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Accounting for the Value of Employer-Provided Lodging

While both the Fair Labor Standards Act (“FLSA”) and Connecticut law permit an employer to include the reasonable value/cost of lodging provided to an employee as part of such employee’s wages towards the minimum wage, employers need to pay close attention to the differences between federal and state law. 

Under the FLSA, an employer may credit against its minimum wage obligations the “reasonable cost” to the employer of furnishing the employee with lodging.  The FLSA regulations define reasonable cost as the actual cost of the lodging provided, i.e. “the cost of operation and maintenance,” meaning that the employer cannot make a profit.  29 C.F.R. § 531.2 et seq.   As an example, if a hotel employer furnishes a room to an employee that costs guests $100 per night, the hotel may not simply consider $100 per night as the employee’s wages, but may only account for its actual cost for the room.  This is the case except in the unlikely event that the actual cost is greater than the fair rental value, in which case the fair rental value is used.

Similarly, Connecticut law provides that wages may include the reasonable value of lodging if that condition is known to and accepted by the employee.  Unlike the FLSA, however, Connecticut law states that where housing consists of more than 1 room, the reasonable allowance that may be deducted is “guided by the prevailing rentals for similar quarters including those authorized by the local housing authority in privately or publicly funded housing.”  Conn. Agency Regs. § 31-60-3(f).   

Connecticut courts have recognized the distinction between federal and state law.  In turn, where an employer improperly credits the value of lodging, an employee is entitled to recover an amount equal to whichever calculation provides the greater remedy.  Thus, where the FLSA generally sets the higher bar by authorizing an employer to account only for the actual cost of the lodging provided, as opposed to the prevailing rental value as authorized by CT law, employers are encouraged to abide by the FLSA calculation. 

Significantly, the FLSA and the case law provide that an employer may not account for the value of lodging if the employee is required to live on the employer’s premises for the benefit of the employer.  For example, an on-site hotel manager that is required, as a condition of employment, to live at the hotel and be available to greet guests arriving late at night or to be on-call for similar duties for the employer’s benefit is entitled to that lodging without the value being factored into wages. 

Lastly, it is important to note that the employer is required to maintain records that prove the cost of the lodging.  Where an employer fails to provide evidence of the cost to furnish an employee with housing, courts have routinely denied offsets under the FLSA.