Avoiding hidden liabilities with employee housing agreements

published in McAfee & Taft AgLINC | July 1, 2012

By Nathan Whatley

Farms and ranches of various sizes often provide their employees with some form of housing in addition to the wages they are paid. Little thought typically goes into the legal status of the housing arrangement. This is unfortunate because if employee housing is not handled properly, it can create real liability for agricultural and equine operators. A good way to protect your operation from liability is to have a written housing agreement. Some key considerations for employee housing agreements are addressed here.

Is your employee a tenant?

An initial decision to be made when it comes to employee housing is whether you want your employees to occupy your housing as a tenant, or under a license. A license means that the employee is there under the owner’s permission, and housing is connected directly to his or her employment. It is easier to evict an employee if the employee occupies the housing under a license. However, there is a much greater risk for the housing to be treated as part of an employee’s wages, which could drive up overtime pay. If the employee is treated as a tenant, it is easier to separate housing from an employee’s wages. The downside to tenancy is that it is not as easy to evict the occupant after employment has been terminated. State law sets the legal minimum amount of notice that must be given prior to eviction of a residential tenant. The minimum is usually 30 or 60 days, depending upon the type of lease.

Whether the housing arrangement will be through a license or tenancy is your choice, but it needs to be established through a written agreement.

Who will be allowed to occupy the property?

An employee housing agreement should state who can and cannot live in the house. It is recommended that only the employee, spouse and minor children be allowed to live in the property. Any additional person or persons who wish to occupy the house must be approved by the owner in writing. Having a written housing agreement helps owners clearly communicate their expectations related to occupancy of the housing and maintain control of the housing property.

What are the rules for those occupying the property?

An employee housing agreement should include clear written rules. One issue that commonly arises is whether the employee may bring animals onto the property. Any kind of animal is a potential for liability so the agreement should require health records for pets, as well as require that an employee obtain written permission from the property owner before an animal is brought into the housing. The agreement should also prohibit employees from having animals that are banned by law.

Rules that prohibit children from playing in non-safe areas, such as traffic thoroughfares and animal pens, can also be written into a housing agreement. It should also be stated that employees cannot bring children to work with them. A written housing agreement can also prevent derelict cars on property, establish quiet hours, limit alcohol use, and make employees responsible for visitors.

Who will pay for utilities?

State in the written agreement who is responsible to pay for utilities. In many instances you may wish to establish utility services in the employee’s name. Alternatively, the amount the property owner will pay for utilities can be capped in the agreement.

Should you charge the employee rent?

Some owners may choose to charge their employees rent. One benefit to charging rent is that if an employee goes out on workers’ compensation leave, it simplifies the employee staying in the house. If the employee stops paying rent, he or she can be evicted. On the other hand, if rent is not charged, an employee who is evicted might claim that he or she was retaliated against for filing a workers’ compensation claim.

Another issue to be wary of is paying rent on behalf of an employee. Such a cash payment will likely be construed as a wage, which can increase payroll taxes and overtime wages.

What rights do you have to inspect employee housing?

Your employee housing agreement should establish the right to conduct periodic inspections. Inspections should be performed at least once per year. After inspecting the property, perform any necessary repairs.

Additional issues to consider in your employee housing agreements include whether to require renter’s insurance and whether the farm or ranch’s liability insurance will cover losses associated with a leased or licensed property.

Employee housing is an issue that too many farmers and ranchers are not giving enough attention. There are many options for managing employee housing, but an owner can quickly lose control and open the door to significant liability if an appropriate agreement is not put in place.

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