at Liebert Cassidy Whitmore, one of the largest private sector and public employment firms in the U.S.

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. Local affordable housing for employees and candidates can improve employee recruitment and retention, strengthen the connection between employees and the communities they serve, increase employee availability for overtime shifts, reduce traffic congestion, and keep tired shift workers off the road.

There are, however, a myriad of legal considerations and compensation issues that public agencies should evaluate before offering employee housing as a fringe benefit, including the following:

I. 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.¹ In California, even lodging that complies with these requirements is subject to State Unemployment Insurance, Employment Training Tax and State Disability Insurance.² Employers should be aware that California has special rules pertaining to the calculation of the estimated cash value of lodging to an employee.³

II. 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.⁴ Possible exceptions exist where a collective bargaining agreement excludes the cost of lodging from wages, and where the arrangement primarily benefits the employer.⁵ Whether an arrangement primarily benefits the employer is determined by balancing the relative benefits to an employer and employee.⁶ Because this is somewhat uncharted territory, agencies are advised to seek legal counsel to assess regular rate calculations related to employee housing.

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III. IS THE VALUE OF EMPLOYEE HOUSING PENSIONABLE COMPENSATION?

Probably not. For "new members" under the Public Employees' Pension Reform Act (PEPRA), any employer-provided allowance, reimbursement, or payment for housing is excludable from pensionable compensation.⁷ 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.⁸ With the exception of State employees, the CalPERS retirement system does not consider employee housing costs to be compensation earnable for "classic" employees.⁹

IV. DO PUBLIC AGENCIES HAVE TO NEGOTIATE WITH LABOR...