MyHR often gets questions from clients and employers about whether they can provide accommodation for their employees, and how this affects their remuneration and tax obligations.
They may want to make it easier to attract and retain good workers, the work may be casual or seasonal, or the business may be in an area with a shortage of rental accommodation, e.g. Queenstown.
The simple answer is ‘Yes’, you can provide your employees with accommodation, but as with most commercial relationships, there are many legal and practical issues to consider.
So, let’s take a look at the details around providing employee accommodation and how to manage being an employer and a landlord.
Employee accommodation scenarios
There are various scenarios for providing accommodation to your employees. It might be you have a dwelling on your property or let the person stay in a room in your own house.
You may have arranged for a third party to provide accommodation, e.g. a motel, in which case, the motel or other person/organisation would be the landlord. Or you may offer an accommodation supplement as part of their remuneration package.
However, the most common scenario we see is when a business-owner employs someone (or more than one person) and provides accommodation to the employee(s). This is called a service tenancy.
Once you agree to employment and tenancy, you now have two relationships with this person: one as an employer and another as a landlord.
Service tenancy
In a service tenancy, an employer provides accommodation for a worker to live in during their employment. Even if you provide the accommodation and don’t charge rent, it’s still a service tenancy.
You must have a written tenancy agreement with your employee. We recommend you have a separate tenancy agreement and employment agreement.
It’s best practice to refer to the tenancy arrangement in the employment agreement, including the details of any deductions from their pay to cover rent (and services etc), but the majority of the terms and conditions should live in the tenancy agreement.
You can’t directly pay an employee in accommodation only. Payment for work must be in money. However, rent can be deducted from the tenant’s wages, if your employee has agreed to this.
If there is no specific agreement about the cost of accommodation, you can’t deduct more than 15% of the employee’s wages for board, or 5% for lodging.
If there is a bond, it can’t be more than 4 weeks’ rent and must be lodged with Tenancy Services.
Landlords can only give notice to end a service tenancy if the tenant’s employment has (or will) come to an end, or if the tenant has repeatedly breached the terms of the tenancy agreement. Notice is 14 days or more.
Learn more about service tenancies at Tenancy Services.
Keys to the employment relationship
As an employer, you are bound by the Employment Relations Act (2000), which means there are some basic housekeeping requirements you have to get right.
As mentioned, you need to have a written employment agreement for every employee ($1,000 is the maximum penalty you could face for not having one). There are basic clauses you must have in the agreement, and be sure to include any others that fit your business, industry, or circumstances.
You also need to ensure the person is allowed to work in New Zealand i.e. they are a New Zealand or Australian citizen or have a visa that allows them to work.
Then there are minimum entitlements you need to provide to all your employees - e.g. paying them at least the minimum wage, giving them minimum holiday and sick leave entitlements - as well as tax (PAYE, ACC) and record-keeping (hours worked, wages paid, leave taken etc.) requirements.
Make sure your wage records include the wages payable before you deduct the agreed cost of accommodation.
Keys to the rental relationship
As a landlord, you are bound by a number of different pieces of legislation. The Residential Tenancies Act 1986 and the Healthy Homes Standards set minimum standards for rental housing and require landlords to provide and maintain rental properties in a ‘reasonable’ state.
You need to make sure the accommodation meets required tenancy standards, such as being soundly built from weatherproof materials (sorry, no caravans or tents), has ceiling and underfloor insulation, and appropriate working smoke alarms.
There are also national minimum standards under the Housing Improvement Regulations 1947, e.g. the house must have a kitchen with a stove/oven and sink, a toilet for the exclusive use of the occupants, a living room, bedroom, and bathroom, adequate provision for washing clothes.
Local councils may also have minimum standards that apply, as well as any council regulations on dangerous and unsanitary buildings.
If the building is new, it needs to comply with the Building Act 2004.
What arrangements aren’t service tenancies?
Service tenancies are only for accommodation that the tenant lives in permanently while they are employed. So if the provided accommodation is not their permanent address - e.g. workers on offshore oil & gas rigs, construction workers who fly in and fly out (FIFO) on remote projects, live-in carers who return home on weekends - it’s not a service tenancy.
If you require the employee to stay in the accommodation in order to perform their duties, e.g. a farm worker, this is called a service occupancy and is exempt from the Residential Tenancies Act. Instead, the terms need to be covered in the employment agreement.
If the accommodation is occupied by six or more tenants and has shared facilities, this is considered a boarding house. The tenancy is governed by the Residential Tenancies Act, but you need to have a boarding house tenancy agreement.
If you’re not sure about what constitutes a service tenancy, get advice.
Health and safety requirements
As an employer, you are bound by the Health & Safety at Work Act (2015). This means you are responsible for ensuring the health and safety of your workers and others, including the public, “so far as is reasonably practicable”.
If you also provide accommodation to your workers, you must, so far as is reasonably practicable, maintain the accommodation so workers are not exposed to health and safety risks arising from the accommodation.
Tax implications
Providing accommodation to an employee in connection with their work makes the value of the accommodation taxable, excluding a few scenarios, e.g. FIFO workers. There may also be tax breaks, e.g. mortgage interest deductibility if the business owns the rental property.
There are many considerations for tax, so find out more from Inland Revenue.
And talk to your accountant.
Things to watch out for
- Not exerting “undue influence” over an employee’s decision to take up your accommodation. The job can’t be dependent on the employee staying in the accommodation.
- Providing notice on the property - you can only do this if employment is ending too.
- Letting their conduct as a tenant influence the way you treat them as an employee, or vice versa.
- If you are providing accommodation for Recognised Seasonal Employer (RSE) workers, there are some restrictions that apply in certain regions. Find out more at the Immigration NZ website.
Managing disputes
You need to keep your relationships with the employee/tenant separate. So, if you have issues with the person’s performance or behaviour at work, manage it as an employer.
In the first instance we recommend talking to the employee about it. Discuss the issue(s) and be clear about what your expectations are. Give the employee space to give their side of the story and to provide input on solutions.
If things don’t improve, you could consider disciplinary action or initiating a performance improvement plan (PIP).
If you have issues with the person’s behaviour at, or caretaking of, your accommodation, manage it as a landlord. Again, start by talking to them about it, and refer to the tenancy agreement about what is expected.
If you need more advice or help, Tenancy Services offers a range of support.
Ending a service tenancy
When employment ends
A landlord can only give notice to end a service tenancy if the tenant’s employment or engagement has ended or is due to end, e.g. at the end of a fixed-term agreement, or if the employee resigns.
The notice period is 14 days (unlike other tenancies), and can be shorter in cases where the landlord:
- Has reason to believe the tenant will substantially damage the premises if they stay for the full 14 days, or
- Needs to have a new employee in place in less than 14 days, and no other accommodation is available for the new employee.
You must give notice in writing.
When employment doesn’t end
The employer/landlord can end the tenancy if the tenant repeatedly breaches the tenancy agreement, e.g. they haven’t paid rent, anti-social or unacceptable behaviour, physical assault. You need to apply to the Tenancy Tribunal for termination of the tenancy.
Otherwise, you can give written notice as for a periodic tenancy. The length of notice depends on the reason for ending the tenancy, but is either 63 or 90 days.
If the employee/tenant wants to move out of the accommodation, they must give 28 days’ written notice.
