Unable to buy workers comp insurance - weird ?!

I have a property management company (an individual) who basically just moved into one of my units, so is now technically an employee I assume because they live on site.

So, they get discounted rent. It sounds like unemployment insurance, W-2’s arent necessary because there’s no actual cash going to the “employee.” Right?

My state says I need workers comp, however, the insurance company says they write a policy unless there is a W-2. This is weird. Not sure if I need another insurance company, but I am using one of the largest out there and figured this was pretty common situation.

You cannot assume a person is an employee because they live onsite. The IRS uses different criteria including the following:

  1. who controls their hours
  2. who specifies the methodology of how they work
  3. who provides their equipment.

I’m sure there are others but location of habitation is not one of them. For more information, there is a famous Microsoft “Permatemp” case from the 2000s vintage in which the independent contractors sued to be retroactively considered employees, thus entitling them to benefits and stock options, and Microsoft lost.

Paying for rent could be considered compensation, which would trigger the need for workers comp. If the rent payment is compensation, you may have to issue a W2 and withhold taxes on that compensation, but you are best asking a CPA for the correct answer.

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You have two questions in one here.

(1) Is this person an IC (and paid via 1099) or an employee (W-2)? There’s a tax difference (federal tax law) but also each US state may use its own view of the situation to determine what your responsibilities are (employment law, etc). This is a really thorny area and you should get legal advice from a local lawyer. Your insurance agent should be able to point you in the right direction.

(2) If they’re an employee, with respect to discounted rent, see IRS Pub 15-B: Publication 15-B (2021), Employer's Tax Guide to Fringe Benefits | Internal Revenue Service

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I recommend you paying them a salary & then charging them rent/lot rent. It is better then ‘crediting’ them for their rent for numerous reasons.

Much accurate information above. Here’s more:

  1. There are many penalties for erroneously paying a worker as a contractor when the worker is actually an employee. The only penalty for paying a worker as an employee when they may be more fairly characterized as an employee is the trouble of withholding and the SS match;
  2. Workers comp carriers treat “free lot rent” as paid compensation and charge based on that
  3. There are WC companies that will quote and insure a park owner that only pays their manager employee with free rent.
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Casey,

Interesting. Can you name a couple? I was not aware of this.

We have a similar situation at one of our parks.
The on-site staff only gets free rent and we do not issue a W-2.

We had a WC policy with Employershttps://www.employers.com/workers-compensation/. Unfortunately the minimum policy premium was about $600/year. But they allowed us to have rent as the only income.

You can legally pay someone via Lodging.

30c01 Facilities furnished under section 3(m).
(a) Section 3(m) of the FLSA permits an employer, under conditions specified in 29 CFR 531, to count toward its minimum wage obligation, the reasonable cost of furnishing board, lodging, or other facilities which are customarily furnished to employees. Section 3(m) also authorizes the Secretary of Labor to determine the fair value of the board, lodging, or other facilities based upon average cost to the employer or to groups of employers similarly situated, or on the average value to groups of employees. Where reasonable cost under section 3(m) has been established by an employer and appears to be excessive in relation to the facilities furnished, it will be necessary to ascertain whether the fair value of the facilities in question is lower than the reasonable cost. If so, the employer must use the fair value rather than the reasonable cost in determining its wage obligation. In no case will the fair value be utilized where it is greater than the reasonable cost.

It helps remove liability on your business. It also shows income accurately on your rent roll & the books that you’re receiving actual lot rent from each lot and not providing a huge credit for that specific lot – this will be very helpful especially if you ever plan to refinance/sell etc. If you have the person on payroll, then they’ll be covered by workers comp. If they are not an employee, on payroll, they won’t be able to be covered by workers comp.

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