Home Health Workers: Who Pays for Overtime?

The author’s great-grandmother Sophie Kemper (left) and father Robert Kemper (right)

I was fortunate to grow up with a great-grandmother (pictured at right) who lived to the age of 103. This was due in large part to assistance from home health care workers. I observed the caregiver/client relationship on a personal level and learned at a young age the significance of elderly individuals, such as my great-grandmother, seeking and benefitting from in-home care. This also led my father (pictured with my great-grandmother) to join the home health care industry as a franchise owner of a well-known home care provider. Recent changes from the Department of Labor (DOL) and initiatives from the federal government may impact individuals and businesses who employ home health care workers. Whether you are a nurse registry, a home health care agency or other business, it is important to know your legal responsibilities in light of these new changes. According to the National Association for Home Care & Hospice (NAHC), millions of Americans depend on some sort of assisted living care. The benefits of in-home care, for many, outweigh the benefits of living in a facility or assisted living community. In many markets, the cost of in-home care is comparable to, or even less than, that of an assisted living facility or nursing home care. This is generally due to low hourly rates for caregivers or aides. Under the Fair Labor Standards Act (FLSA), the term “employee” is broadly defined as “any individual employed by an employer.” The determination of whether a caregiver is actually an employee for purposes of payment of wages will depend on, among other factors, the relationship the caregiver has with the hiring individual, business or both. There are at least four models for employing a home health care worker. In one case, a caregiver is a self-employed independent contractor and is merely referred by a home care registry. In another scenario, an aide is an employee of a home health care agency. Alternatively, an aide can be deemed an employee of the individual who is receiving the services. Finally, the aide can be jointly employed by the home health care agency and the individual receiving the services. Recently, the DOL revised one of the exemptions to the FLSA, which pertains directly to the home health care industry and the employment relationships as discussed above. The “companionship services” exemption, which has been around since 1974, was modified to provide greater protection to individuals providing home health care. The rule change was effective Jan. 1, 2015, but the DOL delayed enforcement until June 30. However, that does not preclude employees from immediately suing their employers for misapplying the exemption. An employee who performs “companionship services” in or about the private home of the person by whom he/she is employed is exempt from the FLSA’s minimum wage and overtime requirements if certain criterion is met. “Companionship services” means services for the care, fellowship and protection of persons who, because of advanced age or physical or mental infirmity, cannot care for themselves. As of Jan. 1, there is a 20 percent limitation on the amount of housework (i.e. meal preparation, driving, grooming, bathing and similar activities) that can be performed by anyone who provides companionship services in order to preserve the exemption. In other words, the exemption is lost if an individual who performs companionship services spends more than 20 percent of his or her total hours performing household work that is secondary to fellowship and protection. Fellowship means to engage the individual in social, physical and mental activities, such as conversation, reading, games, crafts, accompanying the individual on walks, on errands, to appointments or to social events. Protection means to be present with the individual in their home, or to accompany the individual when outside of the home and to monitor the individual’s safety and well-being. The second major change to the exemption is that a third party, such as a home health care agency, can no longer assert the exemption. Under the revised regulations, the exemption is only available to the individual, family or household solely or jointly employing the worker. Accordingly, third-party employers must pay their home health care workers the federal minimum wage for all hours worked and overtime pay at time and one-half of the regular rate of pay for all hours worked above 40 in a workweek. This change will have a direct impact on third-party employers who have been previously asserting the exemption. Additionally, the 20 percent threshold of household work will likely be challenged many times over and will likely result in litigation. If the exemption is lost, then the individual, family or household solely or jointly employing the in-home worker will have to pay minimum wage and overtime pay. Critics argue that the change will result in third-party employers raising the rates for their employees to adjust to the increased cost associated with now having to pay overtime wages. Many question whether such a rate increase will continue to keep in-home health care as an affordable option. Furthermore, there is a concern that clients might be forced to alter their arrangement so that a home health care worker is not subject to working more than 40 hours and receiving overtime compensation. In turn, the home health care worker might see a reduction in wages and a resulting disruption in the relationship between the individual receiving services and his or her home health care worker. The risk is that clients may no longer receive the continuity of care they need and deserve. Proponents of the change argue that home health care workers swill receive greater protection under the FLSA, and if they receive additional compensation, there will be a consequential increase in quality among individuals seeking to join the home health care industry. On Dec. 22, 2014, one of the major changes to the revised companionship exemption was called into serious question by a decision out of the U. S. District Court for the District of Columbia in the matter of Home Care Association of America, et al., v. David Weil, et al. (“Weil”). In Weil, the court held that the DOL lacked the authority to rewrite the companionship exemption in such way as to distinguish its application on the basis of who employs the home health care worker. The court stated that the contemplated change to the exemption (i.e. taking away the exemption from third-party employers) needs to come from Congress. The court acknowledged that in the past, there was a lack of sufficient support regarding proposed changes to the exemption from Congress. The court held that this “unequivocally represents a lack of Congressional intent to withdraw this exemption from third-party employers.” I anticipate that this decision will be appealed and that there will be further litigation regarding these new changes. In addition to the DOL changes, there has been an increased focus by the government on the problem of independent contractor misclassification, with a particular emphasis on in-home care workers. In 2015, the federal government apportioned in its budget an increase of almost $30 million dollars for the Wage and Hour division to hire 300 new investigators to target industries and employers who are most likely to break wage and hour laws. One of the targeted industries is home health care. Additionally, the 2015 budget includes nearly $14 million dollars to help identify and combat the misclassification of workers as independent contractors. Misclassification is said to deprive workers of the benefits and protections to which they are legally entitled, such as minimum wage, overtime pay, unemployment insurance and antidiscrimination protections. Additionally, employers who misclassify their employees as independent contractors avoid paying payroll taxes for Social Security, Medicare and unemployment insurance and often avoid paying workers’ compensation premiums as well. As a result, businesses or individuals that misclassify their employees save a substantial portion of labor costs and are able to offer customers more competitive rates. Because there is a tax component to misclassification, the DOL and Internal Revenue Service (IRS) have an information-sharing agreement so that they can jointly conduct audits and potentially assess penalties against employers for misclassifying their workers. Thus, if you are found liable for misclassifying your workers, you could have a DOL and an IRS problem, in addition to being on the opposite end of private lawsuits by your workers. Coinciding with an increased recognition of misclassification is an aging baby boomer population and an ensuing need for home health care. According to the Bureau of Labor Statistics (Bureau), employment of home health aides is projected to increase 48 percent from 2012 to 2022, making the industry one of the fastest growing occupations. As succinctly stated by the Bureau, “as the baby-boom population ages and the elderly population grows, the demand for home health aides to provide assistance and companionship will continue to increase.” Thus, there is no coincidence that the federal government is focusing in on the home health care industry now.