Spouse can't fix apart without worker's comp - Posted by Kathleen Cory

Real Estate Investing Apartments
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Posted by Frank Chin on March 19, 2008 at 07:22:00:

Another approach you might want to check into is to set up a “management company”, either a “C Corp”, or “S Corp”, where your husband is the sole owner and employee, who can then “opt out” of WC. This way, he’s not involved at all in the ownership of the apartments.

You then hire the management company (your husband) to do the repairs.

We operate our RE through a management company setup as a “C Corp” to completely deduct certain benefits. It’s a little more work from the bookkeeping standpoint, as the RE business has to issue monthly management fees to the management company, from which certain items, not necessarily all, are expensed. This is the company thru which we inquired about getting the WC policy. We also set up a schedule of fees and so forth between the RE company and management company.

There’s a separate tax return done at the end of the year. But you gain much flexibility in other areas doing this. Keep in mind there’s some bookkeeping involved with a WC policy, as well, and putting up with periodic WC audits. Audits include them checking on legit contractors you use, 1099 contractors, and you’ll need to provide proof they all have WC policies, expiration dates, or else, YOU PAY additional WC premiums, based on the amount of the billing.

Just be careful, don’t call it a “real estate management company”, as something like that requires a RE broker’s license. Give it a “generic name”, and put down the business pirpose as “to provide business services”.

Next time your husband shows up to change that washer, its by the “xyz services company”, where he is the owner. Yes, he’ll opt out from WC as the sole owner.

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Spouse can’t fix apart without worker’s comp - Posted by Kathleen Cory

Posted by Kathleen Cory on March 17, 2008 at 14:59:27:

I own a few apartments and just found out that in my state(NY) My husband can’t do repairs (handy-man type )without worker’s comp. Is this true in all states?

My spouse has a full time job and just helps if something leaks or breaks, etc. It is so ridiculous to have to treat him like an employee…I’m not hiring him. No money is changing hands. What is this craziness all about?

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Re: Spouse can’t fix apart without worker’s comp - Posted by Frank Chin

Posted by Frank Chin on March 18, 2008 at 16:09:27:

Kathleen:

I owned a business in NY, and business “owners” can “opt out” of “workman’s comp” by submitting a form. I made that election for myself and my wife, though I bought a policy for my employees. I did this because I got health insurance personally which covers me in he event of serious injury, and I don’t provide health insurance for my workers.

The way your post reads, it sounds to me YOU own the apartments, your husband does not, and he’s only the spouse of the owner. That may well be a good way to separate liability, but it brings about this issue.

If he’s also an owner, there should be no problem at all.

For any reason you DO NOT want your husband to own the apartments, then set up some type of “limited partnership” or LLC, where your husband has a small negligible limited interest, that you can buy back, which technically makes him the part owner, or partner, so he’s no longer the spouse of an owner.

You have to understand the state’s interest in this. Say you put ALL your marital assets in your name, i.e. the apartments, your husband goes on the roof, falls off, get hospitalized for an extended period costing hundreds of thousands of dollars, you can wash your hands of the hospital bills because you can say your husband owns nothing. I just read in the paper today hospitals in the US are stuck with over $31 Billion in unpaid bills last year. If you and your husband jointly owns the apartments, you’ll also be responsible for the bills.

This should also be no problem if your husband has “health insurance” at work, as it should surely cover him if he fell off the roof.

NY state also provides the option to “self insure” WC, if you can prove you have other adequate insurance and resoruces to cover yourself. But, I believe that’s a lot more complicated than the solution I suggested above, i.e. opt out as the owner or partner. I have not checked the procedures to self insure.

Frank Chin

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Get the State WC book - Posted by John Merchant

Posted by John Merchant on March 18, 2008 at 12:50:17:

NY State Dept of Labor (or whatever agency is in charge of enforcing its WC laws) publishes a comprehensive little book on its WC laws.

Get and read it as it’ll tell you all about their WC laws and rules.

Google for NY State Workers Comp and you’ll quickly find it.

I got embroiled in some NYWC law interpretation a little while back and did get this book and anybody owning RE or doing business there needs to do the same.

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Where are you getting this information? - Posted by River City

Posted by River City on March 18, 2008 at 06:36:05:

Is this something you have heard from a neighbor or a friend?

I can see the authorities wanting the work to be permitted, especially if it is structural, electrical or involves plumbing, ac, etc. If you haven’t already done so, you might want to check with the governing authority that authorizes permits.

However, if he is not getting paid to do the job, how do you calculate worker’s compensation on zero compensation? 0x0=0.

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Re: Spouse can’t fix apart without worker’s comp - Posted by Kathleen Cory

Posted by Kathleen Cory on March 19, 2008 at 24:34:07:

Hi Frank,
My husband is not part owner and does not want to be. (absolutely refuses)He is willing to help me when I’m needing help with repairs and I was relying on him heavily in that regard.

He does have full insurance coverage through his work. I wouldn’t ask him do anything dangerous like roofing, though. I always hire contractors with their own insurance for something like that. But I get your point.

The way I look at it is as if I said, "Honey, can you get me glass of water? and he replies “Yes, but I have to pay the state first.”

It just really makes me angry! Many states do not require the spouse to have the coverage.

I guess I can go the LLC route, and I have thought about it, but it seems like such a big step, for a small operation like mine. (I only have 20 apartments)

I live near the PA border and seriously am thinking about moving down the road 10 miles to avoid the regulation, but, that’s a big step, too.

The reason it poses such a question for me is that I have never had a better repair person for quality work, and he is the only one who has my best interest in mind when he tackle’s a repair. (Both money-wise and time-wise). It would be worth keeping his skill and support by paying the comp fees, but, it’s hard to figure out because his work (for me) is very irregular. Maybe the LLC route would be the best, if I can talk him into it.

Thanks for letting me spout off. The feedback really does help. Best Regards, Kathleen

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Re: Get the State WC book - Posted by Kathleen Cory

Posted by Kathleen Cory on March 18, 2008 at 13:48:13:

Regulation OC-923 (3-08)
Family Members
Family members, who work for the business, including spouses, are considered employees (even if they
do not receive a salary). Therefore, they must be covered by a workersâ?? compensation and disability
benefits policy with the following exceptions:
â?¢ Spouses of sole proprietors and legal partnerships may be excluded from disability benefits
coverage (workersâ?? compensation coverage is still required). Notice of Election to Voluntarily
Exclude Spouse from Coverage (Form DB-212.5) must be filed with the appropriate entity.
â?¢ Minor children of the employer may be excluded from disability benefits coverage. However,
workersâ?? compensation coverage is required."

This text portion was taken from the regulation booklet. I found out about this clause because I was audited by the worker’s comp board. Someone reported that my husband was working for me “under the table”. I thought it was ridiculous…He is not even getting paid. But, the auditor informed me of the rule. Luckily, they did not fine me, but I was told that for him to continue working for me, I would have to calculate an amount equal to what I would pay someone else for the same type of work, then claim that amount for his pay base.

(He would also be exempt if he was on the deed of the property he is working on)

I am almost ready to move out of state over this. Has anyone else had this problem come up in NY? He is the very best handyman on the planet! It was one of the reasons real estate business made so much sense for me to pursue. Worker’s comp is expensive especially if I have to carry it for someone who only works occasionally.

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Re: Where are you getting this information? - Posted by Kahtleen Cory

Posted by Kahtleen Cory on March 19, 2008 at 06:13:02:

I agree with you. That’s what burns me. If he were getting paid for the work it would be a little easier to calculate. For instance, if he were my only worker and he worked more than just a couple odd hours here and there.

I got the info directly from an officer of the WC board and it’s backed up by printed regulation so, there is no way to get out of it as a sole proprietor. I think I am going to look into other business structures that may by-pass the whole deal. It just seems a very extreme policy for a state to take. Especially since most of the states give waivers to spouses.

One of the other members gave a good explanation of why the regulation probably came about. (see Frank Chin’s response)

I never even guessed it would be a problem for my spouse to help out, but, I got told in no uncertain terms to comply…or else! So, I guess it is a real thing that has to be dealt with. I had never heard of such a thing so I was over-surprised when I got called on it by an auditor. I am usually “Miss Total Compliance” and I was “caught” breaking a regulation without even being aware of it. Luckily, I got off with a warning with no fines!

Just be aware of this regulation if you are a business owner in NY.
Best Regards, Kathleen

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Re: Spouse can’t fix apart without worker’s comp - Posted by Frank Chin

Posted by Frank Chin on March 19, 2008 at 04:19:45:

My suggestion is to get some “limited ownership” interest on paper to at least get past this WC issue.

In NY, it might mean you’ll have to pay some LLC fees, pay $500/year LLC fee for two members, to get them off your back. I don’t know if fees are lower for doing a LP (limited partnership). In an LP, your husband can be a nominal owner for say 1%, on paper, and his risk is limited to what the investment is, the 1%.

I did check into getting a WC policy for one employee putting down a nominal salary of $100/month. But my agent told me that the way rates are set, they would go on the bases of a 25K year salary, at the minimum, regardless how much was paid, even free labor.

While i cited a hypothetical case of someone falling off the roof, even routine things can be dangerous. For instance, I have light switches that break, and have people replace them for me, and I’ve done it myself too. Often, we get lazy, and don’t turn off the power (have to go all the way to the basement) for something as simple as this, and I’ve heard of people being badly burnt, or electrocuted for something so simple.

In fact, I sold the business, partly for the reason that the year before, a worker, 18 years of age, got serioulsy burnt, and can not longer work. He was asked by another worker to help carry a tank with residual gasoline in it, some of the gas leaked onto the floor where a lit cigarette was thrown.

Fortunately, we had WC, and they covered months of hospitalization, rehab and so forth. If I failed to get the WC, state law holds the employer personally responsible, LLC or not, and the hospital bills would be sent to the owner if there is no insurance.

That’s why when I use 1099 contractors, I like to use union guys that work off the books that’s got “health insurance” provided by the union. Or else, use contractors that can demonstate they got WC.

BTW, that’s part of WC reform here in NY. Rates were too high because in many many instances, people who should be paying for it are not, and taxpayers got stuck when hospitals write off unpaid bills.

Frank Chin

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Re: Spouse can’t fix apart without worker’s comp - Posted by Kathleen Cory

Posted by Kathleen Cory on March 19, 2008 at 05:45:21:

Hi Frank,

I never thought of a limited partnership. That just may work in our situation. My lawyer could probably take care of that pretty reasonably. I will have to check into what is involved. I have never even thought of a partnership as a good instrument, but, it may be perfect for this little glitch.

I do know the seriousness of the liability issue, I think we would be set (as a couple) because we both have good insurance through our other work places. and I’m very careful with 1099 contractors to actually see their policies. Hopefully, we never experience the kind of event that you had to face, but you never know how things will play out.

I definitely respect that insurance is an extremely important issue. It just seems that NY goes overboard in regulations compared to other states. I think the partnership (LP-)idea is one that really could work for us. I think my husband would view it as a small enough involvement. Thanks. K

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Another thought … - Posted by Frank Chin

Posted by Frank Chin on March 19, 2008 at 07:28:37:

If you set up the managment company via a “single member LLC”, in NY state, the annual fee is only $100.00, and all you need is an additional “schedule C” in your personal tax return. No additional corp returns required.

Frank Chin