For several decades, home care “companions” have provided care to elderly individuals. The employers of these workers (whether privately employed by the family or employed by a third-party Home Care Agency) were not required to pay overtime (nor minimum wage in some states). This has been known as the “Companion Care Exemption” because these workers were exempt from federal wage and hour law as defined by the Fair Labor Standards Act (FLSA).
The effect of this exemption has been to keep wages low, thereby making overall care costs more affordable. However, worker advocacy groups have argued that many senior care workers live at or near the poverty level, despite working very long hours. As a result, the industry has frequently struggled to attract enough high-quality workers – a shortage that many experts predict will become more dramatic as our citizenry ages.
The Department of Labor (DOL) Announces Changes
In late 2013, the Department of Labor announced two changes. First, they said that the Companion Care Exemption would only apply in cases where the family is the direct employer. Therefore, all third-party workers (employed by a Home Care Agency) would be entitled to overtime effective January 1, 2015.
Second, the DOL narrowed the definition of “companion care.” It is now defined as service that is predominantly fellowship and protection in nature. If a worker is asked to keep the patient company (reading, watching TV, talking, playing games, strolling, etc.) and safe (make sure the gas on the stove is turned off, the heater is working, etc.), they can be classified as a companion – as long as less than 20% of the worker’s time is spent on ADLs (Activities of Daily Living such as bathing, dressing, meal preparation, light housekeeping, etc.).
The DOL Gets Challenged
The National Association of Home Care and Hospice (NACH) as well as the Home Care Association of America (HCAOA) challenged the Department of Labor, arguing that such a radical change would destabilize the industry and make care unaffordable for many elderly Americans. They asked a U.S. District Judge to eliminate the DOL’s disparity between third-party employment and private employment as criteria for exemption and, secondarily, they asked the court to strike down the restricted definition of companionship services and reinstate the old definition.
The courts ruled that the DOL had overstepped their regulatory authority in this case. Despite pronouncing their opinion that caregivers should be entitled to overtime, a judge ruled that it was up to Congress, not the DOL or the judiciary. The judge thereby eliminated the requirement that third-party employers must pay overtime to all workers.
DOL Appeals and Wins
On August 21, 2015, the US Court of Appeals for Washington, DC unanimously ruled in favor of the DOL, effectively reversing the lower court’s decision. The court found the DOL was within its rights to change labor law for companion care workers. Everything outlined in the original ruling from late 2013 will become law barring an appeal being filed in the next few weeks. The date that third-party agencies will need to comply with the new companion care rule remains to be determined.
Effects of the Upcoming Changes
As stated, for years Home Care agencies opted to not pay overtime to home caregivers, because they “could” get away with it. This would allow the agency to pay lower wages, and perhaps generate higher profit margins and lower bill rates to families receiving care. The biggest problem obviously has been the welfare of the caregivers who are typically working for $10-$15/hour, and who in many cases work weekly hour levels that should have commanded overtime pay.
FirstLight Home Care’s Position
At FirstLight Home Care, we have mandated that all franchise owners pay overtime to caregivers since our inception. We firmly believed that this decade’s long loophole would eventually change, AND we believed that paying overtime to these employees was the “right” thing to do. As a result, our franchise owners have already implemented the cost of any overtime into the business model. Our bill rates, pay rates, profit margins, and marketing have always reflected the requirement to pay overtime pay to caregivers when applicable.
As the Department of Labor ruling becomes final, the industry (most of it) will have a rude awakening. How will a home care agency absorb the increased payroll expense? Will they increase the cost to the families? If they do, will they lose the business? Will they see lower margins and absorb the loss as a small business? Will they reduce and control caregiver hours, so as to limit overtime situations? Will they try and continue to not comply with the law, which will greatly affect their recruiting efforts for caregivers who will demand overtime pay when applicable?
These and other questions must be answered by the vast majority of the industry which has been allowed to act selfishly for too long. At FirstLight, business will go on as usual for all of its franchise owners. It seems that one of the basic powerful principles for franchise concepts and small business owners is “do the right thing”. At FirstLight, we’re proud to be well ahead of the curve on this one!