The number of lawsuits filed by resident managers this past year did not decrease. If anything, they increased. And I don’t believe this reality will change until plaintiff lawyers stop liking money and apartment owners and management companies more fully understand the complex laws surrounding how to pay resident managers (and appreciate the importance of doing so).
I can’t do anything about the plaintiff lawyers, but this article will bring you up to speed on the California resident manager laws in effect as of January 2026.
The 2026 Wage Order amount for an individual manager is $954.43/month, and for a two-person management team, it’s $1,411.85/month.
Overview
Let’s start with a high-level overview. Apartments with 16 or more units with no owner onsite must have a “manager, janitor, housekeeper, or other responsible person” living on premises. With a few exceptions for certain locations, i.e., West Hollywood, that person need not work a specific number of hours but, regardless of how many hours they do (or do not) work, the law considers them to be a non-exempt (hourly) W-2 employee – not an independent contractor.
From a legal perspective, it does not matter what title you assign to this person. The law considers a “key holder” to be as much an employee as a “resident manager,” and the Labor Code’s wage and hour requirements, discussed below, never “sort of” apply. They either do or they don’t – and in this case, they do.
An onsite manager must be paid at least the minimum wage for all “hours worked” – which the law defines differently for on-site managers than for most other employees. That payment can take two basic forms: one – a “rent credit,” i.e., a discount off rent, or two – money.
There are caps in place that limit how much rent you can charge an on-site manager who must live on site, as well as how much of their wages you can pay through a rent credit.
Okay, basics in hand, let’s take a deeper dive into these issues.
You Must Pay Wages
William Shakespeare wrote, “Our praises are our wages.” Maybe, but California law does not recognize praises as wages. You need to actually pay and, although this should be fairly obvious, you must pay your on-site manager (regardless of what title you designate) at least the applicable minimum wage. Failing to do so carries significant legal consequences, including that you would owe not only the shortfall, but also “liquidated damages” equal to the shortfall. So, for example, if you short your manager four dollars per hour from the required minimum wage, you will end up owing compensation of eight dollars per hour. You also would be liable for their attorneys’ fees – often in a disproportionate amount – if they win a lawsuit on this issue.
Therefore, make sure to update your contracts to comply with the new minimum wage(s). As of January 1, 2026, the California minimum wage is increased to $16.90 (the State minimum wage adjusts annually based on the Consumer Price Index for urban wage earners). And remember that many cities and counties have their own minimum wage requirements – including Los Angeles, Santa Monica, San Francisco, Oakland, and San Diego. For example, as of July 1, 2025, the minimum wage in the City of Los Angeles became $17.87 per hour. Make sure you know the local minimum wage, if any, in the city or county in which your apartment is located, and the schedule on which it adjusts.
Also, don’t forget overtime. In California, overtime kicks in when an employee works more than 8 hours in a workday, 40 hours in a workweek, or seven days in the same workweek. To avoid owing overtime for a seventh day worked, make sure your manager takes at least one day off each week – completely work-free.
Overtime typically must be paid at time-and-a-half, meaning if you are paying $16.90 per hour, the overtime rate would be $25.35. Also, it is not uncommon for on-site managers to perform other work for their employer. If you are one of those employers, you may need to aggregate all the manager’s hours for overtime purposes; I recommend you consult a lawyer to discuss.
Different Methods for Paying an On-Site Manager
Archibald MacLeish once wrote that, “the business of the law is to make sense of the confusion of what we call human life – to reduce it to order but at the same time to give it possibility, scope, even dignity.” I am willing to bet Mr. MacLeish never employed an on-site manager; paying resident managers is complicated, and the laws help create the confusion.
Having said that, there exist two main ways to pay an on-site manager: (1) a rent credit, and (2) out-of-pocket payment of wages, often involving a “check exchange.”
- Payment Method One: a rent credit – One way to pay a resident manager is to use a
rent credit, i.e., discounting their rent and allocating the discount towards payment of wages. But you can only use a rent credit if you have a signed employment agreement allowing you to do so. Without one, the law gives you no credit for any rent discount you provide and you will be deemed to have paid nothing. As a result, you will still owe unpaid wages, liquidated damages, penalties and, possibly, attorney’s fees.
The law also caps how much rent discount you can apply towards wages. As of January 1, 2026, this “rent credit cap” for an individual manager is the lower of (1) 2/3 the ordinary rental value of the apartment, or (2) the number contained in a publication called Industrial Welfare Commission Order No. 5-2001 (“Wage Order”). This latter number is adjusted annually. The 2026 Wage Order amount for an individual manager is $954.43/month, and for a two-person management team, it’s $1,411.85/month.
So, for example, assuming an individual manager, if the ordinary rental value of the apartment you are offering is $1,200, then the rent credit cap would be $800 (2/3 of $1,200), which is lower than the Wage Order number. Accordingly, the most rent discount you could credit towards wages in a given month would be $800, and anything earned above that amount would need to be paid out of pocket. But if the ordinary rental value of the apartment you are offering is $2,700, then the rent credit cap for an individual would be the Wage Order amount ($954.43) – which is obviously lower than 2/3 of $2,700 (i.e., $1,800).
Please note also that if your resident manager must live on-site, the law also limits the amount you can charge for her use of the apartment you provide. This “rent cap” follows the same formula as the “rent credit cap” numbers, i.e., you cannot charge more than (1) 2/3 the ordinary rental value of the apartment, or (2) the Wage Order number – whichever is lower.
How the “rent credit cap” (the cap on how much rent discount you can use towards paying wages) and the “rent cap” (the cap on how much rent you can charge) work together is confusing, continues to be subject to interpretation, and is beyond the scope of this article. I therefore recommend that you consult a lawyer who understands how this all works if you want to use a rent credit to pay your on-site manager and also charge her rent.
- Payment Method Two: paying out of pocket – you can also simply pay the on-site
manager out-of-pocket, i.e., with a paycheck (or direct deposit), as you would pay any other employee. This often involves an arrangement commonly known as a “check exchange,” in which you pay wages to your manager and, separately, the manager pays you rent. One advantage of using a check exchange is that when determining the rent cap (how much rent you can charge), you can ignore the Wage Order number and instead charge up to two-thirds of the fair market rental value of the apartment. Note that you can never charge the full rent if the manager must live on site; you must discount the rent by at least one-third of the apartment’s fair market rental value as part of the “privilege” of employing an on-site manager.
Time Records
The law requires you to maintain time records that show when your manager started and stopped working – including for any meal breaks – and the total hours worked each day. But even were this not a legal requirement, you would want to obtain and keep time records because they are the best defense you have against a claim by the manager – often made years after the fact – that they were not paid for all the hours worked. Nearly every resident manager’s wage and hour lawsuit I handle is made possible, so to speak, by an absence of credible time records.
For this reason, it is critical the information your manager places on time records be authentic and beyond dispute. For example, in most cases, if the records show identical times worked every day, those records probably are not being faithfully kept, since the nature of an on-site manager’s job, by definition, tends to involve inconsistent hours. Of course, there are exceptions to this rule.
Also remember that if you hire a couple, each member of the couple must record their own time and you must pay them separately – each at least the minimum wage for their time worked.
One last point on this: “hours worked” for on-site managers who must live on site does not include downtime or waiting time. You want to make that clear up front to your manager to avoid misunderstanding – preferably in a well-drafted employment agreement.
Payment and Wage Statements
Like most California employees, resident managers must be paid at least twice per month. With each payment, the resident manager should receive a “wage statement” that includes, among other information, the total hours worked (another reason you need the time records) and their hourly rate(s).
The obligation to provide a wage statement exists even if you are paying with a rent credit; remember, the rent credit (when done correctly) is the payment, and the wage statement should reflect as much. The Labor Code assesses penalties for not providing an accurate wage statement.
Meal and Rest Breaks
Employees in California who work more than five consecutive hours in a workday must be given an opportunity to take a 30-minute meal break no later than the end of the fifth hour of work. This applies to resident managers as well. So, for example, someone who starts working at 8:00a.m. and continuously works must be afforded a meal break no later than 1:00p.m. Claims of missed meal breaks are common, so while on-site managers often make their own schedule and can take breaks when they want, you definitely want to document their understanding that they are entitled to an uninterrupted meal break and make sure their time records reflect such breaks. If an employee’s time records do not reflect a meal break, the law presumes one was not received – a presumption that can be challenging and costly to rebut.
Employers must also permit uninterrupted rest breaks of at least ten minutes when the resident manager’s total daily work time is at least three and one-half hours.
Sick Leave
Per California law, employers must provide at least 40 hours of paid sick leave each year. In addition, many locations within California have their own local sick leave requirements, including the City of Los Angeles, which requires at least 48 hours.
There exist various methods of accruing an employee’s sick leave hours, so you may want to consult an attorney to make sure you are using the best method for your situation. Whatever method you use, you must provide the employee, either on their pay stub or otherwise, with a regular accounting of how much sick leave has been accrued and used.
‘Know Your Rights’ Act
Lastly, please note that on or before February 1, 2026, and annually after that, every California employer will need to provide a stand-alone written notice to every current employee – and to every new employee upon hire – containing a description of workers’ rights in various areas, including (among other things) workers’ compensation, inspections by immigration agencies, and Constitutional rights when interacting with law enforcement. The Labor Commissioner is supposed to be developing a template that employers can use to comply with these new requirements.
I wish you a wonderful year of favorable legislation, good health, and economic prosperity.
Gary Ganchrow chairs the Litigation Department at the 112-year-old downtown Los Angeles law firm of Parker Milliken Clark O’Hara and Samuelian; has served as an Adjunct Professor at the USC School of Law; and is a frequent contributor to AOA Magazine. He regularly advises on, litigates and writes about a variety of employment, property management and business matters, and can be reached at 213-683-6535 and gganchrow@pmcos.com. This article is for informational purposes only and should not be considered legal advice or establishing an attorney-client relationship.