Weekly Update: June 30, 2016

Awesome Third Annual Doug Mayo Golf Outing!

We had a spectacular day at Copper Creek Golf Course last Friday.  The Third Annual Doug Mayo Memorial Golf Outing raised over $30,000!  The proceeds will be used for scholarships for students entering building trade programs.  We were blessed to have three out of our 11 2016 scholarship winners present at the beginning of the outing.  They were asked to say a few words about how much it meant to them.  Everyone seemed to have a fabulous time and Doug Mayo would have been pleased to say the least.   Mark your calendars for June 23, 2017!
Doug Mayo was instrumental in the formation of the HBAI Educational Corporation.  He was very active at many levels within the industry and gave much of himself along the way. He loved to play golf and spend time with friends.  Doug lost his battle with cancer in 2013 and this annual event raises much needed funds for this critical program that was truly a priority and passion for Doug.

Editorial on HRA’s Sent by HBAI President Steve Shuey

This has been submitted to the Des Moines Register:
Countless small businesses in Iowa and across the nation face the threat of draconian fines from the IRS simply for trying to help make health care more affordable for their employees. Sen. Chuck Grassley should be commended for leading the charge in the Senate to right this injustice by sponsoring bipartisan legislation that will remedy the situation.
Home building firms and other small businesses that cannot afford to provide comprehensive health coverage have routinely used Health Reimbursement Arrangements (HRAs) to repay their workers for medical care and services. HRAs allow employers to offer pre-tax dollars to insured employees to help pay premiums and/or other out-of-pocket costs associated with medical care and services.
What makes HRAs so popular for businesses and workers is that they are very flexible and affordable, allowing employers to design plans that fit their own unique circumstances. Moreover, since all employer contributions to the plan are fully tax deductible to the employer and worker alike, this has been a great tool to help workers to obtain health coverage.
Unfortunately, the IRS issued guidance in 2013 stating that employers are no longer able to use HRAs because they don’t meet the requirements of the Affordable Care Act. Not only did the IRS make HRAs illegal, the agency decreed that all employers can face fines of $100 per day per employee if they offer this benefit to their workers. That can add up to $36,500 per employee over the course of a year and up to $500,000 per company.
This is outrageous. Most home building firms and other businesses in the Hawkeye State have fewer than 50 employees and are not mandated to provide health coverage to their workers under the Affordable Care Act. Yet many of these same companies have relied on HRAs to help their employees pay for health care coverage and services.
One would think that the goal of the government is to help more Americans to obtain affordable health care coverage. So why should small business owners who until recently have been allowed to reimburse their employees for a portion of their health care costs without penalty now face stiff fines from the IRS that could put them out of business? This makes absolutely no sense.
Sen. Grassley and the U.S. House of Representatives agree. With bipartisan support, the House recently voted to pass the Small Business Healthcare Relief Act. The legislation would reinstate the use of HRAs and rescind the onerous IRS penalties associated with them.
Sen. Grassley is championing a companion Senate bill. Sen. Joni Ernst can join in this effort to improve affordable health care options for Iowa’s small business owners by cosponsoring the legislation and working with our state’s senior senator to urge the Senate leadership to move quickly to pass this measure.
Prompt Senate approval of the Small Business Healthcare Relief Act will allow our nation’s small businesses to continue to voluntarily provide health care assistance to their employees and bring choice and affordability to the health care marketplace.

NAHB Member Advantage Discounts

NAHB Member Advantage gives members an easy way to reduce expenses, maximize profits and increase efficiency. Through agreements with leading national companies, NAHB offers exclusive discounts on a variety of products and services that can benefit your business, employees and family. In the past year, members have saved over $12M through Member Advantage. For the most up-to-date information about which companies are offering discounts as well as detailed information on how to access the savings, please visit www.nahb.org/ma.

Student Load Debt Keeps 71% of Potential Buyers Out

71% of potential homeowners saddled with student loan debt said the financial burden was keeping them from buying a home, according to a joint National Association of Realtors and SALT/American Student Assistance survey.  Over 50% of all respondents with loans said their student debt would delay homeownership by more than five years, and 40% said it would keep them from moving out of a family member’s home.
The survey also found this pessimistic view of the potential for homeownership was higher (79%) for older millennials between the ages of 26 and 35 with $70,000 to $100,000 of student debt.   Most respondents had student debt of $20,000 to $30,000, while 38% owed $50,000 or more.
Potential sellers who would like to buy a new home are also held back by student debt (31%), according to the survey. Some sellers (6%) said they’re underwater on their mortgages because the extra money that could go toward bringing down mortgages is going to pay student loans, while 18% said the obligation makes moving too expensive.
In March, the NAR also reported that while millennials have said that student debt affects their ability to save for a home, baby boomers actually carry the most debt, whether it’s their own or an obligation on behalf of a child or other family member. In addition, a National Association of Home Builders report found that student debt is one of the financial drags on first-time homebuyers that has resulted in the absence of two million millennial homeowners from the market.

One-person Firms in Residential Construction: Many but Small

In 2014, there were 1.7 million one-person firms in specialty trade contracting (carpenters, electricians, plumbers, etc.), 582,000 in residential building construction (e.g., home builders and remodelers), and 11,000 in land subdivision (developers of residential lots). These numbers come from the latest U.S. Census Bureau’s Nonemployer Statistics,  which define a nonemployer as a business with no-paid employees, which means essentially that the business consists only of the owner.  Because these one-person firms count as neither employers nor employees in the official government accounts, they can be easy to overlook, even though they are so numerous.  Residential building construction, land subdivision, and specialty trade contractors are the three categories that encompass activities related to home building.  Unfortunately, the Census Bureau doesn’t distinguish residential from non-residential specialty trade contractors.
These one-person firms tend to be relatively small, especially the trade contractors. In 2014, the average receipts among one-person firms were $51,000 for specialty trade contractors, $74,000 for residential building construction, and $158,000 for land subdivision. The average receipts of these three industries hit the lowest level during the Great Recession, but then climbed back almost the same level in 2014 as in 20The number of one-person trade contracting firms tended to be somewhat less volatile than the number of paid employees in the industry between 2007 and 2014. The number of specialty trade one-person businesses declined by 9% during the Great Recession, and 3% from 2009 to 2011, but then increased modestly by 2%, and totaled 1.7 million in 2014. In comparison, employment in specialty trade companies decreased 21% from 2007 to 2009 and 9% from 2009 to 2011, but rose rapidly by 12% from 2011 to 2014, based on Current Employment Statistics .
In residential building construction, one-person firms also experienced smaller declines from 2007 to 2011, and then recovered more slowly than employment in the same period. The only industry related to residential construction where the numbers have continued to decline is land subdivision, which lost 6,000 one-person firms (down by 34%) and 525,000 employees (down by 56%) from 2007 to 2014.

Weekly Update: June 23, 2016

   Yum!  HBAI 2016 President Steve Shuey (Ames), HBAI Executive Officer Jay Iverson, and Jay’s son Tanner Iverson were judges at the Cedar Rapids HBA BBQ Competition and Trap Shoot last week.  Our members worked really hard to produce nine different entries of ribs and Cascade Manufacturing’s Mike Farr ended up the first place winner.  We judged on taste, aroma, flavor, presentation, moisture, etc.

State Building Code Advisory Council Members Needed

There are going to be a few retirements from the Iowa State Building Code Advisory Council and we need you to serve, if it’s of interest.  There are seven members and it’s a part of the Iowa Department of Public Safety State Fire Marshall Division.  Terms are expiring at the end of the month and Governor Branstad will appoint new members.  You can apply by clicking here or contact HBAI Executive OfficerJay Iverson.

Crystalline Silica Rules in Effect Today

The final rule on crystalline silica issued by the Occupational Health and Safety Administration goes into effect today, and the construction industry has exactly one year to comply.

Bradford Hammock, a partner at Jackson Lewis P.C., whose practice focuses exclusively on safety and health issues, recently recorded a free webinar-OSHA’s New Final Rule on Crystalline Silica: What You Need to Know-to help home building industry professionals better understand the final rule and how it will affect their business.

Specifically, it provides information about performing construction work on silica-containing materials, details on how the rule will affect construction job sites, what is necessary to comply with the final rule, key compliance dates and the rule’s historical significance.

The webinar is sponsored by the Construction Industry Safety Coalition, composed of 25 trade associations representing every construction trade, task and activity of the member associations. For more information, visit buildingsafely.org and use the password CSC4 to view it.

New Rules for Paying Employees on a Salary – Tough Decisions & Difficult Conversations

It’s finally here. Nearly a year after the proposed rule was announced, the U.S. Department of Labor (“DOL”) has raised the salary threshold for employees to qualify as “exempt” under the Fair Labor Standards Act (“FLSA”).  The new rule will require most Oregon employers to choose whether to increase salaries, begin paying overtime, struggle with decisions about increasing salaries, paying overtime, and tracking hours, salary obligations or paying more overtime, while trying to balance the potential negative affect to employee morale and workplace flexibility.

The New Salary Threshold

Under the new rule, an employee cannot be exempt from minimum wage or overtime unless the employee makes the equivalent of at least $47,476 per year ($913 per week). The new rule more than doubles the former threshold of $23,660 per year ($455 per week). The threshold of $913 per week will be automatically updated every three (3) years to keep the salary level at the 40th percentile of full-time salaried workers in the lowest Census region (the South).  The new rule goes into effect onDecember 1, 2016. According to the DOL, over four million workers currently classified as exempt will become eligible for overtime.Future automatic updates to the threshold levels will occur every three years, beginning on January 1, 2020.

What it Means to be “Exempt”

To be exempt from wage and hour laws requiring the payment of overtime, an employee must perform non-routine duties that require the exercise of discretion and independent judgment.  This requirement continues under the new rule. The employee must also be paid on a “salary basis.”  The fixed salary must be paid during any week in which the employee performs work, unless certain narrow exceptions apply.  In general, the exempt employee’s paycheck must look the same from week to week, even if the employee leaves work early or takes a little time off.

Tough Decisions & Difficult Conversations

For companies that currently have salaried exempt employees that are paid less than the salary threshold, the new rule means that you will either need to: a) bump the salary past the threshold; b) switch the employee to hourly compensation and pay overtime; c) continue to pay a salary, but track hours and pay overtime; or d) spread the work around to keep the employee’s hours below the 40 hour per week overtime threshold.  Switching an exempt employee to hourly is problematic in a number of ways:

  • Employees see being paid on a salary as a matter of prestige and status within the company. The employee no longer punches the clock and is trusted by the company to get the job done by working whatever hours may be necessary.  Tracking time is also a hassle that salaried employees often don’t bother with. Employees switched to hourly status may feel that they have been demoted.
  • Has the employee gotten used to a flexible schedule, working many hours some weeks, but dialing it back during others? With hourly compensation, that flexibility comes with obligations to pay overtime during busy weeks, and dock the employee’s pay when working only a partial week.
  • An employee who has gotten used to working on a salary basis may have difficulty adjusting to a schedule that does not allow for overtime. You will need to evaluate whether to force the employee to work less, allow overtime but pay the employee more, or to adjust the employee’s hourly rate to reflect the anticipated amount of overtime the employee will need to accomplish the job.
  • If you prohibit overtime, how will the employee feel about working a shorter schedule? Is this an employee who likes to come in early and stay late?  As a practical matter, will the status and professional opportunities of the employee actually diminish with the new hourly compensation method?

It is not unlawful to pay a non-exempt employee on a salary basis.  However, this solution is rarely satisfying to the employer, as the employer must still track hours worked, and must still pay overtime for hours worked over 40 in a single week.

Next Steps:

Wage and hour laws are complex and little mistakes can have major consequences. Get legal advice to ensure your practices are compliant.  To prepare for the new rule, we recommend that you:

  • Evaluate which positions are affected by the new rule.
  • In close cases, decide whether you can (or want to) bump salaries above the new threshold.
  • Consider whether duties can be distributed to avoid unnecessary overtime.
  • If you wish to continue paying a lower paid employee on a salary basis, start tracking hours and reach an agreement on the standard work week and how overtime will be calculated.
  • Consider the payment of non-discretionary bonuses to provide incentives that fill in the gap between existing salaries and the new minimum salary threshold.

We anticipate a large volume of new wage and hour litigation once the new rule takes effect.  Plaintiff attorneys take advantage of the complexity of the new law, statutory penalties for minor errors, and the degree to which small underpayments can add up company-wide.

This update is courtesy of Randy Sutton at the Saalfeld Griggs law firm in Salem Oregon. Randy focuses his practice on litigating business disputes, advising employers on employment law compliance, and defending claims brought by current and former employees.  Randy can be reached atrsutton@sglaw.comwww.sglaw.com.

New House Price Data Show Why Costs Are a Problem

New data released by the U.S. Census Bureau and the Department of Housing and Urban Development provide strong evidence that the costs of producing new housing are making it difficult to impossible to build homes for a significant part of the U.S. housing market.

At the beginning of June, the Census Bureau traditionally releases data about the Characteristics of New Housing for the previous year, based on the same survey used to generate the familiar series on housing starts and new home sales.  NAHB tabulation of the data shows that the median sales price of single-family homes started in 2015 was just under $300,000.  Roughly 78 percent of the new homes were priced between $150,000 and $500,000; 93 percent between $150,000 and a $1 million.  Slightly less than 6 percent were priced under $150,000 and a vanishingly small share were under $100,000.

In contrast, NAHB’s 2015 Home Buyer Preferences Survey showed that 31 percent of recent and prospective home buyers expect to pay less than $150,000 for a home, and 15 percent even expect to pay under $100,000.

Why the mismatch?  The obvious explanation is that the costs of acquiring land, developing it into a lot, and constructing a home on it often make it impossible to produce a new home at a price substantially below $150,000.

A previous post has shown how the shortage of workers and subcontractors in key trades has caused the majority of builders to increase house prices.  An item posted two weeks ago illustrated a similar problem caused by a shortage of developed lots in many parts of the country.  Finally, an item posted a month ago showed that government regulation on average accounts for 24.3 percent of the price of a new home-which works out to about $84,000 based on the most recent data on the average price of new homes built for sale.  Cost factors like these leave little mystery about why the lower 30 percent of the home buying public is often restricted to the market for existing homes.

Insight on Interest Rates

Last Wednesday, the Fed kept short-term interest rates unchanged. But, the Fed’s communication was more dovish than expected, despite essentially unchanged economic forecasts of growth, inflation and unemployment, suggesting that the threats to the economy are to the downside. The take away; the Fed is no rush to raise rates, the ultimate rate is likely to be quite low (3%), and getting there will take years and years.  – Elliot F. Eisenberg, Ph.D

   We had a great time at the HBA of Greater Siouxland President’s Charity Golf Outing last week.  It was held at the Twin Rivers Golf Course at Dakota Dunes in South Dakota.  The proceeds benefited a local food bank this year.