Income, Social Security, and Medicare Taxes
The IRS considers a manager’s compensation as taxable income to the manager, so, your manager must fill out IRS Form W-4, Employee Withholding Allowance Certificate, when hired. You must deduct federal taxes from each paycheck (and state taxes if required), and turn over the withheld funds each quarter to the IRS and the appropriate state tax agency. You must provide the manager with IRS Form W-2, Wage and Tax Statement, for the previous year’s earnings by January 31, listing the employee’s gross wages and taxes that you withheld.
As an employer, you must also pay the IRS Federal Insurance Contributions Act (FICA) taxes that go toward the employee’s future Social Security and Medicare benefits.
For detailed information on income and payroll taxes and other tax and recordkeeping obligations, see IRS Publication 15 (Circular E), Employer’s Tax Guide.
A manager who is laid off, quits for good reason, or is fired for anything less than gross incompetence or dishonesty is probably entitled to unemployment benefits. To finance these benefits, you must pay a federal unemployment tax (FUTA), that varies according to your state. In addition to contributing to FUTA, you may also be responsible for contributing to an unemployment insurance fund in your state.
Minimum Wage and Overtime
Whether you pay your manager by the hour or with a regular salary, you should monitor the number of hours worked to make sure you’re complying with the federal Fair Labor Standards Act and any state minimum wage laws.
The federal minimum hourly wage is $7.25 an hour in 2013. If your state’s minimum wage is higher than the federal rate, you must pay the higher rate.
Federal wage and hour laws also require employers to pay time-and-a-half if an employee works more than 40 hours a week (with a few exceptions). Some states (most notably California) require you to pay overtime if an employee works more than eight hours in a day, even if the employee works less than 40 hours in a week.
For information on minimum wage laws, overtime rules, and recordkeeping requirements, see the U.S. Department of Labor’s website, Wage and Hour Division. Also see IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits.
Equal Pay for Equal Work
You must provide equal pay and benefits to men and women who do the same job or jobs that require equal skills, effort, and responsibility. This is required by the Equal Pay Act, an amendment to the FLSA.
Workers’ Compensation Insurance
Workers’ compensation provides some replacement income and pays medical expenses for employees who are injured or become ill as a result of their job. To cover the costs of workers’ comp benefits for employees, you’ll need to purchase a special insurance policy—either through a state fund or a private insurance company. Each state has its own workers’ compensation statute.
Most states set a minimum number of employees (generally five or more) before coverage is required. Most wise landlords obtain workers’ compensation insurance, whether or not it’s required. If you don’t, and you’re sued by a manager who is injured on the job—for example, by falling down the stairs while performing maintenance—you face the possibility of a lawsuit for a large amount of money.
Contact your state workers’ compensation office for information on coverage and costs.
When you employ a manager, even someone who was born and raised in the city where your rental property is located, you must review documents such as a passport or birth certificate that prove the employee’s identity and employment eligibility. You and each new employee are required to complete USCIS Form I-9, Employment Eligibility Verification. These rules come from the Immigration Reform and Control Act (IRCA), a federal law that prohibits hiring undocumented workers. The law, enforced by the U.S. Citizenship and Immigration Services (USCIS), prohibits hiring workers who don’t have government authorization to work in the U.S.
New Hire Reporting Form
Within a short time after you hire someone—20 days or less—you must file a New Hire Reporting Form with a designated state agency. The information on the form becomes part of the National Directory of New Hires, used primarily to locate parents so that child support orders can be enforced. Government agencies also use the data to prevent improper payment of workers’ compensation and unemployment benefits or public assistance benefits. For more information, check out the website of the federal Office of Child Support Enforcement section on New Hire Reporting.
More Information on Paying Managers
For additional details on hiring property managers, including rules that apply when you are reducing the manager’s rent as a form of payment, see Every Landlord’s Legal Guide, or, (if your rental property is in California), The California Landlord’s Law Book: Rights & Responsibilities. For a wide variety of useful articles on legal obligations of employers, see Nolo’s Employment Law Center.