Sep 24

If your business model relies on using workers that you classify as “independent contractors” the latest interpretation from the US Department of Labor should be of extreme concern you.

Hat tip to Attorney Tristan Pettit for alerting me to this.

I have written a number of post about the dangers of calling a worker an independent contractor when they met the definition of employee.   Well that bar was just raised substantially.

Rather than the old tests, the new ones are fairly bright line:

Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).

But the ruling goes even further than is the worker dependent on the pay they receive from you.  Below are a few paragraphs of the Department of Labor document worth noting.

If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer.

 

In sum, in order to inform the determination of whether the worker is in business for him or herself, this factor should not focus on the worker’s ability to work more hours, but rather on whether the worker exercises managerial skills and whether those skills affect the worker’s opportunity for both profit and loss.

 

The worker should make some investment (and therefore undertake at least some risk for a loss) in order for there to be an indication that he or she is an independent business.

 

For example, investing in tools and equipment is not necessarily a business investment or a capital expenditure that indicates that the worker is an independent contractor.

So if the guy is a licensed electrician doing work for dozens or hundreds of other owners – pretty much he is a contractor.

However if you are paying a painter $10 an hour, or even $20 for that matter, and he works primarily for you – he is an employee and you would be well served to consider making him a legitimate employee or hire out a company that uses employees.

Remember too that if someone working on your property  is injured your rental property liability policy will not cover them.  Either you or they need to have a worker comp policy.  And this risk is even greater than the DOJ coming after you.

Mar 29

 

Remember  Your handyman – cheap contractor or $60,000 mistake?

Many of you attended the Apartment Association’s Meeting earlier this month featuring employment law attorney John Murray.

Here is a link to the State of Wisconsin’s guidance on the issue.  Most owners I’ve met that call their workers contractors fail on four or more of the test outlined in the guide.  Failing only one of the nine tests will cost you substantially.  This is why we use employees exclusively, except for licensed trades like electricians.

Under section 102.07(8)1 of the Wisconsin Statutes, a person is required to meet a nine-part test before he or she is considered an independent contractor rather than an employee. A person is not an independent contractor for worker’s compensation purposes just because the person says they are, or because the contractor over them says so, or because they both say so, or even if other regulators (including the federal government and other state agencies) say so. The nine-part statutory test set forth under s. 102.07(8) of the Act, must be met before a person working under another person is considered not to be an employee. To be considered an independent contractor and not an employee, an individual must meet and maintain all nine of the following requirements:

1. Maintain a separate business.

2. Obtain a Federal Employer Identification number from the Federal Internal Revenue Service (IRS) or have filed business or self-employment income tax returns with the IRS based on the work or service in the previous year. (See note below.)

3. Operate under specific contracts.

4. Be responsible for operating expenses under the contracts.

5. Be responsible for satisfactory performance of the work under the contracts.

6. Be paid per contract, per job, by commission or by competitive bid.

7. Be subject to profit or loss in performing the work under the contracts.

8. Have recurring business liabilities and obligations.

9. Be in a position to succeed or fail if business expense exceeds income.

Note: When requesting a Federal Employer Identification Number (FEIN) from the IRS, you must inform the IRS that you are required by Wisconsin Worker’s Compensation law to obtain a FEIN. A social security number cannot be substituted for a FEIN and does not meet the legal burden of s. 102.07(8).

Jan 02

A year ago I wrote of my five top ideas for real estate for 2013.

Of those ideas I have implemented .. not much.   Shortly after the first of the year 2013 we found that my wife’s ongoing back pain was being caused by a large benign tumor. She had it surgically removed on Valentine’s day and is fine today, but it upended things for a while

Today as I reflect on the past year and think about this coming year I reread the ideas posted last year. A year later they all hold value.

Two have been implemented as part of an effort to increase the value of membership by the Apartment Association of Southeastern WI’s  board of directors under the leadership of Joe Dahl.

The Association now has quarterly small group meetings as part of the Professional Membership. These meetings are an important element of #3 on the list, improving  how we share our collective knowledge

In a big step towards #1 on the list, reducing maintenance supply costs, the Association has teamed up with Home Depot, Pittsburg Paint, Sherwin Williams, and a number of other organizations to provide discounts to our members.

Home Depot offers a whopping 20% discount on paint and 2% cash back rebate on most purchases to our members. Sherwin Williams offers members discounts on paint equal to the discounts that major contractors receive. Pittsburg has similar discounts.

I would add a sixth and seventh opportunity for 2014, Crowdsourcing/Crowd funding for real estate.  I’ll post my thoughts on these in the next couple of days

The five most important Real Estate Ideas for 2014 remain:

(Clicking on the topic’s title takes you to the full article)

  1. Reducing Maintenance Supplies costs
    Pre 1950 buildings in lower income neighborhoods require around $100 per month per unit for repairs, replacement reserves and improvements. Newer buildings in more affluent neighborhoods perhaps $50 – $65. This is all maintenance from leaky faucets and unit turnovers to new cabinets, new roofs, electrical upgrades, replacing parking lots ect. (more)
  2. More Effective Maintenance Labor/Contractors
    Maintenance, replacements and improvements to rental housing represents nearly $100 million per year in the city of Milwaukee alone. A savings of even 1% is a lot of money. (more)
  3. Become better at sharing our collective knowledge
    The ApartmentAssoc@YahooGroups.com is good beginning. However it does not work real well as a reference tool as the posts are not organized by topics nor apparently easily searchable for many users. (more)
  4. Group purchase of a distressed block or two
    There has been this wild idea floating around in my head for years, acquiring a distressed block with a group of active owners and turn it around for fun and profit. (more)
  5. Tech Meets Real Estate
    There certainly are huge opportunities for software/web solutions for things that cause frustrations for owners and perhaps tenants. (more)
  6. Crowdsourcing for real estate, posting later in the week.
  7. Crowdfunding for real estate, posting later in the week.

 

Nov 04

A reader of the ApartmentAssoc Yahoo Group asks:

I am about to hire someone to cut some trees around houses. I told him that I would like him sign something to knowledge that I will not be responsible of his personal injury from this job if it happens. What kind of form and where I can find it? and is it enough or something else I have to do to insure that I will be absolutely OK if his personal injury from work actually happens

It is not possible to have someone sign away their rights or your liability under Wisconsin worker comp laws.  The only safe options are to have a minimum worker comp policy of your own or only hire companies that are insured.

Remember that a dwelling liability policy will not cover injuries to those working on the property.  This is an area that a lot of owners of small multi families run into problems with when they assign a tenant to do lawn work or snow removal for a discount in rent.

There is really a great risk in not having the coverage or in hiring people without coverage. I had an employee that was making a minor repair to a small first floor porch overhang. He made a wrong move, fell and the worker comp carrier had to pay out $140,000.  If we would have been uninsured that would have been me paying out the $140k, and probably more as insurers get discounts from the medical providers.

If you have employees, or non employees deemed to be statutory employees,  then the law requires coverage.

I think the minimum worker comp policies are around a grand a year, but am not positive.

Jan 03

Real Estate For Ideas 2013 Part Two

What can be done collectively to improve our businesses, save costs or generate additional revenue?

On January 1st I posted a list of ideas that I had that some of us could consider to collaboratively work on.  I intend to pursue one or two of the ideas presented and may entertain partnering with the right person or persons.

This post is the second of my more in depth notes on the ideas.  I will post others over the next week or so as time permits me to clean my notes into coherent sentences. If any of the topics interest you comment either on the list or directly to me at:Tim@ApartmentsMilwaukee.com


Part Two:

More Effective Maintenance Labor/Contractors/Service Providers

As mentioned in part one, maintenance, replacements and improvements to rental housing represents nearly $100 million per year in the city of Milwaukee alone. A savings of even 1% is a lot of money

More Effective Maintenance Labor/Contractors/Service Providers

The ability to have skilled, cost effective maintenance available on demand is typically a missing element for small owners.

If all of your unit preps are done two days after move out you will have far less vacancy income loss. If you can respond quickly to emergency repairs less tenants will move.

Even larger owners such as our company can’t do this efficiently with typical staffing. Either you have too few workers the first week of the month or too many the rest of the month.

The million dollar question is ‘How do can you have an on demand workforce without the risk of uninsured “contractors” who may later be deemed employees by taxing authorities or injured and not covered by your property insurance?’

A couple of years ago Affordable Rentals rolled out Rental A Worker, where we ‘rent’ other owners our maintenance people by the hour for small or large jobs. We benefit as we can have a larger workforce to meet the up and down demands of maintenance, while being able to share them when our workload is lighter.  We can also justify having highly skilled people on staff full time, such as certified heating techs.

The big advantage this offers other owners over hiring Joe off the street is our people are insured and have taxes withheld. There is a real danger and expensive otherwise. For the longer version read: Your Handyman-Cheap Contractor or $60000 Mistake?

The real vision for Rent-A-Worker is to expand it to a temp like service where there is an on demand workforce that can ramp up when there are a lot of preps etc and then can work for another temp agency on slow times.  This would hold an advantage for our company as well as other owners who participate.

Such a system would have a worker rating system, whereby the owners would grade them and their opportunity to work and future pay rate would be based on those grades.  So the best workers would achieve full time employment at a decent wage.

All the workers, whether they are laborers or small uninsured contractors would be treated as employees with the temp agency withholding taxes, maintaining worker’s comp etc., thereby eliminating a potential career ending risk for owners who were hiring “handymen” for cash.  The guy in the Cheap Contractor or $60,000 mistake went under.  I assume this was the cause

I pursued the temp angle a bit a year a half ago.  We hired a college grad who was formerly a manager a temp agency that moved out of the area. Excellent resume and references. I held a lot of hope for him to do well at this, but in the end it did not work out. By that time I was distracted with the purchase of a commercial property in Hollywood FL to house my wife’s businesses.  The basic software framework exits as well as some operating procedures.

I still believe an available,  flexible workforce  is the brass ring for our industry; seeing so much benefit for my company as well as many other owners. This may be the top new project to aggressively pursue this in 2013. The open question on this is does Obamacare make this in anyway less practical today if the number of temps exceeds 50.


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