Compensation - Board Member question

No, this is not correct. But what you do about it is really dependent on the degree. How much does the bookkeeper charge?

Might be time to fire the handyman, or at least increase the supervision he is under.

Our bookkeeper was also our treasurer. She lived in our HOA. It worked out the best. She did have to pay HOA dues. Since she had an actual bookkeeping business licensed and insured, we treated it as a separate entity than our HOA. I believe you can hire a HOA member be it a board or regular member if everyone is on board and it is a real licensed/insured business.

Now for the position of handy man... I would change things up. We had a guy who acted similar to what you say. However, we did not pay him. We just contracted him on occasion. He was a con-man and I had many issues with his work and ethics. He was the former President and sometimes board member.

What we did to remedy this type situation with contractors is that we had a yearly bidding process. We required that 3 bids be presented to the board. That meant that even though many were "comfortable" with the former HOA president doing some repairs, we had the option of others. Plus it made sure any of our bidders were licensed and insured. Another issue that our former President wasn't at the time. Forcing our HOA to finally recognize the importance of only hiring contractors with license and insurance.

We also never did more than 1 year contracts. This included our lawncare people. Which was our ONLY required responsibility to provide lawncare. We also did not change out our bookkeeper as she did an excellent job. We could have done this but quite frankly we had no issue with their work to cause any changes even when she sold her house and moved.

I say if it's a skill requirement, then one should be compensated. Board members should NOT be compensated nor dues substituted for service. That is a whole other can of worms as a HOA should NEVER forgive dues for compensation.

Emmy,

You have identified why Associations should be careful when hiring from within. It's difficult to oversee and, if needed, reprimand a neighbor or friend. It could be that the Board never checks on the work started and thinks work is completed.

Although there is a conflict of interest, such a conflict is not an issue unless it is not disclosed.

I know for a fact from personal experience that the bookkeeper duties take a lot of time. They take longer if doing things on paper ledgers. The concern is the Bonus that was paid. This payment would likely have the IRS identify the individual as an employee vs. an independent contractor. Depending on the situation, the maintenance person may or may not be considered an independent contractor.

As an employee, there are Federal and State tax and benefit obligations that the Association is responsible for. Hopefully, the Board is aware of these and are meeting such obligations. The IRS also requires reporting of payments to employees and independent contractors. Hopefully, your Board is doing this as well.

You may want to ask the Board if they are meeting the IRS and State obligations of these individuals. This will ensure that the Board is aware of their responsibilities and may change how they are doing business.

Tim

He can work as a 1099 contractor to the HOA. Which would relieviate some of the HOA responsibility. That means that he would have to compensate his own insurance and expenses. A good option.

Keep in mind that as an independent contractor, there are a lot of rules that need to be followed so he isn't considered an employee:

From the previously supplied link:

The IRS uses three characteristics to determine the relationship between businesses and workers:

1) Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

2) Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.

3) Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.

Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

Also, take a look at IRS Publication 1779:

http://www.irs.gov/pub/irs-pdf/p1779.pdf

Thanks for saying it better than I, Roger. There is no conflict of interest if they recuse themselves from voting on matters that affect their own personal business interests.

Imo, then, they certainly may not vote on how much they are paid. But also, for instance, the handyman should not vote on HOA projects that bring him additional business, i.e., income.

This is not necessarily a true statement. As Tim has already pointed out, the IRS has specific rules to determine if an individual is truly a self-employed contractor rather than an employee.

One important measure that is often used is that the individual performs similar work for others. Also, this person must file a schedule C with his income tax return. If this individual is performing services for compensation for only the HOA, watch out. The IRS will most likely consider this person to be an employee. Many states follow the IRS example.