ARE Daily | PcM #24 — Wrap-Up Review II: HR, Finance & Legal

Quick Recall (from #23 — Wrap-Up Review I)

A firm is structured as an LLC. One member makes a negligent design decision leading to a $3M claim. What is each member's personal financial exposure?

Limited to each member's investment in the LLC — personal assets are not at risk. The LLC's assets are exposed, but the members' personal finances are shielded. This is the defining advantage of the LLC over a partnership.

Today's Content

Two days out. HR, finance, and legal — the densest exam territory. Same approach: cover, recall, check.

Human Resources

Employment law thresholds matter: - All employers: Wagner Act, Equal Pay Act, I-9 verification, FLSA, OSHA, HIPAA, ERISA - 15+ employees: Civil Rights Act, ADA, ADEA (age discrimination, 40+) - 20+ employees: COBRA (continued health coverage) - 50+ employees: FMLA (12 weeks unpaid leave)

The most common exam trap: COBRA kicks in at 20, not 15. ADEA applies at 15, not 50.

Employment at will = either party can end the relationship without explanation. Does not protect against discriminatory termination. Noncompete clauses limit post-departure activity — geographic area, client contact, competing firms, confidential information.

Independent contractor vs. employee: the IRS tests behavioral control, financial control, and nature of the relationship. Misclassification is a significant tax and legal risk.

AXP: supervisor (licensed architect at the firm, required, formal) vs. mentor (voluntary, can be outside the firm, less structured).

Finance

The equation: Revenue − Expenses = Profit — or better framed as Profit + Expenses = Revenue, where profit is a target, not a remainder.

Net multiplier: 2.7–3.0. Break-even rate: 2.30–2.50. Chargeable ratio break-even: ~65% firm-wide, 75–85% for technical staff. Overhead rate: 1.30–1.50.

Current ratio healthy at 1.5+, minimum 1.0. An invoice over 90 days old = lending money to the client interest-free.

Cash ≠ profit. A firm can be profitable on its income statement and cash-poor if clients are slow to pay. The cash flow statement reveals this.

Modified accrual: records invoiced revenue and expenses, but not fees earned but not yet billed.

Legal

Three ways duties are established: contract, legislative enactment, conduct (implied duties).

Negligence requires: duty + breach + proximate cause. All three.

Defenses: betterment (owner pays baseline, architect pays the delta), statute of limitations (3–10 years from substantial completion, varies by state), statute of repose (from discovery, with outer absolute limit).

Copyright: architect owns by default. Buildings after December 1, 1990 are protected. Registration enables lawsuit, attorney's fees, statutory damages — not required but essential for enforcement. Owner gets a license, not ownership. If owner terminates for convenience, the license ends.

Insurance responsibilities: architect carries professional liability (E&O), general liability, auto, workers' comp. Owner carries all-risk property insurance at full insurable value + boiler and machinery. Contractor carries workers' comp, bodily injury, personal injury, motor vehicle, completed operations, contractual liability.

Spaced Recall — Earlier Material

From #08 What three IRS factors determine independent contractor vs. employee status?

Behavioral control (does the firm control how work is done?), financial control (does the firm control the financial relationship?), and nature of the relationship (permanency, benefits, written contracts). All three are weighed together.

From #10 What does FMLA require, and what is the employee threshold?

Employers with 50 or more employees must provide up to 12 weeks of unpaid, job-protected leave for birth/adoption of a child, care for a seriously ill family member, or the employee's own serious health condition. Available to both parents.

From #15 An employee earns $60/hour. The firm's net multiplier is 2.9. What is their billing rate?

$174/hour. ($60 × 2.9)

From #17 What are implied duties, and how are they established?

Implied duties arise from how the parties have actually conducted themselves — not from explicit contract language. Courts look at the course of performance to determine what obligations reasonably flow from that behavior. Examples: cooperating with contractors, sharing relevant information, not interfering with means and methods.

From #19 Why is documentation described as the architect's primary defense in a dispute?

It creates a verifiable record of every decision, meeting, and action — enabling the architect to reconstruct the project sequence years later in litigation. Without documentation, the architect's account is unverifiable.

Today's Questions

1. A 25-person firm receives a request for 14 weeks of unpaid parental leave. Does FMLA apply? Does the firm have to grant the full request?
2. What is the net multiplier, what does it account for, and what is the typical range for architectural firms?
3. An architect observes a dangerous scaffold condition during a site visit. What are their obligations, in order?
4. The owner's property insurance has a $50,000 deductible. A fire causes $200,000 in damage to work stored off-site. Who pays the deductible?

Next up: Wrap-Up Review III — Final Drill & Exam Prep

Answers from #23 — Wrap-Up Review I

1. LLC member negligent design decision, $3M claim — personal exposure? → Limited to each member's investment. Personal assets are shielded by the LLC structure.
2. "Flawless construction documents" in contract — how does this affect standard of care? → It raises the standard above the default "reasonably prudent" threshold to whatever "flawless" implies — potentially unachievable, potentially uninsurable.
3. Canon and tier prohibiting signing and sealing without responsible control? → Canon IV — Obligations to the Profession, Rules of Conduct (mandatory).
4. Two things now permitted that were prohibited under the 1909 Code? → Any two of: fee competition, advertising, design-build participation, supplanting another architect, offering free preliminary services to secure a commission.