Community Associations Update - February 2016
New DOL Regulations: Proper Classification of Community Association Employees Matters
By: Jennifer S. Jackman & Tiffany M. Releford
Proper classification of employees is critical to avoid potential liability for unpaid overtime. If that did not get your attention, then consider this: In addition to unpaid overtime, misclassification of employees can result in liquidated damages, equitable relief and reimbursement of attorney’s fees. Classification is particularly important now, in light of the proposed changes to the Fair Labor Standards Act (“FLSA”).
As a general review, there are two types of classification for employees: exempt and non-exempt employees. Exempt employees are not entitled to overtime and their hours worked are not tracked. On the other hand, non-exempt employees are required to earn overtime for each hour worked over 40 hours and organizations are required to track non-exempt employees time.
There are two tests to use when classifying an employee. The first test is the “salary test” which requires that an exempt employee make a minimum of $455 per week or $23,660 annually, with a few limited exceptions. The second test is the “duties test”. The factors to use in the duties test are dependent upon the exemption category relied upon. There are many exemption categories and those include, without limitation, executives, administrative staff, education employees, professionals, creative professionals, computer professionals, outsides sales employees, and highly compensated employees. The test for each exemption category is different but most of the tests require that an exempt employee’s primary duty include the exercise of discretion and judgment with respect to matters of significance.
As a general rule, status as an exempt employee should be the exception not the norm. This is because the presumption is that most employees should be classified as non-exempt (and subject to overtime) rather than exempt (salaried). The most commonly confused and misclassified exemption category is the administrative exemption in which the primary duty must be the performance of non-manual work that is directly related to the management or general business operations of the organization in which the person exercised discretion and independent judgment with respect to matters of significance. If an employee is classified as exempt under the administrative exemption but is primarily in a support position (i.e. receptionist), which is often the case with administrative positions, that position should be non-exempt. Similarly, the computer employee exemption is often misunderstood. This exemption applies to computer programmers and engineers – the employees who design computer systems – and not to help desk employees or the typical IT employee.
Currently, more than 85% of the workforce satisfies the salary test for exempt employees, meaning, the majority of the workforce earns more than $23,660 annually. This is about to change. In July 2015, the Department of Labor, at President Obama’s urging, issued its long awaited proposed changes to the FLSA Regulations which, if enacted, will dramatically increase the minimum salary for exempt employees to $921 per week, or $47,892 annually. In addition, the proposed changes will provide an automatic adjustment of the minimum salary requirement going forward annually meaning that the minimum salary for exempt employees will continue to increase yearly. These changes are expected to take effect in 2016.
What this means for community associations is that beginning possibly in 2016, employees who are currently classified as exempt may need to be reclassified to non-exempt employees and entitled to overtime if they make less than $47,892 annually. This will affect budgeting since community associations will need to determine whether the affected employees will end up working overtime, and if so, what the cost to the community association will be. In some instances, community associations may need to consider whether the estimated costs of overtime are higher than the cost of increasing the salary to the new minimum amount and make a decision as to whether to increase salaries to allow the exemption status to remain. Either way, community associations need to be aware that payroll will likely increase in the upcoming years.
What can you do to prepare your community association for the upcoming changes and to ensure that your association has properly classified its employees?
- Review Job Descriptions. Associations should review all of the job descriptions to ensure that they accurately reflect the essential functions of the job, particularly for exempt positions. Determine which specific exemption category is relied upon for each position and ensure that the job descriptions support that exemption status. For example, the primary duty for most exempt requires the exercise of discretion and judgment with respect to matters of significance. Accordingly, job descriptions for exempt positions must include language that satisfies those factors and should include language such as “supports” and “assists”. If the accurate job description does not satisfy the requirements of that category or the employee actually is more of a support person and does not have independent discretion, strongly consider changing the employee to non-exempt.
- Identify “at-risk” positions. At risk positions are those positions that either will not meet the minimum salary test when the changes are implemented or where compliance with the duties test is questionable. The administrative exemption is the most commonly confused and misclassified exemption. Carefully scrutinize all exempt positions, especially ones that are classified under the administrative exemption.
- Plan. Plan how your community association will adjust if the minimum salary increases and how those changes will be communicated to staff. Sometimes employees feel marginalized or demoted when they are changed from exempt to non-exempt, despite the fact that nothing substantively changes in their position other than their ability to earn overtime. That said, requiring a previously exempt employee to clock in and out may have a negative effect on employee morale. Consider the messaging that will be used if changes to exemption status are made. In the event that you determine you have misclassified employees, discuss options for correcting the misclassifications with counsel in order to minimize risk and liability.
- Consider an HR audit. Hiring an outside attorney or consultant to review your job descriptions and policies (including overtime policies) can help ensure compliance with local and federal laws and can be useful in adopting policies and strategies moving forward to best deal with the proposed changes.
The proposed changes to the FLSA regulations may be costly to community associations. Taking the above actions will help your community association minimize risk and prepare for these changes. Please contact Jennifer S. Jackman and/or Tiffany M. Releford with any questions or for assistance in preparing for the proposed changes.
Expanding the Marketability of Units in Your Condominium Association to a Bigger Pool of Potential Buyers: FHA Certification and Recertification
By: Kathleen W. Panagis
What Does it Mean for a Condominium Project to be FHA Certified?
When a condominium project is FHA certified, it means that the units located within the condominium project are eligible for FHA-insured loans. An FHA insured loan is a Federal Housing Administration (“FHA”) mortgage insurance backed-mortgage loan, which is tied to an FHA-approved lender. In other words, FHA does not issue loans; rather it insures loans from private lenders.
Obtaining FHA certification provides condominium associations with the ability to have their units sold to FHA approved buyers, which is not only an attractive benefit buyers seek out but also permits selling unit owners to market their units to a greater pool of potential buyers. The FHA program permits buyers to put down as little as 3.5% as opposed to the typical 20%. The lower down payment attracts many first-time buyers, who still must meet separate FHA approval requirements on their own.
No single unit can receive FHA finance or refinance unless the entire condominium project is approved. The old days of “spot approval,” where an individual unit could receive its own FHA approval, have been long gone. A condominium project can receive certification issued by either an FHA staff member through the HUD review and approval process (also known as HRAP) or by an FHA-approved mortgagee through the direct endorsement lender review and approval process (also known as DELRAP). The HRAP option is by far the most common, and this is the where the condominium association through its managing agent, board of directors, project consultant, and/or attorney prepares the certification application by answering all questions listed on HUD’s certification cover letter/document and providing all requested documentation. Individual unit owners are not permitted to submit FHA certification or recertification applications to HUD.
What Does FHA Recertification Mean?
FHA certification must be renewed every two years. The phrase “recertification” means re-providing HUD with updated information and documentation similar to what was provided two years prior to ensure the condominium project is still compliant with FHA’s eligibility requirements and that no conditions currently exist which would present an unacceptable risk to FHA. It is important for condominium associations to monitor the expiration date since HUD will not send notification regarding a condominium association’s pending certification expiration date.
Condominium projects that have their FHA certification expired can apply for recertification no later than six months from the date of the certification expiration. To prevent any lapse in FHA certification, condominium associations can apply for recertification no earlier than six months before the expiration date. In the event there is a lapse—whether within the six month window from the certification expiration date or thereafter—the certification process is almost identical to the recertification process.
What Information and Documentation is Needed?
Both the FHA certification and recertification process require condominium associations to provide an exhaustive list of information and documentation to FHA in order to determine whether the condominium project is eligible for FHA certification. A sample of the information and documentation required to be included in an FHA certification or recertification application includes the following:
- Copy of recorded governing documents;
- Current budget;
- Copy of current balance sheet showing the condominium association’s reserve account balance;
- Copy of previous year-end’s results (i.e., income and expense statement);
- FEMA flood map showing the condominium project’s zone indicator;
- Copy of the condominium association’s current management contract;
- Disclosure of the condominium association’s delinquency rate, which no more than 15% of the total units within the condominium can be sixty days or more past due in the payment of assessments;
- Investor-to-owner ratio, which no more than 50% of the total units within the condominium can be investor-owned/tenant-occupied (the new requirements pertaining to this information are discussed in the next section);
- Copy of the association’s certificate of insurance, including proof of its fidelity bond coverage, which must be in the amount of three months’ worth of assessments plus the current reserve balance, unless otherwise required by statute;
- Information pertaining to special assessments, if any; and
- Explanation of pending litigation involving the condominium association and/or its board of directors, if any.
It is important to note that the above list is not exhaustive and there may be additional explanations condominium associations must provide to HUD in its application based upon what is reflected in the above information and documentation. For example, if a condominium association’s previous year-end results show that it suffered a loss, HUD will more than likely require the condominium association to explain why the loss occurred and what the condominium association is doing in its current fiscal year to address such prior loss.
New Certification and Recertification Requirements Per Mortgagee Letter 2015-27
The eligibility requirements as well as the list of information and documentation listed above come from FHA’s Mortgagee Letter 2011-22 and its Condominium Project and Approval Processing Guide, Mortgagee Letter 2012-18, Mortgagee Letter 2014-17, and Mortgagee Letter 2015-27—all of which are on HUD’s online portal. These mortgagee letters should be consulted when determining whether a condominium association may qualify for FHA certification, and what information and documentation will be needed in addition to what is briefly discussed above.
The most recent Mortgagee Letter 2015-27 issued three temporary provisions in hopes of increasing the pool of condominium projects eligible for FHA approval, which pertained to owner-occupancy requirements, insurance requirements, and recertification requirements. No other changes to other eligibility requirements were made.
First, in regards to owner-occupancy requirements, HUD clarified that the phrases principal residence and secondary residence have the same meaning in terms of calculating the owner-occupied and investor-owner/tenant-occupied ratio. Specifically, a secondary residence is dwelling that the owner occupies in addition to his/her principal residence, but less than a majority of the calendar year. Secondary residence, however, does not include a vacation home. This now allows units that are secondary residences to not be considered as investor-owned towards the maximum number of units that may be investor-owned/tenant-occupied. In addition, condominium associations must now provide a “data source” showing how it calculated its owner-occupied units versus investor-owned/tenant-occupied units. This data source can include what is contained in the mortgagee’s required resale disclosure statement or management’s onsite versus off-site address information.
Second, as previously required, all condominium associations are required to maintain adequate master or blanket property insurance in an amount equal to 100% of current replacement cost of the condominium exclusive of land, foundation, excavation and other items normally excluded from coverage. Now pursuant to Mortgagee Letter 2015-27, the requisite insurance coverage can consist of pooled policies for affiliated projects, state-run plans, or coinsurance obligations on part of the policy holder.
Lastly, for all FHA-approved condominium projects eligible for recertification, Mortgagee Letter 2015-27 now requires that a recertification checklist be also submitted in addition to all other required information and documentation. The recertification checklist is a two-page document that looks similar to the cover document condominium projects must have completed for both FHA certification and recertification applications.
Still Have More Questions or Need Clarification?
Our office will be hosting a lunch seminar on Wednesday, February 10, 2016 at 12 p.m. to discuss the FHA Certification and Recertification Process including the newest requirements put out by HUD in November 2015. Sample FHA certification and recertification application binders will be available for review. Please contact: email@example.com to reserve your spot today. We will accept your RSVP through Monday, February 8, 2016.
Shoveling Out - Snow Removal Responsibilities and Liability for Community Associations
By: Alexi Rouhani
The DC Metro area recently endured winter storm Jonas. Many embraced the historic snow, especially kids who got a weeklong vacation. Homeowners, though, ended up spending some quality time with a shovel and were likely rewarded with a sore back. Likewise, Community Associations had to figure out how to remove the large amounts of snow from streets and sidewalks. However, were the hours of labor and snow removal bills necessary? More importantly, if the snow was not removed and someone was injured, who would be liable? In this article, we will examine the snow removal laws in the District of Columbia (DC), Virginia and Maryland.
Private Streets and Sidewalks
Community Associations are usually required to remove snow from any private streets and sidewalks part of the Common Area or Common Elements. However, Community Associations should always first refer to their governing documents to determine their maintenance responsibilities. If a Community Association is responsible for maintaining streets and sidewalks, then it must take reasonable steps to keep them clear and safe during a storm. Failure to do so could result in liability if someone is injured due to slippery conditions. DC, Virginia and Maryland all provide different standards in regards to the steps a Community Association should take to reasonably remove snow and ice.
Of the three jurisdictions, Virginia is arguably the most lenient. It allows Community Associations to “wait until the end of a storm and a reasonable time thereafter before removing ice and snow from an outdoor entrance, walk, platform or steps.”1 Accordingly, Virginia Community Associations will not be held liable for injuries due to snow and ice, as long as they take reasonable steps to clear the private sidewalks and walkways after a storm has ended. It is important to note that this does not mean a Community Association needs to clear all the private walkways. Instead, Community Associations are only required to clear enough walkways to give owners and their tenants and guests access to the property and their homes.
Maryland’s snow removal laws are quite similar to those of Virginia’s, but there is no hard and fast rule as to when a Community Association must begin snow removal efforts. Courts simply look at each matter on a case-by-case basis to determine whether a Community Association took reasonable steps to remove snow and ice from the private walkways.2
DC probably places the highest standards on Community Associations in regards to what is considered reasonable snow removal. Under DC case law, a Community Association is required to exercise reasonable care to remove snow and ice from private sidewalks and walkways that has accumulated, or is accumulating, to avoid injury if it knows or should know there is a dangerous condition present.3 This means that, unlike in Virginia, Community Associations in DC cannot wait until after a snowstorm has ended to clear snow and ice from private walkways. Instead, if at any time a Community Association knows or should now there is a dangerous condition on the walkways, then it must take steps to make them safe or risk liability for injuries. Finally, if a Community Association in DC hires a contractor to remove the snow and ice, but that contractor does an inadequate job and does not clear the snow or ice completely, the Community Association will likely still be liable for injuries.
Public Streets and Sidewalks
In general, Community Associations are not responsible to clear snow from public streets. That duty rests with the City or County in which the Community Association is located. However, there may be snow removal duties placed on a Community Association regarding public walkways and sidewalks depending on the city or county in which it is located. At the end of this article we have provided a list of the snow removal requirements enforced by DC and various cities and counties in Virginia and Maryland. However, does failure to abide by a local ordinance mean liability for an injury on a public sidewalk?
In all three jurisdictions, Courts have generally held that the duty to remove snow from public sidewalks is a non-delegable duty of the local or state government. This means that even if there is an ordinance in place requiring a Community Association to remove snow and ice from public sidewalks, they will generally not be liable for injuries due to their failure to do so. Of course, this does not mean a Community Association will not be liable if it does something to create an additional hazard, like dump all of the snow from the Common Area onto the public sidewalks.
How to Stay Out of Trouble
So, what should a Community Association do to avoid liability for a slip and fall case? In general, a Community Association should always fulfill the maintenance responsibilities that are delegated in its governing documents, which usually includes removal of snow and ice from its private streets and walkways. It should also heed the local ordinances regarding snow removal of public sidewalks. Another important step is to keep records of the conditions of the streets and sidewalks, as well as the snow removal efforts. If a slip and fall lawsuit is ever filed, those records can save a Community Association from liability by evidencing it took the requisite reasonable steps to clear snow and ice.
In the end, while snowstorms can be a great excuse to take a day off from work or school, they can be a massive headache for Community Associations. We hope this article will help lessen that headache. However, if you have any questions, do not hesitate to contact us.
State and Local Ordinances
- District of Columbia; Community Associations are required to clear snow from the public sidewalks around the property within 8 hours of daylight after the snow stops falling. If the snow is not removed, then the City is actually required to do so, but can charge the Association for costs incurred.
- Virginia; Virginia does not have a statewide law regarding snow removal from