Employment Guidance for HUD and LIHTC Properties
Have you ever noticed that 3rd party Verification of Employment (VOE) forms and paycheck stubs don’t always match? What if your applicants don’t have 4-6 recent paycheck stubs? It is difficult to determine the best reasonable approach for calculating anticipated income when the information provided to you is insufficient.
- HUD Section 8
- LIHTC HUD Section 8
- Layered with LIHTC
Comparing Verifications of Employment (VOEs) and Paycheck Stubs
We will provide guidance on what to look for when determining initial (move-in) eligibility based on verifications of employment (VOEs) and paycheck stubs. Complete documentation for income calculations in resident files is vital. This ensures proper rent calculation for HUD as well as income eligibility for both the HUD and LIHTC programs. Remember, owners/agents (O/A) need to use the best reasonable approach to calculating anticipated income. Obtaining the best documentation will assist you with this task.
For HUD Section 8 properties, paycheck stubs and Verification of Employment forms received directly from the employer are acceptable as third-party verification if the following criteria are met:
- The document is dated within 120 days of receipt by owner/agent;
- An unaltered original is provided;
- The documentation was complete; and
- The document is current (for example, documentation of public assistance may be inaccurate if it is not recent and does not show any changes in the family’s benefits or work and training activities).
Correctly Calculating Projected Income from Paystubs
An average of 4-6 recent/consecutive paycheck stubs provided by an applicant can be utilized to calculate anticipated income unless your Contract Administrator (CA) has provided different requirements. When averaging the checks, make sure that you look for consistency with hours and pay rates. Be cautious of the following:
- A paycheck that is not reflective of a full pay period and oftentimes it is the first paycheck received. We recommend that the O/A discuss with the household to ensure that the paycheck should be removed from the average, as it will skew anticipated income.
- Hourly rate of pay changed; the resident receives a pay raise and it is not reflective in all of the paychecks. We recommend that the new pay rate is multiplied by the average # of hours worked to determine anticipated income.
What if paycheck stubs do not meet the above criteria, are not available, or if work is sporadic?
Obtain traditional third-party verification directly from the employer.
What do you do if third party verification is not available?
A notarized statement or signed affidavit from the applicant/tenant is acceptable if third-party verification (written/verbal) is not available, with documentation detailing explaining why third party verification was not possible
From time to time, applicants are unable to provide 4-6 recent/consecutive paycheck stubs and may only be able to provide one. If this occurs, it is necessary for the O/A to request written third- party verification from the employer. Once third-party verification is received, it is important to compare the completed VOE to the one paycheck stub provided by the applicant to ensure the accuracy of the VOE. Any discrepancies need to be clarified to determine the most reasonable approach to calculating anticipated income. Because tenant rent is based on household income, it is extremely important to ensure accuracy on income calculations. Proper income calculations will also reduce EIV income discrepancies.
EXAMPLE: Resident Lost Their Paystubs
Two paycheck stubs are provided by the applicant and the applicant claims that he/she has lost all other paycheck stubs. The O/A obtained a written third-party VOE and compares the VOE to the paycheck stubs:
The two paycheck stubs suggest that the applicant works an average of 36 hours per week at $10 per hour. The VOE suggests that the applicant works 40 hours per week at $10 per hour.
What should the O/A do in this circumstance? Answer: Clarify!
The O/A should clarify with the employer the anticipated number of hours per week and let the employer know that the 2 paycheck stubs provided do not support 40 hours per week as suggested on the VOE. Dependent upon what the employer says is how you will calculate anticipated income.
It is necessary to document the following on a separate clarification record when an employer provides subsequent clarification:
- Third party’s name, position, and contact information, including the phone #;
- Information reported by the third party;
- Name of the person who conducted the telephone interview; and
- Date and time of the telephone call.
- Option 1: The employer clarifies that he/she intended to state that the hours vary between 34 to 40 hours per week. If this were the case, the O/A would use 37 hours per week to calculate anticipated income.
- Option 2: VOE states the applicant worked an average of 36 hours per week for the previous two weeks. However, the employer states the hours are now 40 hours per week moving forward. In this case, the O/A uses 40 hours per week to calculate anticipated income.
- Option 3: The applicant has located and provided an additional two paycheck stubs and when factoring the two additional paycheck stubs, average hours are 38 per week. The employer clarifies that hours vary. The O/A should utilize 38 hours per week to calculate anticipated income.
Verifying Employment For the LIHTC program
Most state monitoring agencies require the traditional method of third-party verification. This includes methods such as obtaining written verifications of employment directly from the third-party source using VOEs or statements from the employer. Furthermore, most LIHTC properties need to use the most conservative method to calculate anticipated income (YTD vs. hourly rate calculations). Check with your state monitoring agency for specific guidance.
Obtain paystubs to support the VOE when:
- Many times, VOEs prepared by third parties are incomplete, altered, or provide too wide of a range of hours.
- There is evidence of tampering of the VOE (e.g., white-out, original information marked over or crossed off)
- A non-qualified person at employer completed the form
- Handwriting Inconsistences create questions about the validity of the VOE
- YTD and current wages are not consistent on a VOE
- The average number of current or OT hours verified is too wide of a range (always use the highest number if the range is reasonable for the LIHTC program)
- Jobs where tips are likely and not addressed on the VOE
- Red flags in the file (i.e. inconsistent income reporting by the applicant/tenant compared to the VOE information)
- When a VOE form is not sufficient
- It is a requirement of the Compliance Monitoring Agency or it is a company policy
Maximizing Income for LIHTC Households
For the LITHC program, maximizing the highest potential income that a person can make over the next 12 months is required. For example, if the VOE reflects the average # of hours, use the highest number of hours (35 – 40, use 40). If there is a discrepancy between the average # of hours on a paycheck vs the information provided on a Verification of Employment, unless there is a valid clarification from the employer, use the highest # of hours to calculate income, whether it is from the paychecks or VOE.
Verifying Employment Wages for Blended LIHTC and HUD Properties
If your property has both HUD and LIHTC, generally, you can use paycheck stubs for the HUD program to calculate anticipated income and use the higher calculation of VOE, YTD, or paycheck stubs for the LIHTC program, but it depends on the clarifications obtained and your state-monitoring agency’s guidelines. Many times, the form HUD 50059 will have a different income amount than the Tenant Income Certification (TIC).
The key to all calculations of employment income is to consistently apply policies for all households. Next, is the documentation. Proper documentation in the file assists with using the best reasonable approach to calculating anticipated income. Which reduces over/underpayments of rent for the HUD program, and ensures income eligibility for the LIHTC program. Not to mention, a properly documented file will reduce findings of non-compliance by outside auditors.