This blog post is part of our ongoing series on "The Essential Guide to Hiring Onsite Property Managers."

Follow the links below to explore other parts in the series:

• Part 1: What Is an Onsite Property Manager and Why You Need One?
• Part 2: Top Responsibilities of an Onsite Manager
• Part 3: How to Hire the Perfect Onsite Property Manager
• Part 5: Common Pitfalls When Hiring an Onsite Manager
• Part 6: Should You Hire a Property Management Company?

Once you’ve successfully hired your onsite property manager, the next step is determining how to fairly compensate them. You must make sure their pay followsstate and locallabor laws.

You also need to consider other financial obligations. These include income tax, minimum wages, and rent credits if you provide housing. A well-structured compensation package motivates your manager and ensures that you, as the property owner, remain compliant with labor laws and avoid any potential legal disputes.

In this post, we will look at different pay models, legal issues, and how to balance rules with attracting good candidates.

1. Understanding Legal Requirements for Compensation

Before you finalize a pay plan for your onsite property manager, make sure it follows state and local labor laws. Each state has its own guidelines around minimum wage, overtime, and rent credits, and you must stay informed to avoid penalties.

Minimum Wages and Overtime Pay

Most states have set minimum wages that property owners must pay their employees. This includes onsite property managers. In many places, minimum wages are higher than the federal minimum. In states like California, the rules get more complicated when housing is included.

In California, an onsite property manager must earn at least the local minimum wage. You also need to pay overtime if they work more than eight hours a day or 40 hours a week. Overtime rates are typically 1.5 times the regular hourly wage.

Rent Credits and Housing Benefits

If you plan to give discounted or free housing to your onsite manager, it can change their total pay package. State and local laws often impose limits on how much rent can be credited against wages. In some cases, you can only deduct part of the rent. This could be two-thirds of the unit’s market value or a set limit.

Make sure to verify what deductions are allowed by law, so your onsite manager is fairly compensated while remaining in compliance with legal requirements.

Tax Implications for Rent Credits

Rent credits or housing benefits offered to an onsite manager can have income tax implications for both the property owner and the employee. As the employer, you are legally responsible for reporting the value of any non-cash compensation, including free or reduced housing, as part of the manager’s taxable income. The IRS requires that such benefits be treated as income unless specific conditions are met (e.g., the housing is for the convenience of the employer).

To avoid issues during income tax filing, consult a tax professional who understands the nuances of compensating onsite property managers.

2. Different Compensation Models for Onsite Property Managers

When determining how to pay your onsite property manager, several compensation structures can be considered. The choice depends on your property’s size, budget, and the scope of the manager’s responsibilities.

Option 1: Hourly Wage with Rent Credit

One common compensation model is paying your onsite manager an hourly wage while also offering a rent credit for their on-site apartment. This model is especially popular in multifamily buildings where the manager is expected to perform various day-to-daytasks like responding to maintenance requests and interacting with tenants.

For example, if your onsite manager works 30 hours a week at $18 per hour and lives in a unit valued at $1,500 per month, you could apply a rent credit that reduces their housing costs. However, be careful not to exceed legal limits for rent credits as set by your state and local laws.

• Pros: Ensures the manager is fairly compensated for their work and housing.
• Cons: The combination of income tax implications and complex rent credit calculations can be time-consuming and require professional oversight.

Option 2: Salary with Rent Included

Another option is offering a flat salary that includes housing, providing a more straightforward approach to compensation. In this model, you offer a fixed monthly salary to your onsite property manager, with rent-free living in one of the units.

For example, you might offer a salary of $2,500 per month, with the understanding that the manager’s rent is covered as part of their compensation package.

• Pros: Easier to manage payroll and ensures that the onsite manager has consistent income.
• Cons: This model may be more costly, and you must still ensure compliance with minimum wages and income tax laws for non-cash compensation. There is also an additional risk of violating existing laws in your local area related to exempt vs. non-exempt status.

Option 3: Hourly Wage Only (No Housing)

For smaller properties (under 16 units in California) or single-family homes, it is not necessary for the onsite manager to live on-site. In these cases, an hourly wage without housing benefits may be the simplest solution. The manager is compensated only for their time, with no housing provided as part of the package.

For example, if a manager works 20 hours per week at $20 per hour, you pay only for the hours worked, without worrying about rent credits or housing deductions.

• Pros: Simple and straightforward; no need to calculate rent credits or non-cash compensation.
• Cons: May require higher hourly wages to attract candidates, and the manager may not always be available for emergencies.

3. Additional Benefits for Onsite Property Managers

In addition to wages or housing, offering extra benefits can make your onsite property manager position more attractive and help retain top talent. Here are a few options:

Health Insurance

If your onsite manager works full-time, offering health insurance can be a strong incentive. Many property owners or property management firms find that providing health coverage helps attract more qualified candidates and reduces turnover.

Paid Time Off

Although your onsite manager lives where they work, they still need time off to recharge. Offering paid vacation or sick leave ensures they have time to rest, which can prevent burnout and improve long-term job satisfaction.

Bonuses

Offering bonuses tied to property performance—such as achieving high occupancy rates or timely rent collection—can motivate your onsite manager to perform at their best. Bonuses provide a tangible reward for keeping the property running smoothly and help align the manager’s interests with those of the property owner.

4. Tax and Legal Considerations

When creating a compensation package for your onsite property manager, keep in mind the income tax implications and your legal responsibility for compliance with state and local employment laws.

Income Tax Reporting

Any rent discounts or housing benefits provided to your onsite manager are considered non-cash compensation and must be reported as taxable income. Make sure to track the fair market value of the housing and report it correctly on both your manager’s W-2 and your tax filings. You may also want to withhold taxes on these benefits to ensure compliance with IRS regulations.

Legal Responsibility for Minimum Wage and Overtime

You, as the property owner, are legally responsible for ensuring your onsite manager is paid at least the minimum wage and for complying with overtime regulations. These requirements vary by state, so you’ll need to ensure that your compensation plan is legally compliant where your property is located.

For example, if your onsite property manager works over 40 hours per week, they are generally entitled to overtime pay at 1.5 times their hourly rate. You must ensure that your payroll system can accurately track hours worked and calculate overtime to avoid potential disputes or legal action.

5. Outsourcing Compensation Management to a Property Management Company

If managing payroll, income tax compliance, and legal requirements sounds overwhelming, consider outsourcing the compensation management of your onsite property manager to a professionalproperty management company. A good property management firm will handle everything—from rent collection and responding to maintenance requests to overseeing your manager’s compensation, benefits, and legal compliance.

While hiring a property management company involves a property management fee, it ensures that the complexities of payroll, tax compliance, and benefits are handled professionally, reducing the risk of errors and fines.

Creating the right compensation package for your onsite property manager is a delicate balance of legal compliance, fair wages, and offering incentives that attract the best talent. By ensuring that you comply with state and local labor laws, manage income tax implications, and offer competitive benefits, you’ll keep your property running smoothly and retain top-quality managers.

In the next part of this series, we’ll explore common pitfalls in hiring an onsite property manager and how to avoid them.

Explore Other Parts in the Series:

• Part 1: What Is an Onsite Property Manager and Why You Need One?
• Part 2: Top Responsibilities of an Onsite Manager
• Part 3: How to Hire the Perfect Onsite Property Manager
• Part 5: Common Pitfalls When Hiring an Onsite Manager
• Part 6: Should You Hire a Property Management Company?