The Department of Housing and Urban Development (HUD) has updated Section 3 legislation that became effective on July 1, 2021. In accordance with these changes, LCPtracker has built in new functionality to assist users in complying with these updated regulations.

This document will review the following topics:

• High-level review of the Section 3 changes
• Links to HUD resources
• New features on the Administrator side of LCPtracker including a Checklist to aid in setting up the proper requirements
• New features on the Contractor side of LCPtracker
• Reporting Requirements (as of 3.16.2022)

Please feel free to contact LCPtracker Support or your Customer Success Manager for assistance on using the new functionality in the system.

This section is a high-level overview covering some of the changes made within the Section 3 Final Rule.

Links to HUD-issued resources are available for users to explore and understand the legislation in detail. For any questions on the legislation or recordkeeping requirements within your agency, municipality, or company, LCPtracker kindly request that inquiries are made to your local HUD office or representative directly, click here for the HUD Local Office Directory.

The following links are listed for users to navigate to HUD-issued resources. Frequently Asked Questions for Section 3

A guidance document published by the Department of Housing and Urban Development Office of Field Policy and Management for the purpose of providing answers to frequently asked questions about Section 3 of the HUD Act of 1968 (12 U.S.C § 1701u) and its associated regulations (24C.F.R. Part 75). This document is intended to provide guidance for Section 3 funding recipients, subrecipients, contractors, subcontractors, workers, and other stakeholders.

The Federal Register Final Rule

This comprehensive document reviews the rules and regulation changes under the Section 3 final rule in detail, with the objective of “Enhancing and Streamlining the Implementation of Section 3 Requirements for Creating Economic Opportunities for Low- and Very Low-Income Persons and Eligible Businesses.”

A dramatic shift in the new Section 3 rulings is the change from goals centered around the number of new hire workers, to now be localized around the number of labor hours completed by a qualified Section 3 worker.

The Federal Register Final Rule states: “Tracking labor hours is meant to ensure that Section 3 workers have sustained employment and career opportunities. HUD believes that the use of new hires provides an incomplete measure of the employment and local contracting opportunities available to low- and very low-income persons envisioned by the Section 3 statute. HUD expects the labor hour data to present a more accurate assessment of Section 3’s impact. The focus on labor hours will measure total actual employment and the proportion of the total employment performed by low and very low-income workers, which will mitigate contractors’ ability to manipulate their Section 3 outcomes.”

A Section 3 worker is any worker who currently fits, or when hired within the past five years fit, at least one of the following categories:

1. The worker’s income for the previous or annualized calendar year is below the income limit established by HUD
2. The worker is employed by a Section 3 business concern
3. The worker is a YouthBuild participant

Targeted Section 3 worker definition is slightly different between Public Housing and Housing and Community Development. Specifically Public Housing is targeted to residents of that agency while Housing and Community Development focuses on the area in which the funding is being spent. Both definitions include YouthBuild participants.

Targeted Section 3 Worker Definition - PHFA or Public Housing Assistance:

1. Any worker who is employed by a Section 3 business concern
2. YouthBuild participant
3. Resident of public housing or Section 8-assisted housing
4. Resident of another project managed by the PHA that is expending assistance

Targeted Section 3 Worker Definition – Other Section 3, including Housing & Community Development Recipients:

1. Any worker who is employed by a Section 3 business concern
2. YouthBuild participant
3. Living within the service area or neighborhood of the project

The Benchmarks for Section 3 Labor Hours is 25%, which means 25% of all Labor Hours on a project are Section 3 Labor Hours.

The Benchmarks for Targeted Section 3 Labor Hours is 5%, which means 5% of all Labor Hours on a project are Targeted Section 3 Labor Hours.

HUD is categorizing projects into two distinct areas:

• PHA/PHFA – Public Housing Financial Assistance
• Other Section 3 Projects

These two types of projects share the same goal percentages of Section 3 Labor Hours and Targeted Section 3 Labor Hours but differ in the qualifications for what constitutes a Targeted Section 3 worker.

Under 24 CFR § 75.31, HUD defines the recordkeeping requirements in relation to Section 3.

LCPtracker recommends that users review this legislation in full to understand what documentation should be collected and reviewed in confirming Section 3 and Targeted Section 3 status.

This section reviews the enhancements made in all Administrator databases to reflect the new Section 3 requirements. Included is a “Set Up Checklist” for database Administrators to follow for easily turning on the new settings.

In the Administrator database under the ‘Add/Edit Project’ section, a new drop-down menu has been added to the ‘HUD Section’ that REQUIRES users to select if a project is either “PHA/PHFA-Public Housing Financial Assistance” OR “Other Section 3 Funding”, which are the two distinctions outlined in the Section 3 Final Rule. This is required for reporting purposes.

This field is a requirement when the “HUD Project” checkbox is enabled. The entire project page cannot be saved unless a selection is made.

The new Section 3 qualifications are now pre-loaded in the Demographic Classification section under the Employee profile page for all databases.

Below is the list of classifications as well as a brief description that will appear by default.

Administrators have the capability to hide or show these various options at their discretion, but the text cannot be updated at this time as they mirror the HUD-issued qualifications.

The new Section 3 Employee Type can be found under the Demographic Setup Section (Set Up Tab > Demographic Setup > Demographic Types).

The image below shows the current hard-coded settings in place.

“Required” is not enabled by default as this means it would be required for every employee on every project within the database. Instead, Administrators will use other controls to set up requirements on a per-project or per-department basis.

As not all settings are automatically checked, to run the new Section 3 Safe Harbor report, the “Requires Project” checkbox must be checked. The Admin also has the ability to Show on CPR as well.

If necessary, this entire type can be disabled in a database, but first, all the classifications must be disabled, described in the next section.

A new functionality enabled for this feature, is the ability for Administrators with proper rights to “Approve” Demographic Classifications selected for an employee.

Approving a selection locks the record from being able to be updated or deleted by the Contractor. To allow a Contractor to update the selection, Administrators will need to “unapprove” the demographic classification.

The new Section 3 Employee Type Classification options can be found under the Demographic Setup Section (Set Up Tab > Demographic Setup > Demographic Classifications).

Please note that Administrators have the ability to disable specific classifications that may not apply to the funding types of their agency or municipality.

For example, a Public Housing Agency may choose to disable the “Lives within the service area or neighborhood of the project” option, as that is a Targeted Section 3 Worker qualification for projects with “Other Section 3” funding, and not for PHFA funding. 

Alternately, a municipality that is not a PHA, may choose to disable “Resident of public housing or Section 8-assisted housing” and “Resident of another project managed by the PHA”.

For each selection, only a “Start Date” will be required, but an “End Date” field will be available for the Contractor or Admin to use, when needed. If a change to the employee Section 3 selection needs to be made, you will want to require the Contractor to enter an end date prior to the new start date of the added Demographic Classification.

A Start Date will not be required for the selection of ‘Does Not Apply to Worker.”

This page is where Administrators will be able to set requirements for specific projects and/or departments (Set Up Tab > Demographic Setup > Project Demographic Requirements).

Turning on a requirement to a project, means that any employee where a Certified Payroll Report is being submitted on that project, must have at least one selection made for the Section 3 Employee Type.

Administrators must enable Val_64 for either all Departments, or at minimum, for only the Departments chosen to enforce the requirements set.

If a Contractor attempts to certify a payroll and a selection under the “Section 3 Employee Type” has not been made, a payroll notice will trigger preventing them from finalizing their payroll.

The payroll notice contains a direct link to the employee’s profile to allow them to make a selection. Once they have saved the employee profile, the system will automatically redirect the user back to the payroll page.

A new “Admin Approval” feature is now available to Administrators under the Demographic Classification section (Admin Tab > Edit Employees Page).

Enabling this checkbox prevents the Contractor from making any further changes to the selection. The Admin can add or update “Notes,” as needed. Notes may have already been added by the Contractor but can be amended by the Admin during the review process.

Once Approved, Contractors cannot edit or delete the selection.

If a Contractor feels that changes are needed, they will need to contact the Project Administrator and request that they unapprove the record to allow updates, or deletion.

Contractors will be able to view a new column that will show if the selection is “Approved” by Admin. They will also be able to review any added or updated Notes made by the Admin.

From the Contractor Perspective:

On clicking “Edit” or “Delete”, if the record is “Approved by the Admin”, the Contractor will receive this message. 

In the Employee profile page (Admin Tab > Edit Employees page), the legacy “HUD Section 3 Information” will remain and will be unchanged at this time. The two main reasons for this are that many users still must submit reports to HUD based on their current fiscal year that is based off these selections and it has yet to be determined IF and HOW this data will be migrated over to the new standards.

Administrators can choose to have this section show but be un-editable by Contractors as well as all field requirements removed. Please contact your LCPtracker Customer Success Manager to assist with that transition.

This section reviews the new Section 3 changes from the Contractor side.

A new Demographic Classification called “Section 3 Employee Type” has been added to all accounts in order to collect the more granular information now required by HUD.

This may initially require Contractors to make selections for all their employees if Administrators determine that it must be made required. Once a selection is made, it will not need to be updated again, unless of course the status of an employee changes.

Since this selection may only be required on certain projects, a Contractor may not see that it is required until they submit a payroll for an employee on that project for the first time.

The system will display a Validation Notice on the payroll with a link that will take the Contractor directly to the Employee page to make a selection. Once a choice has been made and the Employee page saved, the system will automatically take them back to the payroll to continue their work.

Below is the Demographic Classification where the new Section 3 Employee Type is located.

By clicking on “Add Classification” a pop-up box will appear with the options available.

Do not forget to SAVE any changes made on the page.

If a Project has the new requirement in place, a payroll notice may appear the first time a selection must be made.

Clicking the link in the notice that will navigate directly to that Employee’s profile page.

The project Administrator can “Approve” the selection to lock it into place. When it is approved, the Contractor will be able to view that on the page.

If the user tries to edit or delete the selection, the system will prevent them from making the update until it is un-approved by the Administrator.

Please keep in mind that the Administrator may require additional documentation be provided to meet HUD recordkeeping requirements. They may have you upload this material into the eDocument section of your account.

On clicking “Edit” or “Delete”, if the record is “Approved by the Admin”, the Contractor will receive this message.

In the Employee profile page (Set Up Tab > Add/Edit Employees page), the legacy “HUD Section 3 Information” will remain and will be unchanged at this time. The two main reasons for this are that many agencies and municipalities still must submit reports to HUD based on their current fiscal year that is based off these selections and it has yet to be determined IF and HOW this data will be migrated over to the new standards.

It is recommended that all data remain as it stands now, and no further changes are made unless directed by your Administrator.

While HUD has set forth clear requirements in the qualifications of a Section 3, Targeted Section 3 Worker and the benchmarks associated with each on the various types of HUD projects, they have not yet finalized any reporting standards for the new requirements.

In an effort to help our users report hours for section 3 and targeted section 3 workers we have created two reports that can be utilized.

1. Payroll Details with Additional Demographics
2. Section 3 Safe Harbor Report

To effectively use these reports for HUD Section 3 hours, it is crucial the following setup steps are done (previously outlined above in this guide).

• Project setup page must have selection for ‘Section 3 Funding Type’ and saved.
  1. Set Up > Add/Edit Projects > Section 3 Funding Type
• Collection of Section 3 Employee Type Demographics must be set to “Required for All Projects” or “Required for ONLY Specific Projects”.
  1. Set Up > Demographic Setup > Demographic Types (required for all) or Project Demographic Requirements (required for specific projects)
• Enforce the project be selected when Contractor assigns the Section 3 Demographic Classification
  1. Set Up > Demographic Setup > Demographic Types > Section 3 Employee Type > Edit > Requires Project
• Validation for Demographic Classification set to Yes/Notice/Enforce
  1. Set Up > Validation Settings > Validation 64 > Edit > Yes/Notice/Enforce

When running the Payroll Details with Additional Demographic report, select the project to run the report for and in the ‘Demo Type’ dropdown select ‘Section 3 Employee Type’ and view report.

When running the Section 3 Safe Harbor report, select the project to run the report for and in the HUD Project dropdown select the correct Type (required setup on the project before you can view here) and view report.

If the new Section 3 Safe Harbor Report is not showing in your account, contact your Customer Success Manager.

Reporting on the new requirements begins after the first full fiscal year after July 1, 2021.

For any questions on the legislation or on how to implement recordkeeping requirements within your agency, municipality, or company, LCPtracker kindly request that inquiries are made to your local HUD office or representative directly. Please click here for the HUD Local Office Directory.