How to Save $1 Million

Second only to property taxes, one of the biggest costs for co-ops and condos is their building staff. Salaries for doormen, concierges, supers and handymen can eat up an average of 25 percent of a building’s operating budget, which means it’s a line item boards can’t afford to ignore when they are trying to bring expenses down.

“Labor is one of the few expenses you can cut – and it can have a huge financial impact,” says Ira Meister, the president of Matthew Adam Properties. “Reducing staff by just one employee can save a building $1 million over the course of just 10 years. And the larger the building, the more money you can save.”

Layoffs, though, are a tricky business. Union law allows buildings to eliminate positions under specific conditions, and if rules and regulations aren’t followed to the letter, even the smallest missteps can cause big headaches down the line. Boards also need to look hard at the value of each employee and make sure that any cuts won’t compromise essential services and quality of life for shareholders or unit-owners.

“Reducing staff is not an easy thing to pull off,” Meister adds. “You have to think it through and do your homework.”

Here’s a step-by-step guide to doing it right:

1. Assess the situation

The first step in downsizing is determining which staffers are expendable. Increasingly, technology is rendering some long-standing jobs obsolete. Modern elevators have all but done away with elevator operators, while sophisticated video systems that allow residents to view and buzz in visitors are eliminating the need for doormen. Similarly, property management software programs like BuildingLink can alert residents about package deliveries, a job that is typically handled by a concierge.

“Boards also need to be proactive in looking for ways to pare down,” Meister says. “For example, if you have two entry doors or multiple elevators and each is staffed 24/7 with three shifts a day, that adds up to 42 shifts a week, which you can reduce by half simply by closing off one door or shutting down an elevator.”

In addition, buildings can cut back on the amount of work being done to maintain the property. A super, for example, can sweep staircases and mop floors once a week instead of every day, or take the garbage down once a day instead of three or four times. In addition, Meister advises boards to examine their bylaws to see if shareholders or unit-owners are actually responsible for any work done inside their apartments. “In many cases they are,” he says, “but the building still has a handyman on the payroll who’s providing extra service, whether it’s repairing a running toilet or a leaky faucet.”

Once the board has identified the tasks to be trimmed, it’s time to calculate how many worker hours are being spent on each job. “You may have to lump together several different tasks in order to come up with the 40 hours a week that will allow you to cut one employee,” Meister says.

2. Know the rules

In New York, co-ops and condos can lay off non-union employees at will. But the vast majority of building workers are represented by the Service Employees International Union, or Local 32BJ, which has ironclad contracts that include strict guidelines for employers seeking to reduce their staff.

Workers employed for one year or more must be given one week’s notice before being discharged – or an additional week’s pay – as well as any accrued vacation time. Most important, the co-op or condo board must give four weeks’ written notice of any layoff to both the union and the Realty Advisory Board (RAB), a nonprofit association that represents the real estate industry in labor negotiations. The notification has to document the reason for the reduction (in addition to technological advances or elimination of work, a board can also cite vacancies, building reconstruction, or a change in occupancy), the precise work to be eliminated and the work hours spent on each task. It must also spell out the change in schedules and duties of the building’s remaining employees. Difficult, but doable.

“The bottom line is that you can let go of someone as long as you’re not increasing the workload of anyone else beyond 40 hours a week,” explains Stuart Saft, a partner at the law firm Holland & Knight. “In general, it’s a good idea to have your managing agent crunch the numbers, since they’re the ones who best understand the demands of the building.”

3. Vet your documents

After the notification is drawn up, it’s a smart move to run it by an expert before submitting it to the union. “Buildings that are members of the RAB can consult our lawyers at no cost,” says Howard Rothschild, the group’s president. “We draft the documents, write the letters and go over all the details, which we typically do with the managing agent. When you’re dealing with the union, even the smartest boards don’t understand everything that’s involved. We know the issues inside and out, and we’ll make sure you’re on the right track.”

Boards that don’t belong to the RAB can hire an independent labor lawyer, but it could cost them if the union files a grievance and the matter has to go to arbitration. For buildings that are trying to reduce staff, it may be a wise investment to pay the RAB membership fees – $55 semiannually for each employee – to avoid huge legal bills down the line.

“Things could drag on and you could easily end up paying 20 times that amount,” Rothschild says. “With RAB, there’s no billing per hour, and we also pay the arbitration fee.”

4. Be prepared for setbacks

The process doesn’t always go off without a hitch. “The union might challenge the legitimacy of the reduction, or say they didn’t receive proper notice or in sufficient time,” Rothschild explains. In that event, a complaint letter is sent to the RAB, which assigns the building a lawyer and arranges a meeting in their offices with the property manager and a union representative.

“We settle most matters then and there,” Rothschild says. “In some cases, the employee is placed in another building, given back pay and benefits, or reinstated.” If a settlement can’t be reached, the case is heard at the Office of Contract Arbitrator, a nonprofit established jointly by the union and RAB, which issues a binding decision. The process can take months, sometimes more than a year.

“Boards can appeal the decision,” Rothschild says, “but that is very difficult to do.”

5. Be transparent

In addition to dotting the i’s and crossing the t’s, co-op and condo boards should be mindful of residents and sensitive to appearances. “A reduction in force isn’t just a matter of dollars and cents – you’re terminating a member of the community who’s considered a part of the family,” says Meister.

To minimize the pain, he advises boards to send out letters explaining why the decision was made. “You want people to know that steps were taken only after a careful analysis and that however regrettable, discontinuing an employee was done for budgetary reasons. At the same time, you should make it clear that the building’s finances are perfectly sound so people don’t think that you’re on the brink of disaster.”