Answer: Employers may only take advantage of section 3(m) if the lodging is “furnished regularly by the employer to his employees or if the same or similar facilities are customarily furnished by other employers engaged in the same or similar trade, business, or occupation in the same or similar communities.”

For example, live-in domestic service employees (such as home care workers and nannies who live at the home where they provide services) often reside at their employers’ private homes without paying rent, so this requirement is met for those workers. Similarly, agricultural workers are often provided housing during harvest season by their employers, so this requirement is met for workers under those circumstances as well.

Question: How do you determine if the employee “voluntarily accepted” the lodging?

Answer: Employees must accept lodging voluntarily and without coercion in order for an employer to take advantage of section 3(m). DOL will normally consider the lodging as voluntarily accepted by the employee when living at or near the site of the work is necessary to performing the job.

For example, this requirement is typically met when a live-in domestic service employee and the employer have an understanding that the employee will live on the premises as a condition of employment, or when an apartment complex provides a free apartment to the complex manager.

In other circumstances, DOL will look for an indication, such as a written agreement, that the employee voluntarily agreed to live in a residence provided by the employer.

Question: What does it mean for an employee to receive the “primary benefit of the lodging” in the section 3(m) context?

Answer: Lodging is ordinarily presumed to be for the primary benefit and convenience of the employee unless there is an indication that the lodging is of little benefit to employees, such as where an employer requires an employee to live on the employer’s premises to meet some need of the employer.

It’s likely that an employer may not claim the section 3(m) credit if the employer requires the employee to leave an existing home and live on the employer’s premises to be ‘on call’ to meet the needs of the employer.

Question: When is housing “adequate” for purposes of whether an employer can claim a section 3(m) credit?

Answer: Whether the employer has provided an employee with adequate lodging is a factor that may help determine who primarily benefits from the living arrangement and the lodging provided—and therefore whether an employer may take the credit.

For example, if an employer provides an employee with private living quarters such as a separate bedroom that is furnished (with, for example, a bed, night table, and dresser) where the employee is able to leave her belongings and spend her off-duty time, those facts are indications (to be considered along with other facts about the arrangement) that the primary beneficiary of the lodging is the employee.

Similarly, if the employer provides the employee with access to a kitchen and a private bathroom, such facilities support a finding that the lodging is primarily for the benefit of the employee (although such facilities are not a prerequisite for taking the section 3(m) credit). Such private quarters typically ensure that the employee is able to engage in normal private pursuits, as she would in her own home.

Question: How does an employer comply with the requirement to keep accurate records with regard to section 3(m)?

Answer: An employer claiming the section 3(m) credit must generally keep two kinds of records: (1) records regarding the cost to the employer of providing the housing and (2) records regarding wage calculations taking lodging into account.

Records regarding the cost to the employer of providing the housing should show how much money the employer spends on the housing, such as proof of mortgage or rental payments and/or utility bills. With respect to live-in domestic service employees only, an employer that does not provide such records may claim a certain amount—up to 7 ½ times the statutory minimum hourly wage for each week lodging is furnished toward wages, rather than the reasonable cost or fair value of the housing provided.

Records regarding wage calculations must show section 3(m) additions to, or deductions from, wages if those additions or deductions affect the total cash wages owed. Specifically, if because of a section 3(m) credit, an employee receives less in cash wages than the minimum wage for each hour worked in the workweek, the employer must maintain records showing on a workweek basis those additions to or deductions from wages. An employer must also maintain such records if an employee is owed overtime in a workweek and the employer has taken a section 3(m) credit.

Question: How do you determine the amount of a section 3(m) credit?

Answer: The section 3(m) credit may not exceed the “reasonable cost” or “fair value” of the facilities furnished, whichever is less. If the actual cost to the employer exceeds the rental value of the lodging, or the employer otherwise establishes a “reasonable cost” that appears to be excessive in relation to the facilities furnished, the employer may only count the lower, fair value of the lodging toward wages.

Similarly, an employer may only use the fair value of housing as the amount credited toward wages if that amount is equal to or lower than the amount the employer actually pays for the housing.

Calculations

The WHD provided a couple of examples on how to calculate minimum wage and overtime for a live-in domestic service worker:

Example 1: Assume a live-in domestic service employee (including home care workers) receives $6 per hour as well as room and board, for which the reasonable cost is $100 per week. If the employee works 30 hours in a workweek, the $180 ($6 x 30) cash wages is added to the $100 in section 3(m) credit for a total of $280 received in the week, which amounts to a regular rate of $9.33 ($280 / 30) per hour.

Assuming the room and board credit is properly taken, this payment structure complies with the federal minimum wage requirement (that an employer pay at least $7.25 per hour).

Example 2: If during the following week, the same live-in domestic service employee (including home care workers) worked for 50 hours, the employer’s minimum wage obligation would still be met, but the employee may or may not be due additional compensation for the hours worked over 40.

Specifically, she would receive $300 ($6 x 50) in cash wages plus $100 in section 3(m) credit for a total of $400, which amounts to a regular rate of $8 ($400 / 50) per hour. If this live-in domestic service employee is employed by an agency or other third party employer, she would be owed an additional $40 ($8 x .5 x 10) in overtime compensation because live-in domestic service employees employed by an agency or other third party employer are entitled to overtime compensation.

If the live-in domestic service employee is employed by the consumer (or the consumer’s family or household) and not by any agency or other third party, the consumer (or family or household) could claim the live-in domestic service employee overtime exemption and the $400 in compensation would suffice because she would be paid at least the federal minimum wage for each hour worked.

Additional resources

• Topic Analysis—Minimum wage
• Employee Records
• Overtime