New Laws Alter Overtime Requirements for Caregivers

The Department of Labor recently announced that it is moving forward with its Final Rule eliminating, or at least restricting, the companion exemption to the Fair Labor Standards Act.  Separately, Governor Brown just signed AB 241 adding the Domestic Workers Bill of Rights to the California Labor Code.  Both laws will have a significant impact on home care providers and recipients.

The following are a few brief highlights about the new regulations and Labor Code sections, and how they may impact the the elder care industry.

Revised FLSA Regulations

Since its inception, the FLSA exempted certain domestic workers (i.e., persons employed about the home).  In 1974, Congress amended the FLSA to include some, but not all, domestic workers.  Companions, sometimes referred to as “elder sitters,” or “personal attendants”, have never been covered by the FLSA.  When Congress expanded the FLSA to cover domestic workers but not companions, the FLSA adopted regulations defining the type of work that qualified for the companion exemption.  In the almost 40 years since the 1974 amendments Congress has not deemed it necessary to modify or otherwise alter the FLSA to increase or decrease its coverage with respect to companions.  The Department of Labor, however, has decided that it must now modify its regulations to comport with Congress’ original intent.

The revised regulations eliminate the companion exemption for any worker employed by a third-party employer.  This means that if a family uses a third-party agency to provide companion care for a family member, the companion must be paid one and one-half times the employee’s regular rate of pay for any hours worked in excess of 40 hours per week.   Workers employed directly by the family are still exempt from the FLSA’s overtime requirements.

The regulations also narrow the type of work that constitutes “companion” services.  Under the new regulations, the term “companionship services” means “the provision of fellowship and protection for an elderly person or person with an illness, injury, or disability who requires assistance in caring for himself or herself.” Companionship services also includes the provision of “care” if the care is provided “attendant to and in conjunction with the provision of fellowship and protection and if it does not exceed 20 percent of the total hours worked per person and per workweek.”

The provision of ‘fellowship’ means to engage the person in social, physical, and mental activities, such as conversation, reading, games, crafts, accompanying the person on walks, on errands, to appointments, or to social events.

The provision of “protection” means to be present with the person in their home, or to accompany the person when outside of the home, and to monitor the person’s safety and well-being.

The employee can spend no more than 20% of his or her time providing “care,” which is defined as assisting the person with activities of daily living (such as dressing, grooming, feeding, bathing, toileting, and transferring) and assisting with instrumental activities of daily living (i.e., tasks that enable a person to live independently at home, such as meal preparation, driving, light housework, managing finances, assistance with the physical taking of medications, and arranging medical care).

“Companionship services” excludes domestic services performed primarily for the benefit of other members of the household, such as cleaning, cooking or doing the laundry for other family members.

The FLSA provides the minimum protection, and employers are still required to comply with state laws which either mirror the FLSA or provide greater protections for workers.  The new regulations do not come into effect until January 1, 2015, to give families time to adjust.

Although the overtime obligations do not apply to employees employed directly by the families, families are required to maintain accurate records of the hours worked and wages paid.

California’s Domestic Workers Bill of Rights

The Domestic Workers Bill of Rights, which creates California Labor Code sections 1450 to 1454, eliminates the “personal attendant” exemption from Wage Order 15.  Wage Order 15 applies to workers employed by the household owner.  Since it’s adoption, Wage Order 15 has always exempted personal attendants from California’s overtime rules.  Employers have always been required to pay at least minimum wage for all hours worked, but until adoption of the Domestic Workers Bill of Rights, the employees were not entitled to overtime regardless of the number of hours worked.

Unlike past legislative attempts to eliminate the personal attendant exemption, this bill is narrowly drafted with the sole purpose of eliminating the personal attendant exemption except in cases where the employee wages are paid by state or county programs (i.e., In-Home Supportive Services, Lanterman Developmental Disabilities Services Act, California Early Intervention Services Act, etc.).

“Personal attendant” means any person employed by a private householder or by any third-party employer recognized in the health care industry to work in a private household, to supervise, feed, or dress a child, or a person who by reason of advanced age, physical disability, or mental deficiency needs supervision. The status of personal attendant shall apply when no significant amount of work other than the foregoing is required. For purposes of this subdivision, “no significant amount of work” means work other than the foregoing did not exceed 20 percent of the total weekly hours worked.

Under the DWBR, personal attendants are entitled to overtime compensation at one and one-half times the employees’ regular rate of pay for all hours worked in excess of 9 hours per day or 45 hours per week.  The overtime obligation applies regardless of whether the worker is employed by the family or a third-party employment agency.  The only exception is if the wages are paid by through one of the listed state or county programs or if the person providing the services is the “parent, grandparent, spouse, sibling,child, or legally adopted child of the domestic work employer.”

The DWBR, which become effective January 1, 2014, contains a sunset clause.  Unless new legislation is passed, the DWBR expires on January 1, 2017.  In the meantime, the governor is supposed to create a committee “composed of personal attendants or their representatives and the employers of personal attendants or their representatives” to “study and report to the Governor on the effects this part has on personal attendants and their employers.”

Unintended Consequences?

The intended purpose of the new DOL regulations and the DWBR is to increase the standard wages paid to people who take care of our family members who, by reason of age or disability, are not able to take care of themselves.  In the past, family members who could not care for themselves were either institutionalized, or a family member had to take care of them.  Since many, if not most, Americans have two-income households, it has become more cost-effective to hire a low-wage earner to care for mom and dad than for one or more family members to quit their job to perform the duty.

I question whether these new laws will meet their intended purpose, and what unintended consequences may follow.  Take, for example, a caregiver who is providing 24-7 care for mom.  While I am not an advocate of anyone working 24-hours a day, 7 days a week, many families and workers choose to have someone overseeing mom all the time.  I’m going to put aside, for now, the benefits and drawbacks of having a single caregiver, and focus on the economic effects of the new laws in this commons situation.

In California, most caregivers must receive at least $8.00 per hour for all hours worked (the minimum wage will increase to $9.00 per hour in 2014, and $10.00 per hour in 2016, and certain cities require a higher minimum wage).  The employer can lawfully deduct up to 8 hours from a 24-hour shift as “sleep time” provided the employee actually receives at least 5 hours of uninterrupted sleep (for more information about sleep time, see my post).  This means, the employee must receive no less than $896.00 per week ($8.00/hour x 16 hours/day x 7 days/week).  While an employer can deduct some of the costs of room and board in accordance with the Wage Order, in my experience most employers don’t have such an agreement in writing and therefore cannot lawfully deduct meals and lodging.

Under California’s DWBR, the employee would be paid $1,164.00 ($8.00/hour x 45 regular hours + $12.00/hour x 67 overtime hours).  Under the revised DOL regulations, the employee must be paid $1,184.00 ($8.00/hour x 40 regular hours + $12.00/hour x 72 hours).  By my calculations, that about a 30% to 32% increase in wages for the employee, if the family can afford the increase.  If the family cannot afford the increase, the family will have a couple of options.

Option number one will be to hire more workers to avoid paying overtime.  In California, because we have a daily and a weekly maximum on regular hours, there is no way to avoid some overtime liability because the employer can only deduct for sleep time if the employee works a 24-hour shift.  Under the DWBR, the minimum an employer could pay an employee for a 24-hour shift would be $156.00 per day ($8.00/hour x 9 regular hours + $12.00/hour x 7 overtime hours, with no compensation for 8 hours of sleep time).  The family would have to hire at least two workers to avoid the 45-hour weekly overtime cap.  The workers would also have to have a separate place to reside and pay for their own meals on their non-working days.

That means instead of one worker earning $896.00 per week, and receiving room and board to boot, one employee will receive $780.00 per week and another employee will receive $312.00 per week.  The employer will pay $1,092.00 per week.  That’s about a 20% increase for the family, and a 15% decrease for the worker, excluding the loss of room and board.

The only way to eliminate any overtime liability at all under the DWBR for 24-7 care would be to hire 6 different workers, each working no more than 9 hours a day or 45 hours a week.  Since an employer cannot deduct for sleep time for 9-hour shifts, the employer would have to pay one employee a day while he or she is sleeping, and the actual cost would be $1,344.00 per week ($192/day x 7 days/week).  Since paying no overtime would necessitate eliminating the sleep time exclusion, and because it would mean having six different workers through the week, most employers will not choose this option.

Keep in mind, none of these calculations take into account the increased minimum wage in California that becomes effective July 1, 2014.

Under the DOL regulations, there is a way to avoid any overtime by having 3 employees each work two 24-hour shifts and one 8-hour shift.  The employer would only pay $960.00 per week but that means each employee will only receive $320.00 per week, and this would not comply with California law.

In summary, option number one requires the family to pay at least 20% more, but the individual employee will receive 15% less wages and now has to find a separate place to live.  The good news is that one additional person will be employed.  Keep in mind, none of these calculations consider the increased minimum wage that will take effect in 2014 and 2016.

A second option is to place mom in a residential care or assisted living facility. The costs vary depending on the level of care required, and many allow family members to bring some of their own furniture so it can actually feel like home.  Many do not like this option because it moves mom out of the home, and it can be difficult to find a facility that provides the level of care the family desires. This option does nothing for the caregiver unless the caregiver has sufficient skills to work in a residential care or assisted living facility.

A third option, at least in California, is to obtain government assistance.  Workers employed through IHSS or other specific state and county programs are still exempt from California’s overtime laws.  This allows every tax payer to bear the burden of increased care, but relieves some of the burden from the individual family – assuming the family qualifies for services.

A final option is for a family-member to quit his or her job and stay home full time to take care of mom.  Before the necessity for a two-income household it was common for parents and grandparents to live with the family so the family could be responsible for taking care of themselves.  Each family will have to decide if that is a viable option for them.

I am concerned that people will try to skirt the laws by hiring “independent contractors.”  While there are some instances where a caregiver can be an independent contractor, I cannot think of a situation where a 24/7 caregiver would be an independent caregiver.  Families should consult their attorney before hiring a caregiver directly and when choosing a third-party employment agency.

What To Do

The new regulations and the DWBR are already signed.  The only way to modify the DOL regulations is to convince the Secretary of Labor to repeal the changes, or to convince Congress to amend the FLSA.  In California, the purpose of the DWBR committee is to discovery what, if any, impact the new law has on families and caregivers.  I encourage everyone to get involved in the debate and share your experiences with your representatives.

If you have questions about how these laws will impact your family or business, contact an employment attorney familiar with wage and hour laws in the home care industry.