[Federal Register Volume 78, Number 190 (Tuesday, October 1, 2013)]
[Rules and Regulations]
[Pages 60454-60557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-22799]
[[Page 60453]]
Vol. 78
Tuesday,
No. 190
October 1, 2013
Part III
Department of Labor
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Wage and Hour Division
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29 CFR Part 552
Application of the Fair Labor Standards Act to Domestic Service; Final
Rule
Federal Register / Vol. 78 , No. 190 / Tuesday, October 1, 2013 /
Rules and Regulations
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Part 552
RIN 1235-AA05
Application of the Fair Labor Standards Act to Domestic Service
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule.
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SUMMARY: In 1974, Congress extended the protections of the Fair Labor
Standards Act (FLSA or the Act) to ``domestic service'' employees, but
it exempted from the Act's minimum wage and overtime provisions
domestic service employees who provide ``companionship services'' to
elderly people or people with illnesses, injuries, or disabilities who
require assistance in caring for themselves, and it exempted from the
Act's overtime provision domestic service employees who reside in the
household in which they provide services. This Final Rule revises the
Department's 1975 regulations implementing these amendments to the Act
to better reflect Congressional intent given the changes to the home
care industry and workforce since that time. Most significantly, the
Department is revising the definition of ``companionship services'' to
clarify and narrow the duties that fall within the term; in addition
third party employers, such as home care agencies, will not be able to
claim either of the exemptions. The major effect of this Final Rule is
that more domestic service workers will be protected by the FLSA's
minimum wage, overtime, and recordkeeping provisions.
DATES: This regulation is effective January 1, 2015.
FOR FURTHER INFORMATION CONTACT: Mary Ziegler, Director, Division of
Regulations, Legislation, and Interpretation, U.S. Department of Labor,
Wage and Hour Division, 200 Constitution Avenue NW., Room S-3502, FP
Building, Washington, DC 20210; telephone: (202) 693-0406 (this is not
a toll-free number). Copies of this Final Rule may be obtained in
alternative formats (Large Print, Braille, Audio Tape, or Disc), upon
request, by calling (202) 693-0675 (not a toll-free number). TTY/TTD
callers may dial toll-free (877) 889-5627 to obtain information or
request materials in alternative formats.
Questions of interpretation and/or enforcement of the agency's
current regulations may be directed to the nearest Wage and Hour
Division (WHD) District Office. Please visit http://www.dol.gov/whd for
more information and resources about the laws administered and enforced
by WHD. Information and compliance assistance materials specific to
this Final Rule can be found at: www.dol.gov/whd/homecare. You may also
call the WHD's toll-free help line at (866) 4US-WAGE ((866)-487-9243)
between 8:00 a.m. and 5:00 p.m. in your local time zone..
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
II. Background
III. Summary of Comments on Changes to FLSA Domestic Service
Regulations
A. Section 552.3 (Domestic Service Employment)
B. Section 552.6 (Companionship Services)
C. Section 552.102 (Live-In Domestic Service Employees) and
Section 552.110 (Recordkeeping Requirements)
D. Section 552.109 (Third Party Employment)
E. Other Comments
IV. Effective Date
V. Paperwork Reduction Act
VI. Executive Orders 12866 (Regulatory Planning and Review) and
13563 (Improving Regulation and Regulatory Review)
VII. Final Regulatory Flexibility Analysis
VIII. Unfunded Mandates Reform Act
IX. Executive Order 13132 (Federalism)
X. Executive Order 13175 (Indian Tribal Governments)
XI. Effects on Families
XII. Executive Order 13045 (Protection of Children)
XIII. Environmental Impact Assessment
XIV. Executive Order 13211 (Energy Supply)
XV. Executive Order 12630 (Constitutionally Protected Property
Rights)
XVI. Executive Order 12988 (Civil Justice Reform Analysis)
List of Subjects in 29 CFR part 552
Signature
Amendments to Regulatory Text
I. Executive Summary
Purpose of the Regulatory Action
Prior to 1974, the FLSA's minimum wage and overtime compensation
provisions did not protect domestic service workers unless those
workers were employed by enterprises covered by the Act (generally
those that had at least a certain annual dollar threshold in business,
see 29 U.S.C. 203(s)). Congress amended the FLSA in 1974 to extend
coverage to all domestic service workers, including those employed by
private households or companies too small to be covered by the Act. See
Fair Labor Standards Amendments of 1974, Public Law 93-259 Sec. 7, 88
Stat. 55, 62 (1974). At the same time, Congress created an exemption
from the minimum wage and overtime compensation requirements for
domestic service workers who provide companionship services and an
exemption from the Act's overtime compensation requirement for domestic
service workers who reside in the households in which they provide
services, i.e., live-in domestic service workers. Id.; 29 U.S.C.
13(a)(15), 13(b)(21).\1\ The new statutory text explicitly granted the
Department the authority to define the terms ``domestic service
employment'' and ``companionship services.'' See 29 U.S.C. 213(a)(15).
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\1\ Congress simultaneously also created an exemption from the
Act's minimum wage and overtime requirements for domestic service
employees ``employed on a casual basis . . . to provide babysitting
services.'' 29 U.S.C. 213(a)(15). This rulemaking does not make, nor
did the proposal it follows suggest, changes to the Department's
regulations regarding the babysitting exemption.
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The legislative history of the 1974 amendments explains that the
changes were intended to expand the coverage of the FLSA to include all
employees whose vocation was domestic service, but to exempt from
coverage casual babysitters and individuals who provided companionship
services. The ``companionship services'' exemption was to apply to
``elder sitters'' whose primary responsibility was to watch over an
elderly person or person with an illness, injury, or disability in the
same manner that a babysitter watches over children. See 119 Cong. Rec.
S24773, S24801 (daily ed. July 19, 1973) (statement of Sen. Williams).
The companionship services exemption was not intended to exclude
``trained personnel such as nurses, whether registered or practical,''
from the protections of the Act. See Senate Report No. 93-690, 93rd
Cong., 2d Sess., p. 20 (1974); House Report No. 93-913, 93rd Cong., 2d
Sess., p. 36 (1974).
In 1975, the Department promulgated regulations implementing the
companionship services and live-in domestic service employee
exemptions. See 40 FR 7404 (Feb. 20, 1975); 29 CFR part 552. These
regulations defined companionship services as ``fellowship, care, and
protection,'' which included ``household work . . . such as meal
preparation, bed making, washing of clothes, and other similar
services'' and could include general household work not exceeding ``20
percent of the total weekly hours worked.'' 29 CFR 552.6. Additionally,
the 1975 regulations permitted third party employers, or employers of
home care workers other than the individuals receiving care or their
families or households, to claim both the companionship services and
[[Page 60455]]
live-in domestic service employee exemptions. 29 CFR 552.109. These
regulations have remained substantially unchanged since they were
promulgated.
The home care industry, however, has undergone dramatic expansion
and transformation in the past several decades. The Department uses the
term home care industry to include providers of home care services, and
the term ``home care services'' to describe services performed by
workers in private homes and whose job titles include home health aide,
personal care attendant, homemaker, companion, and others.
In the 1970s, many individuals with significant care needs were
served in institutional settings rather than in their homes and their
communities. Since that time, there has been a growing demand for long-
term home care for persons of all ages, largely due to the rising cost
of traditional institutional care and, in response to the disability
civil rights movement, the availability of federal funding assistance
for home care, reflecting the nation's commitment to accommodate the
desire of individuals to remain in their homes and communities. As more
individuals receive services at home rather than in nursing homes or
other institutions, workers who provide home care services, referred to
as ``direct care workers'' in this Final Rule but employed under titles
including certified nursing assistants, home health aides, personal
care aides, and caregivers, perform increasingly skilled duties. Today,
direct care workers are for the most part not the elder sitters that
Congress envisioned when it enacted the companionship services
exemption in 1974, but are instead professional caregivers.
Despite this professionalization of home care work, many direct
care workers employed by individuals and third-parties have been
excluded from the minimum wage and overtime protections of the FLSA
under the companionship services exemption, which courts have read
broadly to encompass essentially all workers providing services in the
home to elderly people or people with illnesses, injuries, or
disabilities regardless of the skill the duties performed require. The
earnings of these workers remain among the lowest in the service
industry, impeding efforts to improve both jobs and care. The
Department believes that the lack of FLSA protections harms direct care
workers, who depend on wages for their livelihood and that of their
families, as well as the individuals receiving services and their
families, who depend on a professional, trained workforce to provide
high-quality services.
Because the 1975 regulations define companionship services and
address third-party employment in a manner that, given the changes to
the home care services industry, the home care services workforce, and
the scope of home care services provided, no longer aligns with
Congress's intent when it extended FLSA protections to domestic service
employees, the Department is modifying the relevant regulatory
provisions in 29 CFR part 552. These changes are intended to clarify
and narrow the scope of duties that fall within the definition of
companionship services in order to limit the application of the
exemption. The Department intends for the exemption to apply to those
direct care workers who are performing ``elder sitting'' rather than
the professionalized workforce for whom home care is a vocation. In
addition, by prohibiting employers of direct care workers other than
the individual receiving services or his or her family or household
from claiming the companionship services or live-in domestic service
employment exemptions, the Department is giving effect to Congress's
intent in 1974 to expand coverage to domestic service employees rather
than to restrict coverage for a category of workers already covered.
Summary of the Major Provisions of the Final Rule
This Final Rule makes changes to several sections of 29 CFR part
552, the Department's regulations concerning domestic services
employment.
The Department is slightly revising the definition of ``domestic
service employment'' in Sec. 552.3 to clarify the language and
modernize the list of examples of professions that fall within this
category.
This Final Rule also updates the definition of ``companionship
services'' in Sec. 552.6 in order to restrict the term to encompass
only workers who are providing the sorts of limited, non-professional
services Congress envisioned when creating the exemption. Specifically,
paragraph (a), which uses more modern language than appears in the 1974
amendments or 1975 regulations, provides that ``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. It also defines
``fellowship'' as engaging the person in social, physical, and mental
activities and ``protection'' as being present with the person in his
or her home, or to accompany the person when outside of the home, to
monitor the person's safety and well-being. Paragraph (b) provides that
the term ``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. It
defines ``care'' as assistance with activities of daily living and
instrumental activities of daily living. Paragraph (c) provides that
the term ``companionship services'' does not include general domestic
services performed primarily for the benefit of other members of the
household. Paragraph (d) provides that the term ``companionship
services'' does not include the performance of medically related
services, and it explains that the determination of whether the
services performed are medically related is based on whether the
services typically require and are performed by trained personnel, such
as registered nurses, licensed practical nurses, or certified nursing
assistants, regardless of the actual training or occupational title of
the individual providing the services.
In order to better ensure that live-in domestic service employees
are compensated for all hours worked, the Department is also changing
the language in Sec. Sec. 552.102 and .110 to require the keeping of
actual records of the hours worked by such employees.
The Department is revising Sec. 552.109, the regulatory provision
regarding domestic service employees employed by third-party employers,
or employers other than the individual receiving services or his or her
family or household. To better ensure that the domestic service
employees to whom Congress intended to extend FLSA protections in fact
enjoy those protections, the new regulatory text precludes third party
employers (e.g., home care agencies) from claiming the exemption for
companionship services or live-in domestic service employees.
Effective Date
These changes will become effective on January 1, 2015. The
Department believes that this extended effective date takes into
account the complexity of the federal and state systems that are a
significant source of funding for home care work and the needs of the
diverse parties affected by this Final Rule (including consumers, their
families, home care agencies, direct care workers, and local, state and
federal Medicaid
[[Page 60456]]
programs) by providing such parties, programs and systems time to
adjust.
Costs and Benefits
The Table below illustrates the potential scale of projected
transfers, costs, and net benefits of the revisions to the FLSA
regulations addressing domestic service employment. The primary effect
shown in the Table is the transfer of income from home care agencies
(and payers because a portion of costs will likely be passed through
via price increases) to direct care workers, due to more workers being
protected under the FLSA; the Department projects an average annualized
transfer of $321.8 million in the medium-impact scenario (using a 7
percent real discount rate). These income transfers result from the
narrowing of the companionship services exemption, specifically:
payment for time spent by direct care workers traveling between
individuals receiving services (consumers) for the same employer, and
payment of an overtime premium when hours worked exceed 40 hours per
week. Transfers resulting from the requirement to pay the minimum wage
are expected to be zero because current wage data suggests that few
affected workers, if any, are currently paid less than the federal
minimum wage per hour.
The Department projects that the average annualized direct costs
for regulatory familiarization, hiring new workers, and the deadweight
loss due to the potential allocative inefficiency resulting from the
rule will average $6.8 million per year over a 10-year period. In
perspective, regulatory familiarization, hiring new workers, and the
deadweight loss represents about 0.007 percent of industry revenue,
while the disemployment impact of the rule affects about 0.06 percent
of direct care workers. The relatively small deadweight loss occurs
because both the demand for and supply of home care services appear to
be inelastic in the largest component of this market, in which public
payers reimburse for home care; thus, the equilibrium quantity of home
care services is not very responsive to the changes in price.
The Department also expects the rule will reduce the high turnover
rate among direct care workers, along with its associated employment
costs to agencies, a key quantifiable benefit of the Final Rule.
Because overtime compensation, hiring costs, and reduction in turnover
depend on how employers choose to comply with the rule, the Department
estimated a range of impacts based on three adjustment scenarios; the
table below presents the intermediate scenario--``Overtime Scenario
2''--which is, along with a complete discussion of the data sources,
methods, and results of this analysis, presented in Section VI,
Executive Orders 12866 and 13563.
Table--Summary of Impact of Changes to FLSA Companionship Services Exemption
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Average annualized value ($
Future years ($ mil.) \a\
Impact Year 1 ($ mil.) mil.) ---------------------------------
3% Real rate 7% Real rate
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Total Transfers
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Minimum wages \b\ + Travel wages + $210.2 $240.9 $468.3 $330.6 $321.8
Overtime Scenario 2....................
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(Lower bound--upper bound).......... ($104-$281) ($119-$627) ($159-$442)
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Total Cost of Regulations \e\
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Regulatory Familiarization + Hiring $20.7 $4.2 $5.1 $6.5 $6.8
Costs \c\ + Deadweight Loss............
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(Lower bound--upper bound).......... ($19-$21) ($4-$5) ($6-$7)
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Disemployment (number of workers)....... 812 885 1,477 1,144 \d\
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Net Benefits
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Overtime Scenario 2 \c\................. $9.4 $20.5 $15.5 $17.1 $17.1
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(Lower bound--upper bound).......... ($-4-20) ($3-$31) ($4-$27)
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\a\ These costs represent a range over the nine year span. Costs are lowest in Year 2 and highest in Year 10 so
these two values are reported.
\b\ 2011 statistics on wages indicate that few affected workers, if any, are currently paid below the minimum
wage (i.e. in no state is the 10th percentile wage below $7.25 per hour). See the Bureau of Labor Statistics
Occupational Employment Statistics (OES), 2011 state estimates. Available at: http://stats.bls.gov/oes/.
\c\ Based on overtime hours needed to be covered under Overtime Scenario 2.
\d\ Simple average over 10 years.
\e\ Excludes paperwork burden, estimated in Section V.
Not included in the table is the opportunity cost of managerial
time spent adjusting worker schedules to reduce or avoid overtime hours
and travel time. The Department expects these costs to be relatively
small because employers, particularly home care agencies, already
manage the schedules of nonexempt home care employees and therefore
have systems in place to facilitate scheduling workers. Also
unquantified is the potential impact on direct care workers resulting
from employers making such schedule changes.
The costs, benefits and transfer effects of the Final Rule depend
on the actions of employers, decision-makers within federal and state
programs that provide funding for home care services, consumers, and
workers. Depending upon whether employers choose to continue current
work practices, rearrange worker schedules, or hire new workers, the
costs, benefits and transfers will vary. The Department notes that the
delayed effective date of this Final Rule creates a transition period
during which all entities potentially impacted by this rule have the
opportunity to review existing policies and practices and make
necessary adjustments for compliance with this Final Rule. We believe
this
[[Page 60457]]
transition period mitigates short-term impacts for the regulated
community, relative to a regulatory alternative in which compliance is
required immediately upon finalization. The Department will work
closely with stakeholders and the Department of Health and Human
Services to provide additional guidance and technical assistance during
the period before the rule becomes effective, in order to ensure a
transition that minimizes potential disruption in services and supports
the progress that has allowed elderly people and persons with
disabilities to remain in their homes and participate in their
communities.
II. Background
A. What the FLSA Provides
The FLSA requires, among other things, that all covered employees
receive minimum wage and overtime compensation, subject to various
exemptions. The FLSA as originally enacted only covered domestic
service workers if they worked for a covered enterprise, i.e., an
agency or business subject to the FLSA or were an individual engaged in
interstate commerce, an unlikely occurrence. Thus, prior to 1974,
domestic service workers employed by covered businesses to provide
cooking, cleaning, or caregiving tasks in private homes were entitled
to the Act's minimum wage and overtime compensation provisions. In
1974, Congress extended FLSA coverage to ``domestic service'' employees
employed in private households. See 29 U.S.C. 202(a), 206(f), 207(l).
Domestic service workers include, for example, employees employed as
cooks, butlers, valets, maids, housekeepers, governesses, janitors,
laundresses, caretakers, handymen, gardeners, and family chauffeurs.
Senate Report No. 93-690, 93rd Cong., 2d Sess. p. 20 (1974). Thus,
workers performing domestic tasks, such as cooking, cleaning, doing
laundry, driving, and general housekeeping, and employed in private
homes, either by households or by third party employers, are protected
by the basic minimum wage and overtime protections of the FLSA.
Congressional committee reports state the reasons for extending the
minimum wage and overtime protections to domestic service employees
were ``so compelling and generally recognized as to make it hardly
necessary to cite them.'' Senate Report No. 93-690, p. 18. The reports
also state that private household work had been one of the least
attractive fields of employment because wages were low, work hours were
highly irregular, and non-wage benefits were few. Id. The U.S. House of
Representatives Committee on Education and Labor stated its expectation
``that extending minimum wage and overtime protection to domestic
service workers will not only raise the wages of these workers but will
improve the sorry image of household employment . . . Including
domestic workers under the protection of the Act should help to raise
the status and dignity of this work.'' House Report No. 93-913, 93rd
Cong., 2d Sess., pp. 33-34 (1974). During a debate on the amendments,
one Senator referred to the importance of ``the dignity and respect
that ought to come with honest work'' and the low wages that left many
domestic service employees unable to rise out of poverty. See 119 Cong.
Rec. S24773, S24799-80 (daily ed. July 19, 1973) (statement of Sen.
Williams).
When Congress extended FLSA protections to domestic service
employees, however, it created two exemptions within that category.
First, it exempted from both the minimum wage and overtime compensation
requirements of the Act casual babysitters and ``any employee employed
in domestic service employment to provide companionship services for
individuals who (because of age or infirmity) are unable to care for
themselves (as such terms are defined and delimited by regulations of
the Secretary).'' 29 U.S.C. 213(a)(15). Second, it exempted from the
overtime pay requirement ``any employee who is employed in domestic
service in a household and who resides in such household.'' 29 U.S.C.
213(b)(21).
The legislative history explains:
It is the intent of the committee to include within the coverage
of the Act all employees whose vocation is domestic service.
However, the exemption reflects the intent of the committee to
exclude from coverage . . . companions for individuals who are
unable because of age and infirmity to care for themselves. But it
is not intended that trained personnel such as nurses, whether
registered or practical, shall be excluded. People who will be
employed in the excluded categories are not regular bread-winners or
responsible for their families' support. The fact that persons
performing . . . services as companions do some incidental household
work does not keep them from being . . . companions for purposes of
this exclusion.
Senate Report No. 93-690, p. 20; House Report No. 93-913, pp. 36. In
addition, Senator Williams, Chairman of the Senate Subcommittee on
Labor and the Senate floor manager of the 1974 amendments to the FLSA,
described individuals who provided companionship services as ``elder
sitters'' whose primary responsibility was ``to be there and to watch''
over an elderly person or person with an illness, injury, or disability
in the same manner that a babysitter watches over children, ``not to do
household work.'' 119 Cong. Rec. S24773, S24801 (daily ed. July 19,
1973). He explained that the category of workers to which the term
refers includes ``a neighbor'' who ``comes in and sits with'' ``an aged
father, an aged mother, an infirm father, an infirm mother.'' Id.
Senator Williams further noted that ``if the individual is [in the
home] for the actual purpose of being . . . a companion,'' any work
that is ``purely incidental'' would not mean the exemption did not
apply. Id. Examples of such incidental work in the legislative history
were ``making lunch'' or, in the babysitting context, ``throwing a
diaper into the washing machine.'' Id.
B. Regulatory History
On February 20, 1975, the Department issued regulations at 29 CFR
part 552 implementing the domestic service employment provisions. See
40 FR 7404. Subpart A of the rule defined and delimited the terms
``domestic service employment,'' ``employee employed on a casual basis
in domestic service employment to provide babysitting services,'' and
``employment to provide companionship services to individuals who
(because of age or infirmity) are unable to care for themselves.''
Subpart B of the rule set forth statements of general policy and
interpretation concerning the application of the FLSA to domestic
service employees including live-in domestic service employees. Section
552.6 defined companionship services as ``fellowship, care, and
protection,'' which included ``household work . . . such as meal
preparation, bed making, washing of clothes, and other similar
services'' and could include general household work not exceeding ``20
percent of the total weekly hours worked.'' Section 552.109 provided
that third party employers could claim the companionship services
exemption or live-in domestic service employee exemption.
On December 30, 1993, the Department published a Notice of Proposed
Rulemaking (NPRM) in the Federal Register, inviting public comments on
a proposal to revise 29 CFR 552.109 to clarify that, in order for the
exemptions under Sec. 13(a)(15) and Sec. 13(b)(21) of the FLSA to
apply, employees engaged in companionship services and live-in domestic
service who are employed by a third party employer or agency must be
``jointly'' employed by the individual, family, or household using
their services. Other
[[Page 60458]]
minor updating and technical corrections were included in the proposal.
See 58 FR 69310. On September 8, 1995, the Department published a Final
Rule revising the regulations to incorporate changes required by the
recently enacted changes to Title II of the Social Security Act and
making other updating and technical revisions. See 60 FR 46766. That
same day, the Department published a proposed rule re-opening and
extending the comment period on the proposed changes to Sec. 552.109
concerning third party employment. See 60 FR 46797. The Department did
not finalize this proposed change.
On January 19, 2001, the Department published an NPRM to amend the
regulations to revise the definition of ``companionship services'' to
more closely adhere to Congressional intent. The Department also sought
to clarify the criteria used to determine whether employees qualify as
trained personnel and to amend the regulations concerning third party
employment. On April 23, 2001, the Department published a proposed rule
re-opening and extending the comment period on the January 2001
proposed rule. See 66 FR 20411. This rulemaking was eventually
withdrawn and terminated on April 8, 2002. See 67 FR 16668.
On December 27, 2011, the Department published an NPRM inviting
public comments for a period of sixty (60) days on proposed changes to
the exemptions for employees performing companionship services and
live-in domestic service employees. See 76 FR 81190. The proposed
changes were based on the Department's experience, including its
previous rulemaking efforts, a thorough review of the legislative
history, meetings with stakeholders, as well as additional research
conducted concerning the changes in the demand for home care services,
the home care industry, and the home care services workforce. On
February 24, 2012, the Department extended the period for filing
written comments. See 77 FR 11021. On March 13, 2012, the Department
again extended the period for filing written comments with a final
comment closing date of March 21, 2012. See 77 FR 14688. This Final
Rule is the result of consideration of the comments received in
response to the December 27, 2011 NPRM.
C. Need for Rulemaking
Since the Department published its regulations implementing the
1974 amendments to the FLSA, the home care industry has undergone
dramatic transformation. In the 1970s, individuals who had significant
care needs went into institutional settings. Over time, however, our
nation has come to recognize the importance of providing services in
private homes and other community-based settings and of supporting
individuals in remaining in their homes and communities. This shift is
in part a result of the rising cost of traditional institutional care,
and has been made possible in significant part by the availability of
government funding assistance for home care under Medicare and
Medicaid.\2\ The growing demand for long-term home care services is
also due to the significant increase in the percentage of elderly
people in the United States.\3\ The Supreme Court's decision in
Olmstead v. L.C., 527 U.S. 581 (1999), which held that it is a
violation of the Americans with Disabilities Act for public entities to
fail to provide services to persons with disabilities in the most
integrated setting appropriate, further solidified our country's
commitment to decreasing institutionalization and has also influenced
this important trend.
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\2\ Public funds pay the overwhelming majority of the cost for
providing home care services. Medicare payments represent over 40
percent of the industry's total revenues; other payment sources
include Medicaid, insurance plans, and direct pay. The National
Association for Home Care and Hospice (NAHC) reports, based on data
from the Centers for Medicare and Medicaid Services (CMS), state
that Medicare and Medicaid together paid roughly two-thirds of the
funds paid to freestanding agencies (41 and 24 percent,
respectively). Centers for Medicare and Medicaid Services (CMS),
Office of the Actuary, National Health Care Expenditures Historical
and Projections: 1965-2016. State and local governments account for
15 percent of revenues, while private health insurance accounts for
eight percent. Out-of-pocket funds account for 10 percent of agency
revenues. http://www.bls.gov/oes/current/oes399021.htm.
\3\ See Shrestha, Laura, The Changing Demographic Profile of the
United States, Congressional Research Service p. 13-14 (2006).
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This shift is reflected in the increasing number of agencies and
workers engaged in home care. The number of Medicare-certified home
care agencies increased from 2,242 in 1975 to 7,747 in 1999 and by the
end of 2009, had grown to 10,581.\4\ There has been a similar increase
in the employment of home health aides and personal care aides in the
private homes of individuals in need of assistance with basic daily
living or health maintenance activities. The number of workers in these
jobs tripled between 1988 and 2001; by 2001 there were 560,190 workers
employed as home health aides and 408,360 workers employed as personal
care aides.\5\ Between 2001 and 2011, home health aide employment
increased 65 percent to 924,650 and personal care aide employment
doubled, increasing to 820,600.\6\
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\4\ See The National Association for Home Care & Hospice (NAHC),
Basic Statistics About Homecare: Updated 2010, (2010). Available at:
http://web.archive.org/web/20120515112644/http://nahc.org/facts/10HC_Stats.pdf.
\5\ Bureau of Labor Statistics' (BLS), Occupational Employment
Statistics (OES).
\6\ http://www.bls.gov/oes/current/oes399021.htm.
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Furthermore, as services for elderly people and people with
illnesses, injuries, or disabilities who require assistance in caring
for themselves (referred to in this Final Rule as consumers) have
increasingly been provided in individuals' homes rather than in nursing
homes or other institutions, the duties performed in homes have changed
as well. Most direct care workers are employed to do more than simply
sit with and watch over the individuals for whom they work. They assist
consumers with activities of daily living and instrumental activities
of daily living, such as bathing, dressing, housework, or preparing
meals. They often also provide medical care, such as managing the
consumer's medications or performing tracheostomy care, that was
previously almost exclusively provided in hospitals, nursing homes, or
other institutional settings and by trained nurses. This work is far
more skilled and professional than that of someone performing ``elder
sitting.'' Although some direct care workers today still perform the
services Congress contemplated, i.e., sit with and watch over
individuals in their homes, most do much more.
Yet the growth in demand for home care and the professionalization
of the home care workforce have not resulted in growth in earnings for
direct care workers. The earnings of employees in the home health aide
and personal care aide categories remain among the lowest in the
service industry. Studies have shown that the low income of direct care
workers continues to impede efforts to improve both the circumstances
of the workers and the quality of the services they provide.\7\
Covering direct care workers under the Act is, thus, an important step
in ensuring that the home care industry attracts and retains qualified
workers that the sector will need in the future.
---------------------------------------------------------------------------
\7\ See Brannon, Diane, et al., ``Job Perceptions and Intent to
Leave Among Direct Care Workers: Evidence From the Better Jobs
Better Care Demonstrations'' The Gerontologist, 47, 6, p. 820-829
(2007).
---------------------------------------------------------------------------
These low wages are at least in part the result of the application
of the companionship services exemption to a wide range of direct care
workers who then may not be paid minimum wage
[[Page 60459]]
for all hours worked and likely do not receive overtime wages for hours
worked over forty in a workweek. In some instances, employers may be
improperly claiming the exemption as to employees whose work falls
outside the existing definition of companionship services in 29 CFR
552.6. In many others, however, employers are relying on the
Department's 1975 regulation, which was written at a time when the
scope of direct care work was much more limited and neither Congress
nor the Department predicted the developments in home care services
that were to come.
Courts have interpreted the current regulation broadly such that
the companionship services exemption has expanded along with the home
care industry and workforce; based on this expansive reading of the
current regulation, essentially any services provided for an elderly
person or person with an illness, injury, or disability in the person's
private home constitute companionship services for which minimum wage
and overtime need not be paid. See, e.g., Sayler v. Ohio Bureau of
Workers' Comp., 83 F.3d 784, 787 (6th Cir. 1996) (holding that a worker
who ``helps [an adult with a serious back injury] dress, gives him his
medication, helps him bathe, assists him in getting around their home,
and cleans his bedclothes when he loses control of his bowels'' is
providing companionship services under Sec. 552.6); McCune v. Or.
Senior Servs. Div., 894 F.2d 1107, 1108-09 (9th Cir. 1990) (accepting
that ``full-time, live-in attendants for elderly and infirm individuals
unable to care for themselves'' who perform ``cleaning, cooking, and
hygiene and medical care'' for those individuals were providing
companionship services because under the current regulation, ``the
recipients of these services [are] the determinative factor in applying
the [companionship services] exception''); Fowler v. Incor, 279 F.
App'x 590, 596 (10th Cir. 2008) (noting that ``[c]are related to the
individual'' that falls within the current definition of companionship
services ``has been expanded to include more frequent vacuuming and
dusting for a client with allergies, mopping and sweeping for clients
who crawl on the floor, and habilitation training, which often includes
training the client to do housework, cooking, and attending to person
hygiene''); Cook v. Diana Hays and Options, Inc., 212 F. App'x 295,
296-97 (5th Cir. 2006) (holding that a direct care worker ``employed by
. . . a non-profit corporation that provides home health care'' who
``provided simple physical therapy, prepared [consumers'] meals,
assisted with [consumers'] eating, baths, bed-making, and teeth
brushing, completed housework . . . and accompanied them on walks, to
doctor visits, to Mass, and to the grocery store'' was exempt from the
FLSA under the companionship services exemption as defined in current
Sec. 552.6). Furthermore, courts have narrowly construed the
regulation's exclusion of ``trained personnel'' from companionship
services such that direct care workers providing medical care,
including certified nursing assistants and often home health aides, are
not protected by the FLSA. See, e.g., McCune, 894 F.2d at 1110-
11(holding that certified nursing assistants were not ``trained
personnel'' excluded from the regulatory definition of companionship
services because, unlike registered nurses and licensed practical
nurses, certified nursing assistants in that case received only 60
hours of training); Cox v. Acme Health Servs., Inc., 55 F.3d 1304,
1309-10 (7th Cir. 1995) (holding that a home health aide who had
completed 75 hours of required training and ``performed patient care''
including ``administering complete bed baths, position and turning
patients in bed, tube-feeding, the taking and recording of vital signs,
bowel and bladder training, changing and cleaning patients' catheters,
administering enemas, range-of-motion exercise training, speech
training, and inserting non-medicated suppositories'' did not qualify
as ``trained personnel'' and therefore provided ``companionship
services'' as defined in the Department's regulations).
In this Final Rule, the Department is exercising its authority to
amend the domestic service employment regulations to clarify and narrow
the set of employees as to whom the companionship services and live-in
domestic service employee exemptions may be claimed. See Long Island
Care at Home, Ltd. v. Coke, 551 U.S. 158, 165 (2007) (discussing the
gaps in the FLSA, including ``the scope and definition of statutory
terms such as `domestic service employment' and `companionship
services''' that Congress ``entrusted the agency to work out'' (citing
29 U.S.C. 213(a)(15))). These limits are meant to ensure that these
exemptions are applied only to the extent Congress intended in enacting
the 1974 amendments.
Furthermore, because of the Department's revisions to these
regulations, as home-based services continue to expand, employers will
have clear guidance about the need to afford most direct care workers
the protections of the FLSA, and the continued growth of home-based
services will occur based on a realistic understanding of the
professional nature of the home care workforce. Specifically, as
explained in detail in this preamble, only direct care workers who
primarily provide fellowship and protection are providing companionship
services. Direct care workers who are employed by third party
employers, such as private home care agencies, are the type of
professional workers whose vocation merits minimum wage and overtime
protections. Direct care workers who provide medically related
services, such as certified nursing assistants, are doing work that
calls for more skill and effort than that encompassed by the term
``companionship services.'' The Department believes that based on these
principles, most direct care workers acting as home health aides, and
many whose title is personal care assistant, will be entitled to
minimum wage and overtime. These workers are due the respect and
dignity that accompanies the protections of the FLSA.
The Department recognizes that this Final Rule will have an impact
on individuals and families who rely on direct care workers for crucial
assistance with day-to-day living and community participation.
Throughout the rulemaking process, the Department has carefully
considered the effects of the rule on consumers and has taken into
account the perspective of elderly people and people with illnesses,
injuries, and disabilities, as well as workers, employers, public
agencies, and others. The Department has responded to comments from
members of those groups and organizations representing them throughout
this Final Rule. In particular, this preamble explains that the
Department does not believe, as some commenters have suggested, that
the rule will interfere with the growth of home- and community-based
caregiving programs and thereby lead to increased institutionalization.
Furthermore, the preamble explains that many states require the payment
of minimum wage and often overtime to direct care workers, and the
detrimental effects on the home care industry some commenters predict
have not occurred in those states. To the contrary, the Department
believes that ensuring minimum wage and overtime compensation will not
only benefit direct care workers but also consumers because supporting
and stabilizing the direct care workforce will result in better
qualified employees, lower
[[Page 60460]]
turnover, and a higher quality of care. Furthermore, as described in
detail throughout this preamble, the Department has modified the
proposed regulations in response to comments to make the rule easier
for the regulated community to understand and apply.
III. Summary of Comments on Changes to the FLSA Domestic Service
Regulations
More than 26,000 individuals commented on the Department's Notice
of Proposed Rulemaking. Comments were received from a broad array of
constituencies, including direct care workers, consumers of home care
services, small business owners and employers, worker advocacy groups
and unions, employer and industry advocacy groups, law firms, Members
of Congress, state government agencies, federal government agencies,
professional associations, the disability community, and other
interested members of the public. Several organizations attached the
views of some of their individual members: National Partnership for
Women and Families (8,733 individual comments), Progressive Jewish
Alliance and Jewish Funds for Justice (687 individual comments), and
Interfaith Worker Justice (500 individual comments), for example. Other
organizations submitted a comment and attached membership signatures,
such as the National Women's Law Center (Center) (3,392 signatures).
Additional comments submitted after the comment period closed are not
considered part of the official record and were not considered. All
comments timely received may be viewed on the www.regulations.gov Web
site, docket ID WHD-2011-0003.
Many comments received in response to the NPRM are: (1) Very
general statements of support or opposition; (2) personal anecdotes
that do not address a specific aspect of the proposed changes; (3)
comments that are beyond the scope or authority of the proposed
regulations; or (4) identical or nearly identical ``form letters'' sent
in response to comment initiatives sponsored by various constituent
groups. The remaining comments reflect a wide variety of views on the
merits of particular sections of the proposed regulations. Many include
substantive analyses and arguments in support of or in opposition to
the proposed regulations. The substantive comments received on the
proposed regulations are discussed below, together with the
Department's response to those comments and a section-by-section
discussion of the changes that have been made in the final regulatory
text.
Terminology
Several commenters indicated that terms used by the Department in
the NPRM were inconsistent with industry use and may be misinterpreted.
Commenters themselves used a number of different terms in referring to
the industry, the workers potentially impacted by the proposed rule,
and the individuals receiving services from workers potentially
impacted by the proposed rule. The Department has made an effort to
modify its use of language where possible in the Final Rule except when
quoting the statute, legislative history, case law, or when quoting a
commenter. For example, the Department notes that the terms ``aged''
and ``infirmity'' appear in the current regulatory text due to the
language Congress used in the statutory exemption. See 29 U.S.C.
213(a)(15). However, where possible throughout the preamble discussion,
the Department instead uses the term ``consumers'' or ``elderly people
or people with illnesses, injuries, or disabilities'' when discussing
those who receive home care services, including companionship services.
When discussing the workers who may be impacted by the Final Rule, the
Department instead uses the term ``direct care worker'' to encompass
the occupational categories of these domestic service workers and the
terms used by commenters, such as home health aides, personal care
aides, attendants, direct support professionals, and family caregivers.
Finally, in this Final Rule, the Department uses the term ``home care''
to reflect the broader industry rather than home health care which
specifically covers medical assistance performed by certified
personnel.
Section-by-Section Analysis of Final Regulations
A. Section 552.3 (Domestic Service Employment)
Section 552.3, which defines domestic service employment, currently
reads, ``[a]s used in section 13(a)(15) of the Act, the term domestic
service employment refers to services of a household nature performed
by an employee in or about a private home (permanent or temporary) of
the person by whom he or she is employed.'' Section 552.3 also provides
an illustrative list of various occupations which are considered
``domestic service employment.''
In the NPRM, the Department proposed to update and clarify the
definition of domestic service employment in Sec. 552.3. Specifically,
the Department proposed to remove the qualifying introductory language
``as used in section 13(a)(15) of the Act'' because section 13(a)(15)
refers to the Act's exemption for those employed to provide babysitting
services on a casual basis and those performing companionship services.
The definition of domestic service employment has a broader context
than just the exemption found in 13(a)(15). The Department also
proposed to remove the phrase ``of the person by whom he or she is
employed'' from the definition because the Department believes this
phrase may be confusing and misread as impermissibly narrowing coverage
of domestic service employees under the Act. In addition, the
Department proposed to delete the more outdated occupations listed in
Sec. 552.3, such as ``governesses,'' ``footmen,'' and ``grooms,'' and
to include more modern occupations, such as ``nannies,'' ``home health
aides,'' and ``personal care aides.'' The Department also proposed to
include babysitters and companions on the list of domestic service
workers. For the reasons stated below, this provision is adopted
without change in the Final Rule. An additional conforming change has
also been made to Sec. 552.101(a).
Several organizations wrote to support the proposed changes,
commenting that the proposed revised language would add clarity, thus
reducing confusion among workers and employers. For example, the Equal
Justice Center (EJC) lauded the Department's deletion of the
introductory language referencing section 13(a)(15) of the Act, noting
that ``the introductory language of section 552.3 . . . created a
definitional inconsistency by exempting a group of workers Congress
intended to include. The proposed deletion of this language effects
clarity and serves as a recognition of the broad spectrum of
occupations within the home Congress intended to protect.''
Other organizations supported the Department's proposal to remove
the language specifying that domestic service work be performed in the
home of the person by whom he or she is employed. The Center stated
that the removal of the language ``will prevent confusion that could
lead to narrower coverage of domestic service employees under the FLSA.
This is particularly important given the high percentage of home care
workers employed by third parties or agencies.'' Similarly, the
American Federation of State, County and Municipal Employees (AFSCME)
supported the Department's revised definition, stating, ``removal of
the definitional interpretation potentially limiting such work to a
private home of
[[Page 60461]]
the employer aptly adjusts the law to existing workplace realities.''
Commenters also voiced support for the Department's proposal to
update the list of occupations that fall within the definition of
domestic service employment. The EJC supported the Department's change
to the list of illustrative occupations, explaining that, the revision
``limits litigation of coverage by guiding the Courts through modern
and more accessible terminology that denotes the occupations that
Congress intended to cover since 1974.'' This organization also
commended the Department's addition of home health aides and personal
care aides in the regulation, reflecting the prominence of the
occupations in the burgeoning home care industry. See also American
Civil Liberties Union (ACLU); PHI; and Susan Flanagan.
Few comments were received in opposition to the proposed
definition. Those that opposed the proposed changes did so generally,
such as the Texas Association for Home Care and Hospice, which
commented that the definition should not be amended to include
companions, home health aides, or personal care aides. Additionally,
AARP, although generally supportive of the changes, recommended adding
language to the regulation stating that a job title does not control
legal status.
The Department has carefully considered all the comments regarding
the proposed change to the definition of ``domestic service
employment'' and has decided to adopt the regulation as proposed. The
Department is making a conforming change to Sec. 552.101(a) by
deleting the phrase ``of the employer,'' so that the definition of
``domestic service employment'' is consistent with Sec. 552.3. The
Department believes that updating and clarifying this definition by
deleting the limiting language ``as used in section 13(a)(15) of the
Act'' reflects the legislative history, which is to extend FLSA
coverage to all domestic employees whose ``vocation'' was domestic
service. The Department also believes that deleting the phrase ``of the
person by whom he or she is employed'' from the definition is more
consistent with the legislative history. As discussed in the NPRM, this
language has been part of the regulations since first implemented in
1975; however, the Department believes the definition may be confusing
and may be misread as impermissibly narrowing coverage of domestic
service employees under the FLSA. The Senate Committee responsible for
the 1974 amendments looked at regulations issued under the Social
Security Act for defining domestic service. The Department borrowed
this language from the Social Security regulations without discussion
or elaboration, and has consistently maintained that the phrase is an
extraneous vestige. See Long Island Care at Home, Ltd. v. Coke, 551
U.S. 158, 169-70 (2007). This phrasing is not applicable to the
realities of domestic service employment today, in which many employees
are employed, either solely or jointly, by an entity other than the
person in whose home the services are performed. Removal of this
extraneous language more accurately reflects Congressional intent and
clarifies coverage of these workers. 76 FR 81192.
Private Home
The Department also received a few comments concerning what
constitutes a ``private home.'' The ACLU noted that a private home is
distinguishable from a building that an employer rents out to
strangers. One individual stated that the Department's definition of
private home is too restrictive and does not extend to Independent
Living or Assisted Living communities. This individual suggested that
such residences should be considered the private home of the elderly
individuals because they live there, the living arrangements are not
temporary, and the individual's furniture, pictures, and personal files
remain in the residence.
As explained above, in order to qualify as a domestic service
employee, an employee's work must be performed in or about a ``private
home.'' Sec. Sec. 552.3, 552.101. The Department did not propose any
changes to the definition of ``private home,'' and nothing in this
Final Rule is altering the determination of whether work is being
performed in or about a private home. Nonetheless, because this is a
threshold question for determining whether an employer is entitled to
claim the companionship services exemption, the Department is offering
a summary of the definition of ``private home'' under existing law.
Under the Department's regulations, a private home may be a fixed
place of abode or a temporary dwelling. Sec. 552.101(a). ``A separate
and distinct dwelling maintained by an individual or a family in an
apartment house, condominium or hotel may constitute a private home.''
Id. However, ``[e]mployees employed in dwelling places which are
primarily rooming or boarding houses are not considered domestic
service employees. The places where they work are not private homes but
commercial or business establishments.'' Sec. 552.101(b).
The Senate Report also discusses the term ``private home,'' noting
that ``the domestic service must be performed in a private home which
is a fixed place of abode of an individual or family.'' S. Rep. No. 93-
690, at 20 (1974). The Senate Report notes that ``[a] separate and
distinct dwelling maintained by an individual or family in an apartment
house or hotel may constitute a private home. However, a dwelling house
used primarily as a boarding or lodging house for the purpose of
supplying such services to the public, as a business enterprise, is not
a private home.'' Id.
Several courts have addressed whether home care services were
performed in a private home. In Welding v. Bios Corp., 353 F.3d 1214
(10th Cir. 2004), the Tenth Circuit Court of Appeals analyzed whether a
business providing services to individuals with developmental
disabilities was entitled to rely on the companionship services
exemption in paying its employees. The court explained that to claim
the exemption, the business must establish that the services were
provided in a private home. In assessing whether the residences at
issue were private homes, the court described six factors (discussed
below) to consider. Id. at 1219-20; see Johnston v. Volunteers of Am.,
Inc., 213 F.3d 559, 562 (10th Cir. 2000) (explaining that the employer
bears the burden of proving its employees fit within the companionship
exemption). The court noted that the ``key inquiries are who has
ultimate management control of the living unit and whether the living
unit is maintained primarily to facilitate the provision of assistive
services.'' Id. at 1219.
The first factor calls for considering whether the client lived in
the living unit before he or she received any services. If the person
did not live in the home before becoming a client, and if the person
would not live in the home if he or she were not receiving services,
then the living unit would not be considered a private home. Id.
The second factor analyzes who owns the living unit; the court
noted that ``[o]wnership is significant because it evidences control.''
353 F.3d at 1219. If the living unit is owned by the client or the
client's family, this is an indication that the services are performed
in a private home. Id. However, if the living unit is owned by a
service provider, this is an indication that the services are not
performed in a private home. Id. If the client or the client's family
leases the unit directly from the owner, the court concluded that this
is some indication that it is a private home. Id.; see Terwilliger v.
Home of Hope, Inc., 21 F.
[[Page 60462]]
Supp. 2d 1294, 1299 (N.D. Okla. 1998) (holding that services were
performed in a private home when the clients owned or leased the
residences from a third party and the service provider had no legal
interest in the residence). If the service provider leases the unit,
the court concluded that this is some indication that it is not a
private home. 353 F.3d at 1219; Madison v. Res. for Human Dev., Inc.,
233 F.3d 175, 179 (3d Cir. 2000) (holding that residences were not
private homes when clients selected residences from provider-approved
list and service provider leased the residences and subleased them to
clients).
The third factor looks to who manages and maintains the residence,
i.e., who provides the essentials that the client needs to live there,
such as paying the mortgage or rent, utilities, food, and house wares.
The court explained that ``[i]f many of the essentials of daily living
are provided for by the client or the client's family, that weighs
strongly in favor of it being a private home. If they are provided for
by the service provider, that weighs strongly in favor of it not being
a private home.'' 353 F.3d at 1220.
The fourth factor is whether the client would be allowed to live in
the unit if the client were not receiving services from the service
provider. 353 F.3d at 1220. If the client would be allowed to live in
the unit without contracting for services, then this factor would weigh
in favor of it being a private home. Id.; Madison, 233 F.3d at 183
(concluding that it is not a private home if clients could not remain
in the residence if they terminated their relationship with the service
provider).
The fifth factor considers the relative difference in the cost/
value of the services provided and the total cost of maintaining the
living unit. 353 F.3d at 1220. ``If the cost/value of the services is
incidental to the other living expenses, that weighs in favor it being
a private home.'' Id.
The sixth factor addresses whether the service provider uses any
part of the residence for the provider's own business purposes. 353
F.3d at 1220. The court concluded that if the service provider uses any
part of the residence for its own business purpose, then this fact
weighs in favor of it not being a private home. Id.; see Johnston, 213
F.3d at 565 (concluding that a residence is not a private home when the
service provider had an office in the home for employees). If, however,
the service provider does not use any part of the residence for its own
business purpose, then this factor weighs in favor of it being a
private home. 353 F.3d at 1220.
Other courts have looked at additional factors, emphasizing that
all relevant factors must be considered. Those factors include: whether
significant public funding is involved; who determines who lives
together in the home; whether residents live together for treatment
purposes as part of an overall care program; the number of residents;
whether the clients can come and go freely; whether the employer or the
client acquires the furniture; who has access to the home; and whether
the provider is a for profit or not for profit entity. See, e.g.,
Johnston, 213 F.3d at 563-65; Linn v. Developmental Services of Tulsa,
Inc., 891 F. Supp. 574 (N.D. Okla. 1995); Lott v. Rigby, 746 F. Supp.
1084 (N.D. Ga. 1990).
Several courts have addressed the question of whether particular
group residences of individuals in need of care are private homes. For
example, the Tenth Circuit Court of Appeals held in Johnston v.
Volunteers of America, Inc., 213 F.3d 559 (10th Cir. 2000), that a
business that provides care services to individuals with developmental
disabilities in a supported living program did not meet its burden of
proof to show that services were provided in a private home when the
residents were placed outside the family home with strangers who also
needed services and without the full-time, live-in care of a relative.
Id. at 565. The court also relied on the facts that the clients' diets
and daily activities were controlled by the business' employees and not
a family member, and that the business could appropriate a room to use
as an office. Id. Similarly, in Madison v. Resources for Human
Development, Inc., 233 F.3d 175 (3d Cir. 2000), the Third Circuit held
that a non-profit corporation that provides supported living
arrangements for adults with disabilities was not providing services in
a private home. Id. at 184. In support of this holding, the court noted
that the clients do not have a possessory interest in the homes; they
sublease the property from the corporation, and they may only remain in
the home to the extent they maintain a continued relationship with the
corporation. Id. at 183. The court also relied on the fact that the
clients do not have full control over who may access the home and that
the clients did not have unfettered freedom in their day-to-day
conduct. Id.
Following the analysis provided for in the case law, the Department
has recognized that whether a living arrangement qualifies as a private
home is a fact-specific inquiry. See Wage and Hour Opinion Letter, 2001
WL 15558952 (Feb. 9, 2001); Wage and Hour Opinion Letter, FLSA 2006-
13NA (June 23, 2006). In evaluating whether a residence is a private
home, the Department considers the six factors identified by the Tenth
Circuit in Welding as well as the other factors identified in Johnston,
Linn and Lott. See Wage and Hour Opinion Letter, FLSA 2006-13NA (June
23, 2006). The Department has made clear that the fact that the home is
the sole residence of the individual is not enough to make it a private
home under the FLSA. See Wage and Hour Opinion Letter, FLSA 2006-13NA
(June 23, 2006), at 2; see also Lott, 746 F. Supp. at 1087 (concluding
that the fact that the home was the client's sole residence was not
enough to make it a private home). For example, in an opinion letter,
the Department concluded that ``adult homes'' designed for individuals
who are in need of assistance with certain day-to-day functions, such
as meal preparation, housekeeping, and medications, were not private
homes. See Wage and Hour Opinion Letter, FLSA 2001-14, 2001 WL 1869966,
at 1 (May 14, 2001). The Department's conclusion was based on the fact
that the clients are placed in a residence outside the family home and
without the full-time live-in care of a relative. Id. at 2. The clients
are housed in a residence with others who are also in need of long-term
residential care. Id. Moreover, facility employees, and not a family
member, control the client's diets and daily activities (to some
degree). The Department also considered that the adult homes may select
the clients who will share the same residence and can set up two
residents per room, although the client has the right to request a
private room for a higher fee. Id. Finally, despite the client's
participation in the upkeep of the home, the service provider is
ultimately responsible for the maintenance of the residence. Id.
However, in another case, the Department concluded that supported
living services provided to consumers were performed in a private home.
See Wage and Hour Opinion Letter, 1999 WL 1002387, at 2 (Apr. 8, 1999).
In support of this conclusion, the Department noted that neither the
public agency nor the private agency that provides the services
determines where a client will live or with whom. Id. Rather, the
client or the client's guardian makes these decisions and he or she is
responsible for leasing the residence and paying the rent as well as
for furnishing it to suit the individual's tastes and resources. Id.
The Department also noted that the client typically lives alone or with
only one roommate, and
[[Page 60463]]
that the private agency has no financial interest in the client's
housing as it does not own or lease any of the housing.
As explained above, determining whether a particular living unit is
a private home requires a fact-intensive analysis. Generally, such an
inquiry exists along a continuum: on one end, a home owned and occupied
for many years by an elderly individual would be a private home; on the
other end of the continuum, a typical nursing home would not be
considered a private home under the regulations. This Final Rule does
not alter this inquiry in any way; rather, the analysis to determine
whether an employee is working in a ``private home'' remains unchanged.
Thus, employees who are working in a location that is not a private
home were never properly classified as domestic service employees under
the current regulations, and employers were not and are not entitled to
claim the companionship services or live-in worker exemptions for such
employees.
B. Section 552.6 (Companionship Services)
Current Sec. 552.6 defines the term ``companionship services'' as
``those services which provide fellowship, care, and protection for a
person who, because of advanced age or physical or mental infirmity,
cannot care for his or her own needs.'' In the NPRM, the Department
stated its intention to modernize and clarify what is encompassed
within the definition of fellowship, care, and protection.
Specifically, the Department proposed to divide Sec. 552.6 into four
paragraphs. Proposed paragraph (a) defined ``companionship services''
as ``the provision of fellowship and protection'' and described the
duties and activities that fall within the meaning of those terms.
Proposed paragraph (b) described the ``intimate personal care
services'' that could be part of companionship services if provided
``incidental'' to fellowship and protection. Proposed paragraph (c)
excluded from companionship services household work benefitting members
of the household other than the consumer. Proposed paragraph (d)
provided that companionship services do not include medical care of the
type described.
The Final Rule maintains the general organizational structure of
this section as proposed but modifies the proposed regulatory text as
described below.
As an initial note, in this Final Rule, the Department has modified
proposed Sec. 552.6 by deleting the terms ``aged,'' ``advanced age,''
``infirm,'' ``infirmity,'' and ``physical or mental infirmity'' in the
title and regulatory text of this section. Where a descriptor is
needed, the Department has substituted ``elderly person or person with
an illness, injury, or disability.'' In addition, the Department has
replaced in the regulatory text the phrase ``unable to care for
themselves'' with ``requires assistance in caring for himself or
herself.'' Although the language being replaced is derived from FLSA
section 13(a)(15) and the existing regulations at Sec. 552.6, the
Department recognizes that such language is outdated and does not
reflect contemporary views regarding the elderly and people with
disabilities. The Department therefore has modified the text in the
Final Rule and has made conforming changes to the title and text of
Sec. 552.106, which repeats the language from Sec. 552.6. In
addition, throughout this preamble, the Department has sought to use
updated language, except when quoting from the statute, the legislative
history, the current or proposed regulations, or comments submitted in
response to the NPRM. By modernizing this language, the Department does
not in any way intend to change the intent of Congress with respect to
those who use companionship services.
Section 552.6(a) (Fellowship and Protection)
Proposed Sec. 552.6(a) defined ``companionship services'' as ``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. The proposed language further defined
the term ``fellowship'' to mean ``to engage the person in social,
physical, and mental activities, including conversation, reading,
games, crafts, walks, errands, appointments, and social events'' and
the term ``protection'' to mean ``to be present with the person in
their home or to accompany the person when outside of the home to
monitor the person's safety and well-being.'' The Department adopts
paragraph (a) essentially as proposed, with the slight modifications
described below.
Comments from employees, employee advocacy groups and labor
organizations generally supported the proposed revision of paragraph
(a), agreeing with the Department that the definition more accurately
reflected Congress's intent that the companionship exemption be akin to
``elder sitting.'' See, e.g., Golden Gate University School of Law,
Women's Employment Rights Clinic; Center on Wisconsin Strategy (COWS);
National Employment Law Project (NELP); see also comments of several
individual direct care workers stating that their work is not ``at
all'' like elder sitting. Specifically, these individuals and
organizations noted that Congress clearly wished to include under the
protections of the Act employees for whom domestic work was a vocation,
while allowing a narrow exemption for more casual arrangements. The
Service Employees International Union (SEIU) explained that this
distinction should turn on whether ``such tasks and duties are of a
nature more typically performed by a worker engaged in his or her
livelihood or rather, on a less formal basis, by a non-breadwinner.''
See SEIU; see also AFSCME, American Federation of Labor-Congress of
International Organizations (AFL-CIO). In addition, Senator Harkin,
joined by 18 other Senators, affirmed the Department's assessment of
the legislative history, explaining that ``by the term `companion'
Congress meant someone who sits with an elderly or infirm person.''
Some non-profit advocacy organizations such as AARP, the National
Council on Aging, and the National Consumers League (NCL) also
supported the revised definition. These organizations noted that the
revised definition would be helpful in clarifying what duties would be
considered exempt ``companionship services'' and that the Department
correctly identified ``fellowship'' and ``protection'' as the primary
duties of an exempt companion. Similarly, the EJC stated that the
definition would provide clarity, ``thereby assisting attorneys and
courts to more readily find coverage by effectively categorizing an
employee's work as either domestic or companionship services.''
Several employers, employer organizations and some associations
opposed the proposed Sec. 552.6(a), stating that its focus on
fellowship and protection was inconsistent with legislative intent.
Some of these commenters stated that the scope of the proposed
definition is too restrictive, and ``goes too far conceptually in
relating companionship to baby or elder `sitting'.'' See National
Association of State Directors of Developmental Disabilities Services
(NASDDDS). In addition, although the American Network of Community
Options and Resources (ANCOR), among others, concurred that the focus
of companionship services should be fellowship and protection, it also
requested that ``most assistance with dressing, grooming, meal
preparation, feeding, and driving'' be included as part of fellowship
and protection.
[[Page 60464]]
Commenters also sought further guidance from the Department
concerning the scope of the companionship services definition. For
example, the National Resource Center for Participant-Directed Services
(NRCPDS) requested clarification regarding the use of the ``and'' in
the phrase ``fellowship and protection'' because it suggests that it
may be insufficient to provide either fellowship or protection alone,
in the absence of the other. Additionally, many industry commenters
were concerned that the Department's proposal excised the term ``care''
from the definitions of companionship services. These comments are
discussed in greater detail below, in the subsection addressing Sec.
552.6(b).
After carefully considering the comments concerning its proposed
definition of ``companionship services,'' the Department has decided to
adopt proposed Sec. 552.6(a) with modifications. For the reasons
described above, the Final Rule deletes the words ``for a person, who,
because of advanced age or physical or mental infirmity, is unable to
care for themselves'' found in the first sentence of proposed Sec.
552.6(a) and uses instead ``for an elderly person or person with an
illness, injury, or disability who requires assistance in caring for
himself or herself.'' In addition, the adopted regulatory text defining
fellowship and protection has been slightly edited for clarity; these
minor adjustments to wording and punctuation do not change the meaning
of the regulation as proposed. The second and third sentences of Sec.
552.6(a) read: ``The provision of fellowship means to engage the person
in social, physical, and mental activities, such as conversation,
reading, games, crafts, or 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 his or her home, or
to accompany the person when outside of the home, to monitor the
person's safety and well-being.''
The Department believes this definition of companionship services
is appropriate based on the legislative history of the 1974 FLSA
amendments and dictionary definitions of relevant terms. The
legislative history indicates that Congress intended to remove from the
FLSA's minimum wage and overtime compensation protections only those
domestic service workers for whom domestic service was not their
vocation and whose actual purpose was to provide casual babysitting or
companionship services. The legislative history describes a companion
as someone who ``sits with [an elderly person],'' provides ``constant
attendance,'' and renders services similar to a babysitter, i.e.,
``someone to be there and watch an older person,'' or an ``elder
sitter.'' See 119 Cong. Rec. S24773, S24801 (daily ed. July 19, 1973).
Dictionary definitions are also instructive in understanding the
scope of an exempt companion's duties. The dictionary defines
companionship as the ``relationship of companions; fellowship,'' and
the term ``companion'' is defined as a ``person who associates with or
accompanies another or others; associate; comrade.'' See Webster's New
World Dictionary, p. 288 (2d College Ed. 1972). It further defines
``fellowship'' as including ``a mutual sharing, as of experience,
activity, interest, etc.'' Id. at 514. These definitions demonstrate
that a companion is someone in the home primarily to watch over and
care for the elderly person or person with an illness, injury, or
disability.
For these reasons, the Department believes it is appropriate for
``companionship services'' to be primarily focused on the provision of
fellowship and protection, and that this focus is consistent with the
general principle that coverage under the FLSA is broadly construed so
as to give effect to its remedial purposes, and exemptions are narrowly
interpreted and limited in application to those who clearly are within
the terms and spirit of the exemption. See, e.g., A.H. Phillips, Inc.
v. Walling, 324 U.S. 490, 493 (1945). Examples of activities that fall
within fellowship and protection may include: watching television
together; visiting with friends and neighbors; taking walks; playing
cards, or engaging in hobbies. For the reasons explained below, the
Department's definition of ``companionship services'' also allows for
certain ``care'' activities, as defined in Sec. 552.6(b), to be
performed attendant to and in conjunction with fellowship and
protection, as long as those activities comprise no more than 20
percent of the direct care worker's time working for a particular
person in a particular workweek.
In response to commenters who requested clarification as to the
Department's use of the phrase ``fellowship and protection,'' it is the
Department's intent that the great majority of duties performed by a
direct care worker whose duties meet the definition of companionship
services will encompass both fellowship and protection, and that a
caregiver would be hired to perform both duties. However, a direct care
worker may, at times, perform certain tasks that require either
fellowship or protection, such as sitting with a consumer while the
individual naps (in which case, only protection would be provided) and
still meet the definition of performing companionship services. The
Department notes that this type of activity would not prevent
application of the exemption, because the worker would be available to
provide fellowship services when the consumer awakens.
Section 552.6(b) (Care)
Proposed Sec. 552.6(b) provided that ``[t]he term `companionship
services' may include intimate personal care services that are
incidental to the provision of fellowship and protection for the aged
or infirm person.'' The proposed regulatory text further provided that
these intimate personal care services ``must be performed attendant to
and in conjunction with fellowship and protection of the individual''
and ``must not exceed 20 percent of the total hours worked in the
workweek'' in order to fall within the definition of companionship
services. Proposed Sec. 552.6(b) next provided an illustrative,
detailed list of intimate personal care services: (1) Dressing, (2)
grooming, (3) toileting, (4) driving, (5) feeding, (6) laundry, and (7)
bathing. Each listed intimate personal care service was preceded by the
term ``occasional'' in the proposal. The Department explained in the
preamble to the proposed rule that it was allowing for some work
incidental to the fellowship and protection that primarily constitutes
companionship services because the legislative history indicated that
Congress contemplated that a direct care worker providing companionship
services might perform tasks such as ``making lunch for the infirm
person'' and ``some incidental household work.'' See 119 Cong. Rec. at
S24801; see also 76 FR 81193.
After a careful review of the comments, and for the reasons
explained in greater detail below, the Department has retained the
fundamental purpose of proposed paragraph (b)--to define certain
services that, if provided to a limited extent and incidentally to the
fellowship and protection that are the core duties of an exempt
companion, do not defeat the exemption--but has modified the proposed
regulatory text in order to make the additional services an exempt
companion may perform easier for the regulated community to understand.
Section 552.6(b) now reads: ``The term companionship services also
includes the provision of care if the care is provided attendant to and
in conjunction with the provision of
[[Page 60465]]
fellowship and protection and if it does not exceed 20 percent of the
total hours worked per person and per workweek. The provision of care
means to assist the person with activities of daily living (such as
dressing, grooming, feeding, bathing, toileting, and transferring) and
instrumental activities of daily living, which are 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).''
Care
Several commenters expressed concern that the proposed definition
of companionship services did not sufficiently emphasize the provision
of ``care.'' For example, BrightStar Healthcare of Baltimore City/
County (``BrightStar'') and the Texas Association for Home Care and
Hospice, among others, noted that the plain language of the statutory
exemption used the term ``care,'' and that the legislative history also
indicated a desire by Congress to have ``care'' encompassed in the
definition. BrightStar asserted that ``it is clear from the legislative
history that `care' for those who are `unable to care for themselves'
is an integral part of what was contemplated in creating the
companionship exemption.'' Congressman Lee Terry agreed that the
Department's proposed definition ``is altering the focus of the
exemption in a way that Congress neither intended nor envisioned.''
The Department does not disagree with commenters who wrote that
``care'' should be explicitly included in the regulatory definition of
companionship services. Indeed, the proposal did not remove ``care''
from the regulatory definition of companionship services; rather,
although proposed paragraph (a) did not use the word care, the
Department sought in paragraph (b) to define and delimit the type of
care that falls within the exemption. In the Final Rule, Sec. 552.6(b)
uses the term ``care'' rather than ``intimate personal care services''
to make more explicit that care remains part of companionship services.
Activities of Daily Living and Instrumental Activities of Daily Living
The Department received thousands of comments concerning the
proposed list of intimate personal care services. These comments
demonstrated problems raised by the proposed list, and the Department
has modified this Final Rule accordingly. Specifically, upon
consideration of these comments, the Final Rule describes the provision
of care as assistance with activities of daily living (ADLs) and
instrumental activities of daily living (IADLs), with examples of each
type of task, rather than using the term ``intimate personal care
services'' and providing a detailed list of activities that fall into
that category.
Many commenters supported the proposed list of intimate personal
care services. For example, AFSCME and AARP agreed that the definition
of companionship services should be narrowed and that only true
``fellowship and protection'' services, accompanied by personal care or
household services that are incidental to those companionship services,
should be exempt from the FLSA. Care Group, Inc., a provider of in-home
medical services registered in the State of California, and NELP, among
others, supported the Department's proposal but urged the Department to
make the list of incidental services exclusive rather than
illustrative.
In contrast, employers and other groups, such as the Texas
Association for Home Care and Hospice and Americans for Limited
Government (ALG), generally expressed the view that personal care
should not be limited to ``incidental'' activities because the
exemption explicitly states that consumers receiving services are
``unable to care for themselves''; these commenters suggested that
whatever ``care'' the consumer needs should be included as part of
unrestricted companionship services. See also The Virginia Association
for Home Care and Hospice. The Visiting Nurse Associations of America
(VNAA) expressed the view that the federal government should defer to
existing state and local regulations concerning permissible duties.
Similarly, California Association for Health Services at Home (CAHSAH)
pointed to state guidance that makes clear that a companion must be
allowed to perform all duties a client needs to remain independent.
Commenters also addressed the specific care tasks that the
Department had included in the proposed list individually. In response
to the Department's proposal to allow assistance with toileting as an
incidental personal care service, the National Council on Aging, NELP,
and Workforce Solutions expressed concern about potential injury to
workers associated with this task. These commenters recommended the
Department not include assistance with services such as toileting and
activities that require positioning and mobility transfer assistance.
See also The Workplace Project. The Legal Aid Society encouraged the
Department to consider that tasks such as toileting, assistance with
mobility, transfers, positioning, use of toileting equipment and
changing diapers for persons with dementia are not casual activities
but require training to be performed in a manner that is safe for the
worker and the consumer. They suggested that if such activities
constitute part of the regular work performed, the worker should not be
exempt. Direct Care Alliance (DCA) stated that the permissible exempt
duties should not include those that require physical strength or
specialized training. Women's Employment Rights Clinic suggested that
allowing an exempt companion to assist with toileting should only be
permitted when exigent circumstances arise. They indicated that this
activity requires training or experience that a companion, as intended
by Congress, would not have.
Several commenters offered their views on the task of driving the
consumer to appointments, errands, and social events as an incidental
personal care service. ANCOR stated that driving to social events
should not be included among the ``personal care services'' in the 20
percent limitation, indicating that ``many people with disabilities
enjoy drives and times away from home and we do not believe this should
be limited.'' The Texas Association for Home Care and Hospice and PHI
both expressed the view that this section should include not only
driving but also ``accompanying'' the consumer. They noted that other
modes of transportation may be utilized by the consumer. Women's
Employment Rights Clinic agreed with the Department's proposal to
include occasionally driving a consumer to appointments, errands, and
social events as part of incidental personal care services defined in
Sec. 552.6(b).
A number of comments were received on the proposed provision
concerning meal preparation. The Connecticut Association for Home Care
and Hospice expressed concern about the requirement that the client
must consume the food in the direct care worker's presence in order to
maintain the exemption. It pointed out that the proposal failed to take
into account the possibility that the consumer may not eat all of the
food prepared and would create an untenable situation whereby the
consumer is forced to eat on an imposed schedule rather than as his or
her appetite dictates. Others, like ALG, asserted that the proposal
would force a direct care worker to dispose of leftover
[[Page 60466]]
food rather than to store it to be eaten later. Some commenters,
including Women's Employment Rights Clinic, specifically supported the
Department's qualification that any food prepared must be eaten in the
presence of the direct care worker in order for the meal preparation to
be part of companionship services. They indicated that this would
ensure that preparing meals for and feeding the consumer remained
attendant to and in conjunction with providing fellowship and
protection.
Several commenters objected to including laundry in the list of
personal care services. For example, Caring Across Generations and
DAMAYAN Migrant Workers Association (DAMAYAN) both indicated that
``laundry is neither absolutely necessary for an elderly or infirm
person during the companion worker's shift nor does it arise out of
exigent circumstances that justify including `occasional bathing' in
proposed Sec. 552.6(b)(7). Laundry services fall under the type of
household services performed by housekeepers or laundresses and thus
should be excluded.'' Others, such as the Latino Union of Chicago,
similarly commented that ``an individual or family hiring a companion
worker could just as easily hire a housekeeper or laundress to
regularly launder clothes.''
With respect to bathing, some commenters supported the proposal's
limitation on bathing duties to ``exigent circumstances.'' For example,
Women's Employment Rights Clinic indicated that they thought the
limitation to exigent circumstances was appropriate as this duty is one
which requires the lifting, touching, and moving of a frail individual,
and this normally requires increased training and experience.
The Department continues to believe Congress intended fellowship
and protection to be the primary focus of an employee exempt under the
companionship services exemption but that flexibility to provide some
tasks incidental to fellowship and protection is appropriate. In light
of the comments received concerning the proposed list of intimate
personal care services, however, the Department has not adopted the
regulatory text as proposed. Instead, section 552.6(b) now states, in
relevant part: ``The provision of care means to assist the person with
activities of daily living (such as dressing, grooming, feeding,
bathing, toileting, and transferring) and instrumental activities of
daily living, which are 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).''
As reflected in the comments, the Department now believes that the
proposed list of intimate personal care services raised more questions
than it answered. See, e.g., ALG (stating that the list of proposed
intimate personal care services created ``practical problems,'' such as
prohibiting an exempt companion from operating a vacuum cleaner). The
Department also agrees with commenters that the list was too specific
and not flexible enough in its approach. The Department is persuaded by
the view expressed by commenters such as the State of Washington's
Department of Social and Health Services, that the ``use of `intimate
personal care services' should be updated to reflect current service
categories: activities of daily living and instrumental activities of
daily living'' and thus has modified the Final Rule to reflect this
change. Therefore, in lieu of describing the permissible care services
an exempt companion may perform as ``intimate personal care services,''
the Department instead has adopted the commonly used industry terms
``activities of daily living'' (ADLs) and ``instrumental activities of
daily living'' (IADLs) to describe which services are allowed as part
of ``care'' under the exemption. See 76 FR 81212. The Department has
also replaced the detailed list of activities that appeared in proposed
paragraph (b) with simple, illustrative lists of services that are
commonly viewed as activities of daily living and instrumental
activities of daily living. The Department intends that any additional
tasks not explicitly named in the regulatory text but that fit easily
within the spirit of the enumerated duties also qualify as ADLs or
IADLs.
The Department believes that by replacing the proposed detailed
list of intimate personal care services with the more commonly used
industry phrases ``activities of daily living'' and ``instrumental
activities of daily living,'' transition to the new regulation will be
simplified. The State of Tennessee and the National Association of
Medicaid Directors (NAMD) indicated that home health aides and personal
care attendants are focused primarily on providing hands-on care and
assistance with ADLs that enable that consumer to continue living
safely in the community. The Virginia Association for Home Care and
Hospice expressed the view that individuals need assistance with their
ADLs and IADLs to live independently, and that these activities should
be part of the incidental duties. Additionally, hundreds of comments
received from workers referenced these terms as a sort of shorthand for
describing the work commonly performed by direct care workers.
Furthermore, Medicaid and Medicare programs also use these terms to
describe direct care work. As noted by commenters such as NELP and PHI,
Medicaid instructs that assistance with ADLs and IADLs ``is the core
focus of home care services provided under Medicaid.'' Accordingly, the
Department believes the regulated community is already familiar with
these concepts and they will be easy for consumers, workers, and
employers alike to understand.
The Department also believes that by broadening the base of
services that a direct care worker may perform and still qualify for
the companionship services exemption, consumers will have more of the
immediate needs met that support them in living independently in their
communities. Among the comments was a letter writing campaign by
several hundred workers that requested that companionship services only
include fellowship and protection, ``thereby excluding workers who
assist clients with activities of daily living or instrumental
activities of daily living.'' The Department is persuaded, however, by
other comments that emphasized the critical importance of including an
allowance for ADLs and IADLs in order for certain consumers to continue
to live independently. See, e.g., Scott Ehrsam, owner of a home care
business; DCA.
The Department notes that the intimate personal care services
proposed in the NPRM are encompassed within the categories of
``activities of daily living'' and ``instrumental activities of daily
living'' adopted in the Final Rule. The Department emphasizes, however,
the provision of such services only falls within the definition of
companionship services if it is performed attendant to and in
conjunction with the fellowship and protection provided to the consumer
and if it does not exceed 20 percent of the total work hours of the
direct care worker for any particular consumer in any particular
workweek, as discussed in greater detail below.
This Final Rule provides flexibility within the bounds of
Congressional intent. The FLSA grants the Secretary of Labor broad
authority to define and delimit the scope of the exemption for
companionship services. See 29 U.S.C. 213(a)(15). The Department
believes its definition of the types of services that may be performed
within the meaning of ``provision of care'' in the Final Rule is
reasonable and consistent with Congressional intent that all other work
[[Page 60467]]
performed by an exempt companion must be incidental to the companion's
primary purpose ``to watch over an elderly or infirm person in the same
manner that a babysitter watches over children.'' 119 Cong. Rec.
S24773, S24801 (daily ed. July 19, 1973).
Twenty Percent Limitation
The Department also received a significant number of comments
addressing the 20 percent limitation on the provision of care. Some
commenters believed the cap was too high. See, e.g., Women's Employment
Rights Clinic; EJC. The EJC emphasized that 20 percent is a significant
portion of the workweek and a lower percentage would better effectuate
the goal of ensuring that the care tasks are truly incidental. Other
commenters, however, thought the cap was too low. See, e.g., The
Westchester Consulting Group. Senior Helpers, among others, expressed
doubt that the listed tasks could be accomplished in 20 percent of the
direct care worker's workweek and expressed concern that seniors would
be hurried through eating meals or forced to cancel appointments due to
the amount of time allotted. Commenters including NCL and Workforce
Solutions were concerned that the 20 percent cap would be difficult to
administer. A few commenters expressed concern over the cost of
monitoring the 20 percent limitation. The State of Oregon indicated
that the 20 percent limitation should be eliminated, suggesting that
the limitation should not be based upon tasks performed but rather
should be based upon for whom the service is performed. CAHSAH asserted
that the duties that fall under the 20 percent cap should be unrelated
to the care of the client.
Some commenters suggested alternative methods for calculating hours
worked performing incidental care duties. The National Council on
Aging, Workforce Solutions, NELP, and others supported elimination of
the 20 percent cap and replacing it with a two-step assessment. They
suggested requiring an initial assessment to determine whether the
worker had been hired primarily to perform the duties of fellowship and
protection and whether the worker was in fact performing those duties.
If the worker was not primarily performing those duties, the subsequent
listings of permissible exempt activities would not be considered. If
the worker were found to be hired primarily to provide fellowship and
protection, then a second step review of the listed services would be
conducted to confirm that the services were performed occasionally and
incidental to the provision of fellowship and protection, and not as a
regular part of the duties performed.
Organizations like DAMAYAN, The Workplace Project, and Houston
Interfaith Worker Justice also proposed eliminating the 20 percent
limitation and replacing it with a different test comprised of two
steps: (1) If a direct care worker visits a client greater than three
times per week and (2) performs any of the listed incidental tasks for
any amount of time in greater than 50 percent of the visits, then the
direct care worker would not fall within the companionship services
exemption.
Finally, NCL and PHI suggested that the Department modify the cap
on incidental activities across a workweek to one that prohibits a
worker from spending more than 20 percent of work time performing care
tasks per individual client per workweek.
The Department has carefully considered the variety of suggestions
offered by commenters with respect to this issue, and it adopts the 20
percent limitation on care services essentially as proposed, although
it has modified the text to explicitly state that the provision of care
is limited to no more than 20 percent of the hours worked per workweek
per consumer. The Department's view is that failing to provide such a
limitation would ignore Congressional intent that making meals and
doing laundry would be incidental to the exempt companion's primary
purpose of watching over the consumer. See 119 Cong. Rec. S24773,
S24801 (daily ed. July 19, 1973). Indeed, during a Senate floor
exchange, Senators Williams and Burdick indicated that ``one may even
require throwing some diapers in the automatic washing machine for the
baby. This would be incidental to the main purpose of employment.'' See
119 Cong. Rec. at S24801. However, the Department also recognizes that
a limited allowance for selected tasks, performed attendant to and in
conjunction with fellowship and protection, is necessary as a matter of
practicality. The Department believes that this 20 percent threshold,
which is based on the proportion of total hours worked per workweek,
will provide consumers and direct care workers with a needed
flexibility in their day-to-day activities. As described below, in
adopting the 20 percent figure, the Department is utilizing a long-
established threshold that has been used in a variety of regulations,
including current Sec. 552.6. Employers are, thus, familiar with this
type of time limitation, mitigating concerns that the 20 percent
threshold would be difficult and costly to administer. In addition, the
Department views section 552.6(b) of the Final Rule as a compromise
designed to expand the base of allowable care while accommodating the
concerns expressed about workplace safety for both the direct care
worker and the consumer, as such a limitation restricts the amount of
time spent engaged in these activities.
As the Department indicated in the preamble to the proposed
regulation, the home care industry has undergone a dramatic
transformation since the Department published the implementing
regulations in 1975. In the 1970s, many individuals with significant
care needs were served in institutional settings rather than in their
homes and their communities, Since that time, there has been a growing
demand for long-term home care for persons of all ages, largely due to
the rising cost of institutional care, the impact of the disability
civil rights movement, and the availability of funding assistance for
home care under Medicaid, reflecting our nation's commitment to
accommodate the desire of individuals to remain in their homes and
communities. As the demand for long-term home care has grown, so has
the complexity of duties performed in the home by the direct care
worker. It is the Department's view that the focus of the companionship
services exemption should remain on fellowship, protection, and care as
defined in paragraph (b). Based on the wide scope of comments received
detailing the extent of the services provided by direct care workers,
the Department is aware that there is a significant continuum with
respect to the services consumers require. The Department is not
stating that all workers providing ``care,'' as defined in paragraph
(b), will be able to accomplish the required care in 20 percent of
their workweek. Rather, the Department is concluding that, if the care
that is being provided attendant to and in conjunction with the
provision of fellowship and protection requires more time than 20
percent of the workweek, then the worker is being called upon to
provide services that are outside of the scope of the companionship
services exemption. In such cases, minimum wage and overtime pay
protections attach.
The Department believes that a 20 percent limitation for providing
this care, coupled with a primary focus on the provision of fellowship
and protection, is appropriate for a worker who is not entitled to the
minimum wage and overtime compensation protections. The Department
notes that a 20 percent limitation has been
[[Page 60468]]
implemented in this regulation for 38 years (concerning the provision
of general household work), as well as in other regulations in this
chapter such as Sec. 552.5, Casual Basis (work that is incidental does
not exceed 20 percent of hours worked in babysitting assignment); Sec.
552.104(c), Babysitting services performed on a casual basis
(babysitter who devotes more than 20 percent of time to household work
is not exempt), as well as in other chapters addressing employee work
hours in other enforcement contexts (e.g., Sec. Sec. 786.100, 786.150,
786.200 (nonexempt work will be considered substantial if it occupies
more than 20 percent of the time worked by the employee during the
workweek)). See also Sec. Sec. 553.212, 783.37, 784.116, 788.17, and
793.21.
As previously noted, a suggested two-step test was offered by some
as a substitute for the 20 percent limitation on intimate personal care
services. The suggested test was comprised of examining those direct
care workers who visit a client more than three times a week, and if
so, making a determination whether the direct care worker has performed
any of the incidental personal care services for any amount of time in
greater than 50 percent of the visits. In such cases, the organizations
suggested that the direct care worker should not fall within the
companionship services exemption. The Department declines to adopt the
recommended test. The Department believes that this option would have a
negative effect on continuity of care, an issue many commenters raised
as a significant concern. See, e.g., National Association of Area
Agencies on Aging, New York State Association of Health Care Providers,
Avalon Home Care, the National Association of States United for Aging
and Disabilities (NASUAD); see also Testimony of Marie Woodard before
the U.S. House of Representatives Committee on Education and the
Workforce, Subcommittee on Workforce Protection (March 20, 2012). This
two-step proposal would create an incentive to ensure that a particular
direct care worker only visits a consumer no more than three times per
week. As the National Association of Area Agencies on Aging points out
in its comment, ``providing fundamental labor protections of minimum
wage and overtime will help reduce turnover, improve continuity of care
and help lower costs.'' The Department agrees with commenters who
indicated that providing fundamental labor protections such as minimum
wage and overtime compensation will improve continuity of care and
wants to avoid offsetting those improvements to continuity of care by
implementing a test that would create an incentive to use a direct care
worker no more than three times per workweek.
Finally, the Department has incorporated the suggestion of NCL and
PHI by modifying the Final Rule text to explicitly state that the 20
percent limitation applies to the tasks a worker performs per
individual consumer. Further, as proposed, the 20 percent limitation
also applies to total hours worked per workweek. The inclusion of the
20 percent limitation on a per consumer basis is intended to assist
consumers and direct care workers in determining whether the worker
meets the companionship services exemption in any given workweek. Many
direct care workers provide services to more than one consumer in a
workweek, and the proposed text did not account for the reality that a
consumer would not typically know what percentage of time the direct
care worker spent performing assistance with ADLs and IADLs for any
other consumer. For example, if a direct care worker is employed for
five mornings a week for consumer A and employed for four afternoons a
week for consumer B, consumer B would have no way of knowing how much
of the total workweek had been spent providing care to consumer A. The
Department has therefore revised the text to specify that the 20
percent limitation applies to the work performed each workweek for a
single consumer. Therefore, in determining whether to claim the
companionship services exemption, a consumer need only consider the
amount of care he or she has received during the workweek, not any
services the direct care worker has provided to other consumers. The
Department notes that this question only arises as to individuals,
families, and households who employ direct care workers, because, as
explained in the section of this preamble regarding third party
employment, under the Final Rule, a third party employer of a direct
care worker is not permitted to claim the companionship services
exemption regardless of the duties performed.
Section 552.6(c) (Domestic Services Primarily for Other Members of the
Household)
Current Sec. 552.6 permits the companionship services exemption to
apply to a worker who spends up to 20 percent of his or her time
performing general household work which is unrelated to the care of the
person receiving services. In the NPRM, the Department proposed to
revise the current regulation by adding paragraph (c), which stated
that ``work benefitting other members of the household, such as general
housekeeping, making meals for other members of the household or
laundering clothes worn or linens used by other members of the
household'' would not fall within the definition of incidental intimate
personal care duties that may constitute part of companionship
services. Proposed paragraph (c) also provided that ``household
services performed by, or ordinarily performed by, employees such as
cooks, waiters, butlers, valets, maids, housekeepers, nannies, nurses,
janitors, laundresses, caretakers, handymen, gardeners, home health
aides, personal care aides, and chauffeurs of automobiles for family
use, are not `companionship services' unless they are performed only
incidental to the provision of fellowship and protection as described
in paragraph (b) of this section.'' For the reasons explained below, in
the Final Rule, the Department adopts a significantly simplified
version of the proposed text.
The Department received few comments on the issue of household
work. Women's Employment Rights Clinic expressed support for the
``Department's effort to draw a clear line between the duties of a
companion and the duties of domestic service workers such as maids,
cooks and laundresses,'' writing ``that general household services such
as window washing, vacuuming and dusting, should not fall under the
duties of a companion.'' Advocacy organizations, such as ALG and
NRCPDS, expressed concern that a direct care worker's performance of
household work for the consumer would not be included within the 20
percent allowance for intimate personal care services listed in
paragraph (b) of this section if the work includes a prohibited task,
such as vacuuming. See also Lynn Berberich, Joni Fritz, and Georgetown
University Law Center students. AARP agreed with the Department that
``providing general household services such as cooking a meal or doing
laundry for the whole family, which significantly benefit all household
members, should not be exempt.'' However, AARP requested that the
Department provide examples as to what household work is considered
incidental and therefore part of companionship services. AARP asked,
``[i]f some tuna salad is left over after the individual receiving
companionship services has eaten lunch, and another member of the
household eats this left over tuna salad,
[[Page 60469]]
would this be considered general household work, thereby denying the
companionship exemption for the week?''
After carefully considering the comments, the Department has
decided to revise proposed paragraph (c) to avoid ambiguity and
eliminate redundancy in light of the revisions to paragraph (b).
Specifically, Sec. 552.6(c) of the Final Rule provides, in its
entirety: ``The term companionship services does not include domestic
services performed primarily for the benefit of other members of the
household.'' This text much more simply and clearly conveys the
Department's meaning, which is that companionship services are services
provided specifically for the individual who requires assistance in
caring for himself or herself rather than for other members of that
individual's household. This limit to the definition of companionship
services is consistent with Congress's central purpose in 1974 of
extending FLSA coverage to domestic service workers such as maids,
cooks, and housekeepers and excluding from that coverage only direct
care workers who provide primarily fellowship and protection.
The Department intends to exclude from companionship services any
general domestic services unrelated to care of the consumer as defined
in paragraph (b) of this section. The determination of whether a
particular task constitutes the provision of care or is instead a
service performed primarily for the benefit of others in the household
is based on a common sense assessment of the facts at issue. For
example, in response to the question posed by AARP, if a person other
than the consumer eats the leftover tuna salad, but the direct care
worker prepared the meal for the consumer as opposed to for other
members of the household, the meal preparation would constitute the
provision of care that, if done attendant to and in conjunction with
fellowship and protection and if within the 20 percent limitation on
care, is part of companionship services. An exempt companion may also
vacuum up food that the consumer drops, or wash a soiled blouse for the
consumer; such activities are part of the care discussed in paragraph
(b). Additionally, light housework, such as dusting a bedroom the
consumer shares with another, that only tangentially benefits others
living in the household may constitute care if performed attendant to
and in conjunction with the provision of fellowship and protection of
the consumer and within the 20 percent limitation. However, washing
only the laundry of other members of the household or cooking meals for
an entire family is excluded from companionship services under the
Final Rule. To provide an additional example: if a direct care worker
performs fellowship and protection for the consumer Monday through
Thursday, but spends Friday exclusively performing light housework for
the household as a whole, then the exemption is lost for the workweek,
because the direct care worker cannot perform general household
services for the entire household and still maintain the companionship
services exemption during that workweek.
Section 552.6(d) (Medically Related Services)
The legislative history of the 1974 amendments makes clear that
Congress did not intend the companionship services exemption to apply
to domestic service employees who perform medical services, and the
Department believed in 1975, as it does today, that the provision of
medical care constitutes work that is not companionship services.
Accordingly, under current Sec. 552.6, companionship services do not
include services provided for an elderly person or person with an
illness, injury, or disability that ``require and are performed by
trained personnel, such as a registered or practical nurse.'' In the
NPRM, the Department proposed to revise Sec. 552.6(d) to describe the
medical care that is typically provided by trained personnel by
offering examples of particular medical services rather than by naming
occupations. Based on consideration of the comments received and for
purposes of simplicity and clarity, the Department has decided not to
adopt the text as proposed, but has instead adopted text closer to that
which appears in current Sec. 552.6. For the reasons explained below,
Sec. 552.6(d) now excludes from companionship services ``medically
related services,'' defined as services that ``typically require and
are performed by trained personnel such as registered nurses, licensed
practical nurses, or certified nursing assistants.'' This section
further provides that the determination of whether services are
medically related ``is not based on the actual training or occupational
title of the individual providing the services,'' so in many cases,
direct care workers outside these named categories, particularly home
health aides, will be excluded from the companionship services
exemption under paragraph (d).
Proposed Sec. 552.6(d) provided that ``[t]he term `companionship
services' does not include medical care (that is typically provided by
personnel with specialized training) for the person, including, but not
limited to, catheter and ostomy care, wound care, injections, blood and
blood pressure testing, turning and repositioning, determining the need
for medication, tube feeding, and physical therapy.'' It further
provided that ``reminding the aged or infirm person of a medical
appointment or a predetermined medicinal schedule'' was part of
intimate personal care services as that phrase was defined in proposed
Sec. 552.6(b). The NPRM's preamble discussion of Sec. 552.6(d) set
forth the Department's rationale for its proposed change to the
regulatory text. 76 FR 81195. The Department explained that in addition
to care provided by registered nurses and licensed practical nurses,
the types of tasks performed by certified nursing assistants and
sometimes personal care aides or home health aides were the sort of
medically related services typically provided by personnel with
specialized training. Id. The preamble listed examples of such
services, including medication management, the taking of vital signs
(pulse, respiration, blood sugar screening, and temperature), and
assistance with physical therapy. Id. In addition to providing this
explanation of its position, the Department sought comment on whether
the proposal appropriately reflected the medical care tasks performed
by home health aides and personal care aides that require training as
well as whether the regulation should include additional examples of
minor health-related actions that could be part of companionship
services, such as helping an elderly person take over-the-counter
medication. Id.
Comments from labor organizations, non-profit and civil rights
organizations, and worker advocacy groups generally supported the
proposal to exclude from the definition of companionship services
medical care that requires specialized training. See, e.g., AARP,
AFSCME, the Center, ACLU, Jobs with Justice, SEIU. Even the many
employers and employer representatives who were critical of proposed
Sec. 552.6(d) recognized that medical care is beyond the scope of the
companionship services exemption. See, e.g., Husch Blackwell (agreeing
with the Department that direct care workers who change feeding tubes,
perform injections, or provide ostomy care do not qualify for the
companionship services exemption but asserting that because current
Sec. 552.6 already excludes nurses from the exemption, there was no
need to revise the regulation), BrightStar franchisees
[[Page 60470]]
(same), Senior Helpers (stating that home health aides who perform
``medical tasks like checking vital signs, changing bandages, giving
injections or providing feeding tube or ostomy care'' are not providing
companionship services but asserting that the Department should
withdraw the NPRM).
Some commenters made suggestions regarding specific occupations.
One individual commenter suggested that the Department ``expand the
meaning of trained personnel to include Certified Nursing Assistants
and other health care providers who have State certification.'' PHI and
the AFL-CIO urged the Department to state that personal care aides and
home health aides are not companions. PHI reasoned that personal care
aides and home health aides are trained personnel rather than exempt
companions because they provide medically related and personal care
tasks that require specialized training, noting that home health aides
are required, if paid with federal funds, to receive at least 75 hours
of initial training, including at least 16 hours of supervised
practical training, and 12 hours per year of continuing training. NAMD,
on the other hand, wrote that unlicensed direct care workers such as
home health aides and personal care aides should not be treated in the
same manner as registered or licensed practical nurses.
The Department also received comments regarding specific medical
services. Some commenters wrote that particular tasks should fall
outside the definition of companionship services. For example, AFSCME
believed that ``treating bed sores and monitoring physical
manifestations of health conditions like diabetes or seizure
disorders'' are ``medical or quasi-medical services'' that should be
excluded from the definition of companionship services. Women's
Employment Rights Clinic urged the Department to add toileting and
bathing to the medically related tasks named in Sec. 552.6(d).
Other commenters wrote that certain tasks should fall within the
definition of companionship services. For example, BrightStar
franchisees wrote that because ``specialized medical training is not
necessary to take an individual's temperature with a regular home
thermometer, or to provide them with hand lotion for `routine skin
care,' or to go on walks or do exercises together as recommended by a
physical therapist,'' those tasks should not be excluded from
companionship services. See also ANCOR (suggesting that these tasks be
considered part of intimate personal care activities in proposed Sec.
552.6(b)). NASDDDS wrote that tasks including wound care, injections,
blood pressure testing, and turning and repositioning are routinely
performed by family members and friends and thus are not necessarily
associated with the type of professional caregiving that should be
covered by the FLSA. The Oregon Department of Human Services, without
providing specifics, recommended that the types of personal and medical
services that a direct care worker may perform while still qualifying
for the companionship services exemption be expanded.
The Department also received comments regarding the tasks it had
identified as intimate personal care services rather than medically
related services. For example, ANCOR and Pennsylvania Advocacy and
Resources for Autism and Intellectual Disabilities stated that
reminding the consumer of medical appointments or a predetermined
medicinal schedule should be part of fellowship and protection in
proposed Sec. 552.6(a) because these duties are not ``intimate
personal care services'' described in proposed Sec. 552.6(b). AFSCME
suggested that the Final Rule distinguish ``between infrequent
reminders provided by a person engaged in fellowship or protection and
those duties of a more medical nature required to serve the infirm and
provided by vocational home care workers.'' AARP and Connecticut
Association for Home Care & Hospice, among others, stated that applying
a bandage to a minor wound and assisting with taking over-the-counter
medication should be part of companionship services.
Finally, NRCPDS requested clarification regarding whether an agency
administering a consumer-directed program may require a companion to
undergo first aid or cardiopulmonary resuscitation (CPR) training
without jeopardizing the applicability of the exemption, urging the
Department to explain that training requirements that are limited and
generally non-medical in nature should not disqualify a worker from the
companionship services exemption.
The Department continues to believe it is crucial to exclude from
companionship services the provision of services that are medical in
nature because the individuals who perform those services are doing
work that is far beyond the scope of ``elder sitting.'' In light of the
comments received, however, the Department has not adopted the
regulatory text as proposed. Instead, Sec. 552.6(d) now states: ``The
term `companionship services' does not include the performance of
medically related services provided for the person. The determination
of whether services are medically related is based on whether the
services typically require and are performed by trained personnel, such
as registered nurses, licensed practical nurses, or certified nursing
assistants; the determination is not based on the actual training or
occupational title of the individual performing the services.'' The
Final Rule thus makes two substantive changes to the current rule's
treatment of trained personnel, which excludes from companionship
services those ``services relating to the care and protection of the
aged or infirm which require and are performed by trained personnel,
such as a registered or practical nurse.'' 29 CFR 552.6. First, the
Final Rule adds certified nursing assistants as an example of ``trained
personnel'' who perform medically related services. Second, the Final
Rule clarifies that whether the individual who performs medical tasks
received training is irrelevant to the determination of whether the
tasks are medically related.\8\
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\8\ The Final Rule also makes two non-substantive changes to the
current rule. First, it refers to ``licensed practical nurses''
instead of ``practical nurse[s].'' (The term ``registered nurses''
is identical to that used in the current rule.) This modification is
meant only to update the regulation to use the more commonly used
title for the occupation. Second, unlike the current and proposed
rules, the Final Rule does not include a sentence stating that
medical care performed in or about a private home, though not
companionship services, is nevertheless within the category of
domestic service employment. See 29 CFR 552.6; 76 FR 81244. Such
work plainly falls within the definition of domestic services
employment set out in Sec. 552.3, and nurses, home health aides,
and personal care aides are included in that provision's list of
employees whose work may constitute domestic service employment. The
Department has therefore determined that a sentence reiterating the
point was redundant and thus unnecessary. This deviation from the
current rule and proposed regulatory text is not meant to indicate
that the Department believes the statements were incorrect or that
the Department has changed its position on this point.
---------------------------------------------------------------------------
The Department is revising Sec. 552.6(d) differently than proposed
in the NPRM because it believes an explanation of what constitutes
medically related services is simpler and easier for the regulated
community to understand when framed by occupation than when described
with a list of tasks. The comments received in response to the proposal
highlight that direct care workers perform numerous tasks that that
fall on both sides of the line between medical care and other services
that fall within the meaning of ``care'' as described in Sec.
552.6(b). The diversity of opinions commenters expressed regarding
which tasks should be part of companionship services and which
[[Page 60471]]
should not fall within the definition of that term revealed that an
illustrative list of medically related services would not provide
clarity to the regulated community. And as any list of such services
would necessarily be illustrative; it would be nearly impossible, as
well as beyond the scope of the Department's expertise, to name or
describe all medically related services.
The Department believes that the alternative approach of defining
medically related services outside the definition of companionship
services as those that should be and typically are performed by workers
who have completed specialized training offers better guidance to the
regulated community. Naming a small number of occupations to illustrate
the general sets of duties in question is simpler and more concise than
referring to various particular medical tasks. Furthermore, the
regulation that has been in place since 1974 used this approach, so the
regulated community is already familiar with it. The more significant
deviation from the existing text contained in the proposed rule was not
necessary to achieve the Department's goal of ensuring that all direct
care workers who perform medically related services that constitute
work other than companionship services are provided the protections of
the FLSA.
The decision to add certified nursing assistants (CNAs) to the list
of examples of ``trained personnel'' is based on the legislative
history of section 13(a)(15) of the Act as well as the training and
work of CNAs. The House and Senate Reports addressing the 1974
amendments state that ``it is not intended that trained personnel such
as nurses, whether registered or practical, shall be excluded'' from
the protections of the FLSA under the companionship services exemption.
House Report No. 93-913, p. 36; Senate Report No. 93-690, p. 20. The
Department's current regulations are modeled on this language and
reflect that without doubt, registered nurses and licensed practical
nurses working in private homes do not provide companionship services.
But Congress did not mean this list to be exclusive; the Reports say
that trained personnel ``such as'' nurses are not exempt from the FLSA.
Id. It is plain from these words and the surrounding language in the
House and Senate Reports that ``trained personnel'' are a category of
those ``employees whose vocation is domestic service'' and thus are not
exempt from the FLSA's protections. Id. Therefore, the Department's
expressly delegated authority to define companionship services includes
the ability to exclude from the term's meaning medically related
occupations or other medically related work beyond, to a reasonable
extent, those named in the Reports.
Based on the training and duties of CNAs, the Department believes
CNAs are properly considered outside the scope of the companionship
services exemption. In 1987, Congress established federal requirements
for certification of nursing assistants,\9\ and many states have
requirements that exceed these federal minimums.\10\ Specifically, by
federal law, CNAs (referred to in federal regulations as ``nurse
aide[s]'') must receive at least 75 hours of training, including a
minimum of 16 hours of clinical training, 42 CFR 483.152(a), and as of
2009, thirty states mandated between 80 to 180 hours of training.\11\
The training curriculum for CNAs must include, among other things,
``basic nursing skills'' (e.g., taking and recording vital signs),
``personal care skills'' (e.g., skin care, transfers, positioning, and
turning), and ``basic restorative skills'' (e.g., maintenance of range
of motion, care and use of prosthetic and orthotic devices). 42 CFR
483.152(b). In addition, all CNAs must pass a competency examination
that includes a written or oral examination and skills demonstration.
42 CFR 483.154. Each state must maintain a registry of CNAs that
contains the names of the individuals who have fulfilled these
requirements. 42 CFR 483.156. The standardization of the CNA training
curriculum, the competency exam requirement, and the existence of state
registries tracking and confirming certification are all evidence of
the professionalization of this category of workers. It is the
Department's view that CNAs are the sort of ``trained personnel'' who
provide direct care services as a vocation and thus are entitled to the
protections of the FLSA.\12\
---------------------------------------------------------------------------
\9\ Nursing Home Reform Act, Subtitle C of Title IV of the
Omnibus Budget Reconciliation Act of 1987, Public Law 11-203, Sec.
4201-4214. http://assets.aarp.org/rgcenter/il/2006_08_cna.pdf.
\10\ http://phinational.org/sites/phinational.org/files/clearinghouse/state-nurse-aide-training-requirements-2009.pdf.
\11\ Id.
\12\ This change to the regulation makes obsolete but does not
conflict with a court opinion holding that CNAs were not
categorically excluded from the companionship services exemption
under the current regulation. Specifically, in McCune v. Oregon
Senior Services Division, 894 F.2d 1107 (9th Cir. 1990), the Ninth
Circuit held--based on its reading of the current regulation-- that
CNAs were not the type of ``trained personnel'' who provide services
that are not companionship services because the training for CNAs
was not comparable to that required for RNs or LPNs. Id. at 1110-11.
The Final Rule now makes clear, for the reasons explained, that the
amount and type of training CNAs must receive is sufficiently
significant to merit treatment as providing medically related,
rather than companionship, services.
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Furthermore, CNAs perform many tasks that are indisputably medical
services, which constitute the sort of professional, skilled duties
that are outside the scope of companionship services. Although the
particular duties of CNAs vary by state, CNAs' core duties include
administering medications or treatments, applying clean dressings,
observing patients to detect symptoms that may require medical
attention, and recording vital signs,\13\ and typical additional duties
include administering medications or treatments such as
catheterizations, enemas, suppositories, and massages as directed by a
physician or a registered nurse; turning and repositioning bedridden
patients; and helping patients who are paralyzed or have restricted
mobility perform exercises.\14\ Additionally, CNAs often use equipment
such as blood pressure units, medical thermometers, stethoscopes,
bladder ultrasounds, glucose monitors, and urinary catheterization
kits. It is the Department's view that these tasks constitute the sort
of work that falls appropriately within FLSA protection.
---------------------------------------------------------------------------
\13\ O'NET, SOC 31-1014.00 (2012), http://www.onetonline.org/link/summary/31-1014.00.
\14\ See, e.g., http://www.maine.gov/boardofnursing/OLD%20WEBSITE/CNA%20BAsic%20Curriculum%2010-2008.pdf; https://www.flrules.org/gateway/ruleno.asp?id=64B9-15.002; http://www.in.gov/isdh/files/rescare.pdf; http://www.dphhs.mt.gov/cna/SkillsChecklist.pdf; http://www.utahcna.com/forms/UTcandidatehandbook.pdf; http://www.oregon.gov/OSBN/pdfs/publications/cnabooklet.pdf.
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Many of the duties of today's CNAs are similar to, or even more
technical than, tasks LPNs performed in the 1970s, when Congress
created the companionship services exemption with the explicit notion
that LPNs were outside its scope. At that time, LPNs took and recorded
temperature and blood pressure, changed dressings, administered
prescribed medications, and helped with bathing or other personal
hygiene; in private homes, they often assisted with meal preparation
and facilitated comfort in addition to providing nursing care.\15\ In
contrast to today's CNAs, in the 1970s, ``nursing aides'' did not
receive pre-employment training and did not provide services that
required the technical training nurses received.\16\ This shift in the
field of nursing provides additional support for the Department's
conclusion that
[[Page 60472]]
Congress's original intent in creating the companionship services
exemption is best fulfilled by adding CNAs to the illustrative list of
trained personnel.
---------------------------------------------------------------------------
\15\ U.S. Department of Labor, Bureau of Labor Statistics,
Occupational Outlook Handbook, 1974-75 Edition (1974).
\16\ Id.
---------------------------------------------------------------------------
The Department does not accept the suggestion of some commenters
that it add home health aides (HHAs) and personal care aides (PCAs) to
its illustrative list of trained personnel. The work of practitioners
of those occupations does not necessarily include medically related
services. Although Federal regulations require that HHAs complete a
minimum of 75 hours of training and must pass a competency evaluation,
these requirements are distinguishable from those for CNAs: the topics
the training must address are more limited than those CNAs must study,
the evaluation requirements are less stringent than for CNAs, and
states need not maintain registries of HHAs. Compare 42 CFR 484.36(a),
(b) with 42 CFR 483.152(a), (b); 42 CFR 483.156. PCAs are not subject
to any federal standards for training and certification, nor are there
state registries of PCAs. In addition, one of the core duties of an HHA
is to ``entertain, converse with, or read aloud to patients to keep
them mentally healthy and alert,'' \17\ and one of the core duties of a
personal care aide is to provide companionship.\18\ Other duties of
HHAs and PCAs often include grooming, dressing, and meal preparation.
Therefore, HHAs and PCAs typically do not have the medical training
CNAs receive, those titles are not associated with an official
licensing system that allows their clear identification as trained
personnel, and any particular HHA or PCA may perform only fellowship
and protection and assistance with ADLs and IADLs. If in the future the
same sort of professionalization that has occurred in the nursing
assistance field extends to HHAs or PCAs such that either or both of
those occupations require the training and perform the duties of CNAs
today, or if some future category of worker arises that performs such
skilled duties, however, it is the Department's intent that such fields
could properly be considered ``trained personnel.''
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\17\ O'NET, SOC 31-1011.00, http://www.onetonline.org/link/details/31-1011.00.
\18\ O'NET, SOC 39-9021.00, http://www.onetonline.org/link/details/39-9021.00.
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The Department wishes to note two important caveats regarding its
decision not to include HHAs or PCAs in its list of trained personnel.
First, the list of occupations in the regulatory text is not exclusive.
If a state or employer refers to a direct care worker by a title other
than RN, LPN, or CNA, but his or her training requirements and services
performed are roughly equivalent to or exceed those of any of these
occupations, that worker does not qualify for the companionship
services exemption. For example, according to PHI, twelve states
require HHAs to be trained and credentialed as CNAs. Where a worker is
a CNA and provides medically related services, regardless of any other
job title he or she may hold, he or she is excluded from the
companionship services exemption. See 29 CFR 541.2; FOH 22a04; Wage and
Hour Fact Sheet 17A: Exemption for Executive, Administrative,
Professional, Computer, and Outside Sales Employees Under the Fair
Labor Standards Act (all explaining that job titles do not determine
exempt status under the FLSA). Second, as explained below, any HHA or
PCA who performs medically related services does not qualify for the
companionship services exemption. Based on the Department's
understanding of the typical duties of these workers, the Department
believes that many HHAs will for this reason not be subject to the
exemption and therefore will be entitled to the protections of the
FLSA. Of course, in addition, any HHA or PCA who is engaged in the
provision of care during more than 20 percent of his or her hours
worked for a particular consumer in a given workweek also does not
qualify for the companionship services exemption. Furthermore, as
explained in the section of this Final Rule regarding Sec. 552.109,
any third party that employs an HHA or PCA who works in a private home
will not be permitted to claim the companionship services exemption.
Given these limitations on the companionship services exemption, and
the services HHAs and PCAs often provide, it is likely that almost all
HHAs and many PCAs will not be exempt under the Act. Because almost all
of these workers are providing home care as a vocation, the Department
believes this is the appropriate result under the statute.
The second difference between the current and newly adopted
regulatory text--that medically related services are those that
typically require training, not only those performed by a person who
actually has the training--is primarily based on the FLSA's fundamental
premise that the tasks performed rather than the job title or
credentials of the person performing them determines coverage under the
Act. As explained elsewhere in this Final Rule, in enacting the 1974
amendments, Congress intended to exclude from FLSA coverage the work of
individuals whose services did not constitute a vocation; it did not
exclude domestic service employees who happened not to have training.
The Department believes that any direct care worker who performs
medical tasks that nurses or nursing assistants are trained to perform
is the sort of employee whose work should be compensated pursuant to
the requirements of the FLSA.\19\
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\19\ The Department notes that the Final Rule's instruction not
to look to the actual training of the person providing services
calls for a shift in the way courts approach challenges to the
assertion of the companionship services exemption. Courts have read
the Department's current regulation to mean that direct care workers
without the extensive training RNs and LPNs receive are not excluded
from the exemption regardless of the services they provide. See,
e.g., Cox v. Acme Health Servs., 55 F.3d 1304, 1310 (7th Cir. 1995);
McCune v. Or. Senior Servs. Div., 894 F.2d 1107, 1110-11 (9th Cir.
1990). The Final Rule, which for the reasons explained reflects a
reasonable reading of the statutory provision the Department has
express authority to interpret, calls instead for a focus on the
tasks performed.
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Medically related services are not within the scope of
companionship services whether the person performing them is
registered, licensed, or certified to do so or not. Procedures
performed may be invasive, sterile, or otherwise require the exercise
of medical judgment; examples include but are not limited to catheter
care, turning and repositioning, ostomy care, tube feeding, treating
bruising or bedsores, and physical therapy. Regardless of actual
training, these tasks require skill and effort far beyond what is
called for by the provision of fellowship and protection, such as
activities like reading, walks, and playing cards. They are also
outside the category of assistance with instrumental activities of
daily living (IADLs), which may fall under the provision of care
described in Sec. 522.6(b). The text of Sec. 552.6(b) notes that
IADLs include assisting a consumer with the physical taking of
medications or arranging a consumer's medical appointments; minor
health-related tasks such as helping a consumer put in eye drops,
applying a band-aid to a minor cut, or calling a doctor's office to
schedule an appointment are distinguishable from the medically related
services RNs, LPNs, and CNAs are trained to and do perform.
Furthermore, focusing on the tasks assigned to, rather than the actual
training or occupational title of, the direct care worker avoids
disincentivizing employers from hiring workers who are not adequately
prepared for the duties they are assigned in order to avoid minimum
wage and overtime requirements. This outcome, which becomes
increasingly significant as services shift from institutions to
[[Page 60473]]
homes, is not beneficial to workers or to consumers.
Finally, the Department notes that the purpose of Sec. 552.6(d) is
to exclude from the companionship services exemption those direct care
workers who perform medically related tasks on more than isolated,
emergency occasions. A direct care worker who provides companionship
services but reacts to an unanticipated, urgent situation by, for
example, performing cardiopulmonary resuscitation (CPR), performing the
Heimlich maneuver, or using an epinephrine auto-injector is not
excluded from the exemption. Furthermore, in response to NRCPDS's
question regarding first aid or CPR training, the Department notes that
such training is not equivalent to that which an RN, LPN, or CNA
receives, and therefore a worker who has been taught these skills would
not automatically be excluded from the companionship services
exemption.
C. Section 552.102 (Live-in Domestic Service Employees) and Section
552.110 (Recordkeeping Requirements)
Live-in Domestic Service Employees
Section 13(b)(21) of the FLSA exempts from the overtime provision
``any employee who is employed in domestic service in a household and
who resides in such household.'' 29 U.S.C. 213(b)(21). The Department's
current regulation at Sec. 552.102(a) provides that domestic service
employees who reside in the household where they are employed are not
entitled to overtime compensation. Section 552.102(a) also provides
that domestic service workers who reside in the household of their
employer are entitled to at least the minimum wage for all hours worked
(unless they meet the companionship services exemption). Domestic
service employees who reside in the household where they are employed
are referred to as ``live-in domestic service employees.''
Under Sec. 552.102(a), the Department allows the employer and
live-in domestic service employee to enter into a voluntary agreement
that excludes from hours worked the amount of the employee's sleeping
time, meal time and other periods of complete freedom from all duties
when the employee may either leave the premises or stay on the premises
for purely personal pursuits.\20\ In order for periods of free time
(other than those relating to meals and sleeping) to be excluded from
hours worked, the periods must be of sufficient duration to enable the
employee to make effective use of the time. Sec. 552.102(a). Section
552.102(a) makes clear that if the sleep time, meal time, or other
periods of free time are interrupted by a call to duty, the
interruption must be counted as hours worked.
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\20\ This requirement is nearly identical to the requirement
found in Sec. 785.23.
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The Department allows for such an agreement because it recognizes
that live-in employees are typically not working all of the time that
they are on the premises and that, ordinarily, the employees may engage
in normal private pursuits, such as sleeping, eating, and other periods
of time when they are completely relieved from duty. See also Sec.
785.23. However, current Sec. 552.102(a) makes clear that live-in
domestic service employees must be paid for all hours worked even when
an agreement excludes certain hours. As an example, assume an employer
and live-in domestic service employee enter into a voluntary agreement
that excludes from hours worked the time between 11:00 p.m. and 7:00
a.m. for the purposes of sleeping. If the employee is required to
perform any work during those hours, for example, the employee is
required to assist the individual with going to the bathroom, or is
required to periodically turn or reposition the individual, the
employer is then required to pay the employee for the time spent
performing work activities despite an agreement that typically
designates those hours as non-working time. The proposed rule did
nothing to change this obligation.
In the NPRM, the Department proposed changes to the recordkeeping
requirement for live-in domestic service employees. Under proposed
Sec. 552.102(b), the Department would no longer allow the employer of
a live-in domestic employee to use the agreement as the basis to
establish the actual hours of work in lieu of maintaining an actual
record of such hours. Proposed Sec. 552.102(b) would require the
parties to enter into a new agreement whenever there is a significant
deviation from the existing agreement. Additionally, in the proposed
changes to Sec. 552.110(b), the Department would no longer permit an
employer to maintain a copy of the agreement as a substitution for
recording actual hours worked by the live-in domestic service employee.
Instead, the Department would require the employer to maintain a copy
of the agreement as well as records showing the exact number of hours
worked by the live-in domestic service employees and pay employees for
all hours actually worked. As more fully explained in the Recordkeeping
Requirement section below, the Department is adopting the proposed
recordkeeping requirements with minor modifications, as discussed in
the preamble to Sec. Sec. 552.102, 552.110.
Live-in Situations
The Department received several comments requesting clarification
on the definition of a live-in domestic service employee. For example,
Women's Employment Rights Clinic stated that it is critical that the
regulations include a definition of a live-in domestic service employee
because live-in domestic service workers remain exempt from overtime,
and that the Department should provide clarification of the definition
of a ``live-in'' so households and workers clearly understand when
overtime must be paid. Women's Employment Rights Clinic suggested that
the Department adopt the following definition: ``A live-in employee is
one who (1) resides on the employer's premises on a permanent basis or
for extended periods of time and (2) for whom the employer makes
adequate lodging available seven days per week.'' Women's Employment
Rights Clinic stated that this definition will help draw a needed
distinction between workers on several consecutive 24-hour shifts and
live-in employees, as well as a distinction between short-term
assignments and assignments for extended periods of time that might
appropriately be deemed live-in situations. The Legal Aid Society of NY
also requested that the Department clarify the definition of live-in
domestic service employee and make clear that the definition does not
include a worker who spends only one night per week at a residence or
must pay any part of the rent or mortgage or other expenses for upkeep
of another residence.
In addition, the Department received comments questioning the
continued use and viability of the overtime exemption for live-in
domestic service employees. Students from the Georgetown University Law
Center stated that the Department should eliminate the live-in domestic
service employee exemption, suggesting that it is directly contrary to
the Department's stated goals in the NPRM. The students urged the
Department to provide overtime protections to live-in employees. On the
other hand, one individual who hires direct care workers to provide
services for his father requested that the Department not eliminate the
live-in domestic service employee exemption.
Because the live-in domestic service employee exemption is
statutorily created, the Department cannot eliminate the exemption as
suggested by Georgetown Law students. Only Congress could eliminate the
overtime
[[Page 60474]]
exemption for such workers. Moreover, the Department did not propose
any changes to the definition of live-in domestic service employee or
otherwise discuss the requirements for meeting the live-in domestic
service exemption in the NPRM. It is the Department's intention to
continue to apply its existing definition of live-in domestic service
employees. Under the Department's existing regulations and
interpretations, an employee will be considered to be a live-in
domestic service employee under Sec. 552.102 if the employee: (1)
Meets the definition of domestic service employment under Sec. 552.3
and provides services in a ``private home'' pursuant to Sec. 552.101;
and (2) resides on his or her employer's premises on a ``permanent
basis'' or for ``extended periods of time.'' See also Sec. 785.23; FOH
Sec. 31b20.
Employees who work and sleep on the employer's premises seven days
per week and therefore have no home of their own other than the one
provided by the employer under the employment agreement are considered
to ``permanently reside'' on the employer's premises. See Wage and Hour
Opinion Letter FLSA-2004-7 (July 27, 2004). Further, in accordance with
the Department's existing policy, employees who work and sleep on the
employer's premises for five days a week (120 hours or more) are
considered to reside on the employer's premises for ``extended periods
of time.'' See FOH Sec. 31b20. If less than 120 hours per week is
spent working and sleeping on the employer's premises, five consecutive
days or nights would also qualify as residing on the premises for
extended periods of time. Id. For example, employees who reside on the
employer's premises five consecutive days from 9:00 a.m. Monday until
5:00 p.m. Friday (sleeping four straight nights on the premises) would
be considered to reside on the employer's premises for an extended
period of time. Similarly, employees who reside on an employer's
premises five consecutive nights from 9:00 p.m. Monday until 9:00 a.m.
Saturday would also be considered to reside on their employer's
premises for an extended period of time. Id.
Employees who work only temporarily, for example, for only a short
period of time such as two weeks, for the given household are not
considered live-in domestic service workers, because residing on the
premises of such household implies more than temporary activity. In
addition, employees who work 24-hour shifts but are not residing on the
employer's premises ``permanently'' or for ``extended periods of time''
as defined above are not considered live-in domestic service workers
and, thus, the employers are not entitled to the overtime exemption.
The Department received many comments from employers and advocacy
groups that serve persons with disabilities that appeared to confuse
the issue of ``live-in'' care with 24-hour care. See, e.g., Bureau of
TennCare, NASDDDS, Cena Hampden, Scott Witt, and Gary Webb. For
example, one individual suggested that her mother received ``live-in''
care when the employee worked only a 16-hour shift. The Department
received several comments noting that the home care industry's use of
the term ``live-in'' is different than the Department's use.
Specifically, John Gilliland Law Firm stated that ``the term `live-in'
is used differently within the home care industry than how it is used
by the Wage and Hour Division.'' The law firm noted that the home care
industry uses the term ``live-in'' to refer to 24-hour assignments,
often several consecutive assignments, where the client's location is
not the employee's residence, and the Wage and Hour Division refers to
``live-in'' employees as those residing on the client's premises.
Similarly, Women's Employment Rights Clinic noted that, based on their
experience representing home care workers, employees who work several
consecutive 24-hour shifts are often confused with live-in employees.
The fact that an individual may need 24-hour care does not make
every employee who provides services to that individual a live-in
domestic service employee. Rather, only those employees who are
providing domestic services in a private home and are residing on the
employer's premises ``permanently'' or for ``extended periods of time''
are considered live-in domestic service employees exempt from the
overtime requirements of the FLSA. Employees who work 24-hour shifts
but are not live-in domestic service employees must be paid at least
minimum wage and overtime for all hours worked unless they are
otherwise exempt under the companionship services exemption. (See Hours
Worked section for a discussion of when sleep time is not hours
worked.)
The Department received a few comments that argued that allowing
employers to maintain an agreement under Sec. 552.102(a) conflicts
with the simultaneous requirement that an employer must maintain
precise records of hours worked under proposed Sec. 552.102(b). For
example, The Workplace Project stated that allowing an agreement of
hours worked will create confusion and will undermine the requirement
that employers track actual hours worked. As a result, The Workplace
Project recommended that the Department eliminate Sec. 552.102(a) that
allows employers of live-in domestic service workers to enter into an
agreement. On the other hand, one individual requested that the
Department continue to allow employers and employees to use agreements
for live-in domestic service employees. California Foundation for
Independent Living Centers (CFILC) also suggested that the Department
should allow employers and employees to ``enter into mutually agreeable
and non-coercive employment agreements to work compensated hours at a
set hourly wage or monthly salary without triggering overtime
compensation.'' CFILC stated that the agreements could guarantee the
live-in domestic service employee breaks, meal periods, and 8 hours of
uninterrupted sleep, and the agreements could be renegotiated to
account for any changes that might arise.
The Department disagrees with the comments that suggested that
continuing to allow employers and live-in domestic service employees to
enter into mutually agreeable agreements is inconsistent with the
recordkeeping requirements for live-in domestic service employees. The
Department's regulation allows the employer and live-in employee to
enter into a voluntary agreement that excludes from hours worked the
amount of the employee's sleeping time, meal time and other periods of
complete freedom from all duties when the employee may either leave the
premises or stay on the premises for purely personal pursuits. See
Sec. Sec. 552.102(a), 785.23. The Department's regulation also allows
employers and live-in employees to enter into such voluntary agreements
(see, infra, Hours Worked section) because the Department recognizes
that live-in employees are not necessarily working all the time that
they are on the employer's premises. When an employee resides on the
employer's premises it is in the employee's and the employer's interest
to reach an agreement on the employee's work schedule so each may
understand when the employee is expected to be working and when the
employee is not expected to be working and is completely relieved from
duty. The Department will accept any reasonable agreement of the
parties, taking into consideration all of the pertinent facts. Despite
allowing for voluntary agreements, however, the Department has always
required that employers pay live-in domestic service
[[Page 60475]]
employees at least the minimum wage for all hours worked and that when
sleep time, bona fide meal periods, and bona fide off-duty time are
interrupted then employees must be compensated for such time regardless
of whether an agreement typically designates those hours as non-working
time. Under the new recordkeeping requirements for live-in domestic
service employees (more fully addressed below), the Department simply
requires the employer to maintain a copy of the agreement as well as
records showing the exact number of hours worked by live-in domestic
service employees and pay live-in domestic service employees for all
hours actually worked. The requirement to record hours actually worked
is no different than that required for other employers under the FLSA.
The Department also received comments reflecting the belief that
the proposed rule required live-in employees to be paid for all 24
hours, or comments that were otherwise confused about the pay
requirements for live-in and 24-hour shift workers. For example, a
Senior Helper franchise owner believed that the Department's proposed
rule required that domestic service employees scheduled for 24-hour
shifts or deemed live-ins must be paid for the entire 24-hour period
even when the employee is not working. The owner suggested that such an
outcome would be unfair and that the rule should be redrafted and
modeled after New Jersey law, which, based upon his description,
requires that live-in employees be compensated for at least eight hours
each day when the hours worked are irregular and intermittent. Another
employer also believed that the Department's proposed rule required
that agencies pay live-in employees for all 24 hours that they are on
the clients' premises even if the employees receive six to eight hours
of uninterrupted sleep. This employer suggested that this would double
the cost to the clients. Several employers suggested that employees who
live in or work 24-hour shifts should not be paid overtime because they
are not working all the time. In addition, a few employers suggested
that live-in or sleep-over employees should not be paid based on an
hourly rate; rather, the employer should be allowed to pay the employee
based on a flat overnight rate.
The Department's existing regulations regarding when employees must
be compensated for sleep time, meal periods, or off-duty time are
discussed in the Hours Worked section of this Final Rule. The
definition of hours worked and the basis for taking any deductions
outlined in that section apply to live-in domestic service employees
and must be followed. Generally, where an employee resides on the
employer's premises permanently or for extended periods of time, all of
the time spent on the premises is not necessarily working time. The
Department recognizes that such an employee may engage in normal
private pursuits and thus have enough time for eating, sleeping,
entertaining, and other periods of complete freedom from work duties.
For a live-in domestic service employee, such as a live-in roommate,
the employer and employee may voluntarily agree to exclude sleep time
of not more than eight hours if (1) adequate sleeping facilities are
furnished by the employer, and (2) the employee's time spent sleeping
is uninterrupted. Sec. 785.22-.23. In addition, meal periods may be
excluded if the employee is completely relieved of duty for the purpose
of eating a meal, and off-duty periods may be excluded if the employee
is completely relieved from duty and is free to use the time
effectively for his or her own purposes. Sec. Sec. 785.16, 785.19.
However, an employee who is required to remain on call on the
employer's premises or so close thereto that he or she cannot use the
time effectively for his or her own purposes is considered to be
working while on call and must be compensated for such time. Sec.
785.17.
Concerning whether employers may pay an hourly rate or a flat
overnight or daily rate to a live-in employee, the Department notes
that the FLSA is flexible regarding the type of rate paid and only
requires that employers pay the live-in domestic service employee at
least the minimum wage for all hours worked, in accordance with our
longstanding rules. For example, an employer may have an agreement to
pay a live-in employee $125 per day, which exceeds the minimum wage
required for 16 hours of work (compensable time), if the employee
receives eight hours of uninterrupted sleep time off.
The Department also received several comments requesting
clarification on the application and impact of the companionship
services and live-in domestic service employee exemptions to shared
living or roommate arrangements. The Department received many comments
from advocacy groups that represent persons with disabilities, such as
the NASDDDS, and third party employers, such as Community Vision,
requesting that the Department clarify the wage and hour requirements
on live-in arrangements provided under Medicaid-funded Home and
Community-Based Services (HCBS) programs.
Specifically, NASDDDS described shared living services as ``an
arrangement in which an individual, a couple or a family in the
community share life's experiences with a person with a disability.''
Shared living arrangements may also be known as mentor, host family or
family home, foster care or family care, supported living, paid
roommate, housemate, and life sharing. Under a shared living program,
consumers typically live in the home of an individual, couple, or
family where they will receive care and support services based on their
individual needs. NASDDDS stated that shared living providers receive
compensation typically from a third party provider agency or directly
from the state's Medicaid program. NASDDDS requested that the
Department conclude that shared living providers meet the definition of
performing companionship services under the proposed rule and thus that
those providers are not entitled to minimum wage and overtime
compensation.
NASDDDS also discussed Medicaid services described as ``host
families.'' NASDDDS described a ``host family'' as a family that
accepts the responsibilities for caring for one to three individuals
with developmental disabilities. The host family helps the individual
participate in family and community activities, and ensures that the
individual's health and medical needs are met. Such services may
include assistance with basic personal care and grooming, including
bathing and toileting; assistance with administering medication or
performing other health care activities; assistance with housekeeping
and personal laundry; etc. NASDDDS noted that the provider typically
must comply with state licensure or certification regulations. NASDDDS
further noted that the provider is usually paid a flat monthly rate to
meet the individual's support needs and the payment will typically be
based on the intensity and difficulty of care. The provider may also be
paid for room and board. NASDDDS suggested that the Department work
with CMS and stakeholders to develop a greater understanding of the
programs and financial structures for Medicaid HCBS waiver programs.
One individual suggested that such living arrangements should fall
under the Department's foster care exemption or should be exempt from
the requirements under Sec. 785.23.
Moreover, Arkansas Department of Human Services noted that many
[[Page 60476]]
individuals who receive supported living services under HCBS waivers
rely on roommates or live-in scenarios where the individuals receive
services in their own home or in that of a family member. Community
Vision and other third party providers described live-in roommates as
``a major component of the support system of an individual with
significant disabilities who live independently in their own home.''
Home Care & Hospice stated that live-in roommate arrangements include
college students with Medicaid paid ``roommates'' who also attend
college or individuals who work and take a caregiver to work with them,
but who need an overnight live-in roommate to address intermittent
needs. Home Care & Hospice was concerned that the Department's proposed
regulations would put these programs at risk. Community Vision stated
that live-in roommates are available in the rare case of an emergency
or for infrequent support needs and that these individuals receive free
or reduced rent and utilities in exchange for being a roommate who on
occasion can provide support to the individual at night; the type of
services provided by live-in roommates was not discussed. Community
Vision requested that the exemptions from minimum wage and overtime
continue for live-in roommates. It asserted that minimum wage and
overtime pay would make the live-in roommates fiscally unsupportable
for agencies and their clients, resulting in increased
institutionalization of their clients with disabilities and a loss of
housing for their employees.
The Department also received several comments that discussed the
application of the companionship services and live-in domestic service
employee exemptions to paid family caregivers. See, e.g., Joni Fritz,
ANCOR, and NASDDDS. Paid family caregivers are described as family
members of an aging person or an individual with a disability who
provide care and receive some income to provide support for their
family member, and who--without pay--could not provide the needed
support. See Joni Fritz. Some states have established payment systems
under Medicaid that will pay a family member to provide intimate care
and medically related support.\21\ AARP noted that some HCBS waiver
programs allow the individual to hire family caregivers to provide
services and may permit them to provide more than 40 hours of
assistance per week, assistance that is vital to keeping their loved
one at home and out of an institution. AARP noted that family
caregivers frequently live with the person for whom he or she provides
services. AARP was concerned that requiring the payment of overtime in
these cases, merely because public authorities or fiscal intermediaries
are involved in making these programs possible, could prevent family
caregivers from providing more than 40 hours a week in paid care and
impact the ability of the individual to remain at home. In addition,
AARP noted that the situation of a family caregiver who lives with the
person for whom they provide services is analogous to the overtime
exemption for live-in domestic service workers. AARP suggested that the
Department not require the payment of overtime if: (1) The individual
is receiving HCBS under a publicly financed consumer-directed program;
(2) a third party such as a public authority or a fiscal intermediary
is involved; and (3) a family caregiver who lives with the consumer is
being paid under the consumer-directed program to provide services for
the individual.
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\21\ In some instances a family member may also be paid for time
spent performing some housekeeping services in addition to the
medical and personal care services provided.
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It appears that under these varied shared living arrangements, the
live-in domestic service workers are living on the same premises with
the consumer and would easily be able to meet the ``permanently
reside'' or ``extended periods of time'' requirements and would
therefore be exempt from overtime requirements. There is a question,
however, whether the consumer is receiving services in a ``private
home.'' As the determination whether domestic services are provided in
a private home is fact-specific and is to be made on a case-by-case
basis, the Department cannot state categorically whether a particular
type of living arrangement involves work performed in a private home.
In evaluating whether a residence is a private home (see, supra,
private home discussion), the Department considers the six factors
identified by the Tenth Circuit in Welding as well as the other factors
identified in Johnston, Linn, and Lott. See Wage and Hour Opinion
Letter, FLSA 2006-13NA (June 23, 2006).
The Department cannot address all shared living arrangements raised
in the comments because the circumstances are different under countless
factual scenarios. However, the Department is providing, as an example,
the following guidance regarding how these established rules will
likely apply under the most commonly raised shared living arrangement--
live-in roommates. In the live-in roommate arrangement, the consumers
appear to be living in their own home and a roommate moved in to the
consumer's home in order to provide services on an as needed basis. It
also appears that the person receiving services owns the home or leases
the home from an independent third party. There is nothing in the
comments to suggest that the state or agency providing the services
maintains the residences or otherwise provides the essentials of daily
living, such as paying the mortgage or rent, utilities, food, and house
wares. Rather, either the service provider pays rent or the individual
receiving services provides free lodging as part of the remuneration
due the live-in roommate for providing services. The cost/value of the
services does not appear to be substantial based on the comments that
suggested that live-in roommates provide only intermittent or
infrequent care services. Thus, the costs of the services provided
appear to be a small portion of the total costs of maintaining the
living unit. In addition, there is nothing to suggest that the service
provider uses any part of the residence for its own business purposes.
It also appears that the consumer hires the roommate and determines who
will live in his or her home and is free to come and go as he or she
pleases. Therefore, live-in roommate arrangements appear to be
performed in a private home, and thus, the live-in domestic service
employee overtime exemption will likely be available to the individual,
family, or household using the worker's services. Any slight change in
the specific facts of this scenario, however, may lead to a different
result. However, as more fully discussed in the third party employment
section below, the live-in domestic service employee exemption will not
be available to a third party employer of the live-in roommate.
Moreover, to the extent the live-in roommate meets the duties test for
the companionship services exemption as outlined above (see, supra,
companionship services section), the companionship exemption will
likely also be available to the individual, family, or household using
the worker's services. The overtime exemption for a live-in domestic
service employee is a separate exemption available even when an
employee does not meet the Department's duties test in the
companionship services exemption. For example, an individual, household
or family member employing a live-in nurse or a live-in direct care
worker who provides cooking, driving, and cleaning services for more
than 20 percent of the weekly hours worked, may still claim the live-in
domestic
[[Page 60477]]
service employee exemption from overtime; if there is a third party
employer involved, however, then the third party employer would be
responsible for overtime compensation.
For many of the same reasons discussed above, the Department
believes that in most circumstances a paid family caregiver is
providing services in a private home. In the circumstances where the
paid family caregiver lives with the consumer, the overtime exemption
will be available to the individual, family, or household. If employed,
jointly or solely, by a third party, the paid family caregiver would be
entitled to overtime compensation for all hours worked over 40 from the
third party employer subject to the analysis described later in this
preamble discussing paid family and household caregivers. However, as
noted above, not all time spent on the premises is necessarily
considered hours worked and there may be circumstances where the third
party will not be considered a joint employer of the paid family
caregiver because the third party is not engaged in the factors that
indicate an employer-employee relationship exists (see, infra, joint
employment section).
The Department recognizes that people living with disabilities
continue to explore innovative ways of eliminating segregation and
promoting inclusion particularly through the provision of services and
supports in home- and community-based settings. The Department
appreciates that a number of commenters who care about the viability of
such arrangements raised questions and concerns about the impact of the
proposed rule on such arrangements, and the Department supports the
progress that has allowed elderly people and persons with disabilities
to remain in their homes and participate in their communities. As noted
above, in the most common scenario described by commenters, the live-in
roommate situation, depending on all of the facts of the arrangement,
the roommate may be exempt from the overtime compensation requirements
under the live-in domestic service employee exemption, and, depending
on the roommate's duties, could also qualify for the companionship
services exemption. In either case, the longstanding FLSA hours worked
principles would apply, and time that is not work time under those
principles would not have to be compensated.
The Department also recognizes that it is possible that certain
shared living arrangements may fall within the Department's exception
for foster care parents, provided specific criteria are met. See FOH
Sec. 10b29. In contrast to shared living arrangements that are not
foster care situations, individuals in foster care programs are
typically wards of the state; the state controls where the individuals
will live, with whom they will live, the care and services that will be
provided, and the length of the stays. For example, in Wage and Hour
Opinion Letter WH-298, the WHD concluded that where a husband and wife
agree to become foster parents on a voluntary basis and take a child
into their home to be raised as one of their own, the employer-employee
relationship would not exist between the parents and the state where
the payment is primarily a reimbursement of expenses for rearing the
child. See 1974 WL 38737 (Nov. 13, 1974). Of course, the Department
recognizes that there is a continuum of shared living arrangements and
a factual determination with respect to FLSA coverage must be made on a
case-by-case basis.
As stated throughout this rule, the Department believes that the
positions taken in the Final Rule are more consistent with the
legislative intent of the companionship services and live-in exemptions
and that protecting domestic service workers under the Act will help
ensure that the home care industry attracts and retains qualified,
professional workers that the sector will need in the future.
Recordkeeping Requirements
In the NPRM, the Department proposed to revise the recordkeeping
requirements applicable to live-in domestic service employees, in order
to ensure that employers maintain an accurate record of hours worked by
such workers and pay for all hours worked in accordance with the FLSA.
Section 13(b)(21) of the Act provides an overtime exemption for live-in
domestic service employees; however, such workers remain subject to the
FLSA minimum wage protections. Current Sec. 552.102 allows the
employer and employee to enter into an agreement that excludes from
hours worked sleeping time, meal time, and other periods of complete
freedom from duty when the employee may either leave the premises or
stay on the premises for purely personal pursuits, if the time is
sufficient to be used effectively. Paragraph 552.102(a) makes clear
that if the free time is interrupted by a call to duty, the
interruption must be counted as hours worked. Current Sec. 552.102(b)
allows an employer and employee who have such an agreement to rely on
it to establish the employee's hours of work in lieu of maintaining
precise records of the hours actually worked. The employer is to
maintain a copy of the agreement and indicate that the employee's work
time generally coincides with the agreement. If there is a significant
deviation from the agreement, a separate record should be kept or a new
agreement should be reached.
The Department expressed concern in the NPRM that not all hours
worked by a live-in domestic service employee are actually captured by
such an agreement, which may result in a minimum wage violation. The
Department stated that the current regulations do not provide a
sufficient basis to determine whether the employee has in fact received
at least the minimum wage for all hours worked. Therefore, the NPRM
proposed to revise Sec. 552.102(b) to no longer allow the employer of
a live-in domestic service employee to use the agreement as the basis
to establish the actual hours of work in lieu of maintaining an actual
record of such hours. Instead, the proposal required the employer to
keep a record of the actual hours worked. Consequently, the language
suggesting that a separate record of hours worked be kept when there is
a significant deviation from the agreement was proposed to be deleted,
and proposed Sec. 552.102(b) required entering into a new written
agreement whenever there is a significant deviation from the existing
agreement.
The Department also proposed to amend Sec. 552.110 with respect to
the records that must be kept for live-in domestic service employees.
Current Sec. 552.110(b) provides that records of actual hours worked
are not required for live-in domestic service employees; instead, the
employer may maintain a copy of the agreement referred to in Sec.
552.102. It also states, however, that this more limited recordkeeping
requirement does not apply to third party employers. No records are
required for casual babysitters. Current paragraph 552.110(c) permits,
when a domestic service employee works a fixed schedule, the employer
to use the schedule that the employee normally works and either provide
some notation that such hours were actually worked or, when more or
less hours are actually worked, show the exact number of hours worked.
Current Sec. 552.110(d) permits an employer to require the domestic
service employee to record the hours worked and submit the record to
the employer.
Because of the concern that all hours worked are not being fully
captured, the Department proposed in Sec. 552.110(b) to no longer
permit an employer to maintain a copy of the agreement as a
substitution for recording actual hours
[[Page 60478]]
worked by the live-in domestic service employee. Instead, the NPRM
proposed that the employer maintain a copy of the agreement and
maintain records showing the exact number of hours worked by the live-
in domestic service employee. Proposed Sec. 552.110(b) expressly
stated that the provisions of Sec. 516.2(c), pertaining to fixed-
schedule employees, do not apply to live-in domestic service employees,
which meant that employers would no longer be permitted to maintain a
simplified set of records for such employees. As a result, a conforming
change was proposed in Sec. 552.110(c), based on the Department's
belief that the frequency of schedule changes for live-in domestic
service employees simply makes reliance on a fixed schedule, with
exceptions noted, too unreliable to ensure an accurate record of hours
worked by these employees. In addition, because the proposed changes to
third party employment in Sec. 552.109 made moot the reference in
Sec. 552.110(b) to third party employers, it was removed from proposed
Sec. 552.110(b). The NPRM also proposed to revise Sec. 552.110(d) to
make clear that the employer of the live-in domestic service employee
could not require the live-in domestic service employee to record the
hours worked and submit the record to the employer, while employers of
other domestic service employees could continue to require the domestic
service employee to record and submit their record of hours worked. The
proposal required the employer to be responsible for making, keeping,
and preserving records of hours worked and ensuring their accuracy.
Finally, the Department proposed to move the sentence stating that
records are not required for casual babysitters, as defined by Sec.
552.5, to a stand-alone paragraph at Sec. 552.110(e).
The Department received a number of comments on the proposed
recordkeeping requirements, discussed below. Based on comments
indicating that the proposed change prohibiting employers from
requiring live-in domestic service employees to record and submit their
hours could create significant difficulties, particularly for those
employers who have Alzheimer's disease, dementia or developmental
disabilities, the Department modified the Final Rule to allow an
employer to require the live-in domestic service employee to record the
hours worked and submit the record to the employer. The Final Rule
adopts the other changes as proposed.
The Department also received a number of comments that stated that
the requirement for employers to keep a record of actual hours worked
would cause problems. For example, several employers and their
representatives, including CAHSAH, stated that it is unlikely that
individual employers would be aware of the requirement or be able to
comply with it, and that it would place an undue burden on an elderly
employer receiving services to have to comply with recordkeeping
requirements. AARP similarly stated that consumers who are ill or have
cognitive impairments and need live-in long-term services and supports
may not be able to monitor a worker's hours effectively or to keep
proper records. Therefore, while AARP stated its belief that third
party agencies could fulfill the requirement to record hours, it sought
an adjustment where the individual or family directly hires the
employee; AARP suggested allowing the agreement to control unless
deviations are noted and allowing the employer to require the employee
to record and submit hours. Other employers also expressed concern
about the ability of consumers with Alzheimer's disease, dementia, or
other disabilities to track hours, and they stated their preference for
continuing to use a predetermined schedule agreement or requiring the
employee to track hours. See, e.g., North Shore Senior Services, Gentle
Home Services, Harrison Enterprises, Inc., and Bright Star Healthcare
of Baltimore. Home care companies and their representatives expressed
concern about the additional paperwork burdens, stating that a
household employer with a live-in domestic service worker would need to
install a time clock, and that it would be difficult for employers to
track sleep time versus awake time, or to track time spent taking a
break versus helping the client. See, e.g., VNAA, Visiting Nurse
Service of New York (VNSNY), Angels Senior Home Solutions, Connecticut
Ass'n for Home Care & Hospice, Arizona Ass'n of Providers for People
with Disabilities, New York State Ass'n of Health Care Providers, and
Home Care Ass'n of NY State. They indicated that the requirement will
be burdensome to implement, particularly when consumers wake up
frequently during the night and need assistance, because care workers
will have to keep records of what time the person woke up, what help
was needed, and how long their assistance was provided. They expressed
concern that, because live-in domestic service workers are generally
unsupervised, their third party employers have little ability to
monitor or audit their records of meal and sleep periods versus work
hours to determine their accuracy. One company, Elder Bridge, believed
that using an electronic time management system was not feasible
because such systems cannot account for the unpredictable down time of
employees; therefore, the company suggested that caregivers should be
allowed to document their break time manually in their care notes. A
trade association, Home Care Alliance of Massachusetts, stated it had
no objection to recording the exact number of hours worked, but it
expressed confusion about how it would know that exact number if it
could not require live-in domestic service employees to record their
hours (see Harrison Enterprises, Inc.). An employee agreed, believing
that employee-based reports would be more accurate. A Georgetown
University Law Center student commented that recording deviations from
an agreement was no more difficult than recording every hour as it
happened and could be more accurate.
On the other hand, the Department received a number of comments
that emphasized the importance of the changes in the proposed
recordkeeping requirements for live-in domestic service workers. For
example, National Council of La Raza stated that some care workers work
more than 60 hours in a week, and that bolstering the recordkeeping
requirements ``is an excellent first step in ensuring that these
hardworking caregivers are accurately compensated for time on the
job.'' The ACLU supported the change, stating that ``[i]t is common
that live-in workers are required to work more than the hours they have
contracted to perform.'' Professor Valerie Francisco similarly stated
that her research shows that employers of live-in domestic workers do
not keep accurate records of hours worked. Numerous commenters,
including NELP, Workforce Solutions Cameron, COWS, and DCA, agreed,
stating that the current rule's tolerance for use of an agreement has
resulted in underpayments for time worked by live-in workers, who are
isolated and may fear retaliation if they complain. NELP noted that
``experts estimate that one-third of the victims of labor trafficking
are domestic workers.'' Other groups such as AFSCME, Women's Employment
Rights Clinic and the Center, noted that the revised regulations will
more effectively ensure that hours are properly recorded and that
workers receive at least the minimum wage for all hours worked. The
Center for Economic and Policy Research stated that the difficulties
that arise in capturing live-in hours worked ``are not qualitatively
different from monitoring issues that arise in other contexts.''
[[Page 60479]]
The Legal Aid Society, The Workplace Project, Care Group, Inc., the
Brazilian Immigrant Center and DAMAYAN, asserted that live-in domestic
workers are subject to exploitation and that requiring employers to
track hours will help to create a fair environment. However, several of
these advocacy groups viewed the requirement to track hours as
inconsistent with the ability to obtain an agreement with the worker to
exclude sleep time and other periods of complete freedom; they thought
that such agreements only create confusion and undermine the
requirement to track hours. Other individuals emphasized they wanted to
ensure that employers of live-in domestic service workers keep records
of the employees' rate of pay, total wages, and deductions, and they
noted that employers can keep such records using technology like
computers, smartphones, etc. Several consumers stated that they have
always kept records of hours worked and wages paid and that it is easy
to do. Finally, several commenters, including Care Group, Inc.,
National Domestic Workers Alliance, and The Workplace Project,
suggested that the regulatory requirement to have a record of the
employee's Social Security Number should also permit the use of an
Individual Taxpayer Identification Number (ITIN).
In light of the comments indicating that it would be very difficult
for many consumers of live-in services to monitor and record hours
worked accurately, especially those who have Alzheimer's disease,
dementia, or other conditions affecting memory, concentration, or
cognitive ability, the Department has modified Sec. 552.110(d) of the
Final Rule to remove the proposed rule's restriction on employers of
live-in domestic service employees being able to require such workers
to record their hours worked and submit that record to the employer,
thus, expanding the application of the current rule to all employers of
domestic service employees.\22\ Of course, even though employers may
require their employees to create and submit time records, employers
cannot delegate their responsibility for maintaining accurate records
of the employee's hours and for paying at least the minimum wage for
all hours worked. See Sec. 552.102(a). See, e.g., Kuebel v. Black &
Decker, Inc., 643 F3d 352, 363 (2nd Cir. 2011) (employer's duty to
maintain accurate records non-delegable); Caserta v. Home Lines Agency,
Inc., 273 F.2d 943, 946 (2nd Cir. 1959) (rejecting as inconsistent with
the FLSA an employer's contention that its employee was precluded from
claiming overtime not shown on his own timesheets, because an employer
cannot transfer its statutory burdens of accurate recordkeeping, and of
appropriate payment, to the employee). The Department modified the
Final Rule because it agrees that employees are, in many situations,
the individuals with the best knowledge of when they were working, and
they may have the best ability to track those hours.
---------------------------------------------------------------------------
\22\ The Department also made minor edits to Sec. 552.110(b)
and (d) to improve clarity.
---------------------------------------------------------------------------
With regard to the comments suggesting that the Department continue
to allow the use of a reasonable agreement reflecting the expected
schedule to establish a live-in domestic service employee's hours of
work, the Department does not agree that such a system is appropriate.
First, as stated in the NPRM, the Department is concerned that not all
hours actually worked are captured by such an agreement. Live-in
domestic service employees, including those employed to provide care
for the elderly or individuals with disabilities, have inherently
variable schedules due to the often unpredictable needs of their
employers. Therefore, reliance on the system in the current regulations
does not provide a sufficient basis to determine whether the employee
has in fact received at least the minimum wage for all hours worked. As
the comments from employee representatives emphasized, live-in domestic
service workers are in a vulnerable position due to their isolation,
and many fear retaliation if they complain. Further, numerous
commenters stated that live-in domestic service employees work more
hours than they have contracted to perform. While some employer
representatives expressed concern that tracking hours would be
burdensome, others--such as the Home Care Alliance of Massachusetts and
individuals who said they have tracked hours for their employees--
stated they had no objection to this requirement. AARP stated that
third party employers should be able to fulfill the requirement. The
Department notes that, under current Sec. 552.110(b), the simplified
recordkeeping system does not apply to third party employers.
The Department believes that the modification made in the Final
Rule allowing employers to require employees to record and submit their
hours will further simplify the process. The Department notes that
there is no need for an electronic time management system. See 29 CFR
516.1(a). Some employers might choose to develop their own
recordkeeping forms that, for example, might require the employee to
identify what tasks were performed and the hours spent in various
activities; some employers might simply require employees to keep notes
by hand of their hours worked; and some employers might decide to
record the hours themselves. But whatever method is used, the
Department believes that recording the actual hours worked will result
in more accuracy than the current system of simply relying upon an
agreement established months or years in the past. The recording of
actual hours therefore will be, as many commenters stated, an effective
tool to ensure that workers receive at least the minimum wage for all
hours worked.
Several employee representatives expressed the view that the
requirement to track actual hours worked was inconsistent with the
ability under Sec. 552.102(a) to have an employer-employee agreement
to exclude sleep time, meal time and other periods of complete freedom
from all duties. As discussed above, there is no inconsistency between
these two provisions. The Department recognizes that live-in domestic
service employees are not necessarily working all the hours that they
are on the employer's premises and the regulations require that to
exclude such time requires an agreement between the employer and
employee. Therefore, the parties may agree to exclude sleep, meal and
certain other relief periods from hours worked. See Sec. 552.102(a).
Nevertheless, all hours actually worked must be compensated, such as
where the normal sleeping period or the normal meal period is
interrupted by a call to duty. Id. The Final Rule simply clarifies
that, although the parties may have an agreement that sets forth the
parties' expectations regarding the normal schedule of work time, and
they may agree to exclude sleep, meal and other relief periods from
hours worked, that agreement does not control the compensation due each
week; rather, records must be kept of the actual hours worked in order
to ensure that the employee is properly compensated for all hours
worked.
Finally, several commenters stated that the reference to Social
Security Numbers in Sec. 552.102(a) should include, as an alternative,
an Individual Taxpayer Identification Number (ITIN); they also wanted
to ensure that employers of live-in domestic service workers also keep
records of rate of pay, total wages paid and deductions made. An ITIN
is a tax processing number issued by the Internal Revenue Service
(IRS). IRS issues ITINs to individuals who are required to have a U.S.
taxpayer identification number for tax reporting
[[Page 60480]]
or filing requirements but who do not have, and are not eligible to
obtain, a Social Security Number. ITINs are issued regardless of
immigration status, because both resident and nonresident aliens may
have a U.S. filing or reporting requirement under the Internal Revenue
Code. See http://www.irs.gov/individuals/article/0,,id=96287,00.html.
The Department did not propose any changes to Sec. 552.110(a), which
simply mentions Social Security Numbers in its summary of the
recordkeeping requirements in 29 CFR part 516 (see, e.g., Sec. 516.2,
which also only mentions Social Security Numbers). The Department
therefore does not think it is necessary to include this minor
suggested change in the Final Rule, as it does not believe the failure
to mention ITINs will cause any confusion. The recordkeeping
requirements in Sec. 516.2(a) and Sec. 552.110(a) already require
employers of nonexempt employees to maintain records such as hours
worked each workweek, total wages paid, total additions to or
deductions from wages and the basis therefore (such as board and/or
lodging), and the regular hourly rate of pay when overtime compensation
is due. Therefore, no further changes to the regulations in Sec.
552.110 are necessary or appropriate.
D. Section 552.109 (Third Party Employment)
Section 552.109 addresses whether a third party employer, the term
the Department uses to refer to an employer of a direct care worker
other than the individual receiving services or his or her family or
household, may claim the FLSA exemptions specific to the domestic
service employment context. Current Sec. 552.109(a) permits third
party employers to claim the companionship services exemption from
minimum wage and overtime pay established by Sec. 13(a)(15) of the
Act; current Sec. 552.109(c) permits third party employers to claim
the live-in domestic service employee exemption from overtime pay
established by Sec. 13(b)(21) of the Act. (Section 552.109(b)
addresses third party employment in the context of casual babysitting,
which is not a topic within the scope of this rulemaking.) In the NPRM,
the Department proposed to exercise its expressly delegated rulemaking
authority and bring the regulation in line with the legislative intent
and the realities of the home care industry by revising current
paragraphs (a) and (c) to prohibit third party employers from claiming
these exemptions. Under the proposed regulation, only an individual,
family, or household would be permitted to claim the exemptions in
Sec. Sec. 13(a)(15) and 13(b)(21) of the FLSA. In other words, where a
direct care worker is employed by a third party, the individual, family
or household using the worker's services could claim the exemptions,
but the third party employer would be required to pay the worker at
least the federal minimum wage for all hours worked and overtime pay at
one and one-half the employee's regular rate for all hours worked over
40 in a workweek. For the reasons explained below, the Department is
adopting Sec. 552.109 as proposed.
Many commenters, including employees, labor organizations, worker-
advocacy organizations, and consumer representatives, expressed strong
support for the proposed change to Sec. 552.109. See, e.g., the
Center; SEIU Healthcare Illinois Indiana; AFSCME; Legal Aid Society.
The National Consumer Voice for Quality Long-Term Care explained that
``[e]ven though some individuals who hire their own workers may end up
paying more under the proposed rules, consumers and advocates in our
network believe that providing minimum wage, overtime, and pay for
travel time for these crucial health care workers is the right thing to
do.'' AARP noted that it ``strongly agrees'' with denying the
exemptions to third party agencies and asserted that ``requiring all
home care and home health care agencies to pay minimum wage and
overtime to their employees is a centrally important component of the
NPRM.''
Numerous commenters agreed with the Department's assertion that the
proposed changes were consistent with Congressional intent. See, e.g.,
PHI, NELP, and EJC. A comment signed by Senator Harkin and 18 other
Senators stated that ``[a] close look at the legislative history of the
1974 changes establishes that Congress clearly intended to include
today's home care workforce within the FLSA's protections.'' PHI argued
that ``employment by a home care agency strongly suggests that the
worker is providing home care services as a vocation and is a regular
bread-winner responsible for the support of her family. Such a formal
employment arrangement is inconsistent with the teenage babysitters and
casual companions for the elderly that Congress intended to exclude.''
Additionally, many advocacy groups and others agreed with the
Department's statements in the NPRM concerning the increased
professionalization and standardization of the home care workforce.
See, e.g., DCA, Bruce Vladeck, NELP. The Westchester Consulting Group
noted that third party employers ``are in the trade and business of
providing services to the public and experience financial profit and
loss'' while household employers are purchasing companionship services
``for their personal use to address their specific support needs.''
Similarly, PHI argued that one of the companionship services
exemption's ``main goals'' was to ``limit application of [the] FLSA to
workers whose vocation is domestic service (that is, not occasional
babysitters and companions)'' and this concern is not ``relevant to
agency-employed home care workers.'' The Legal Aid Society explained
that ``the proposed regulations appropriately recognize that this work
is not the kind of casual neighborly assistance that Congress had in
mind when it created the companionship services exemption. Rather,
these workers are professional caregivers, who work long hours for
agencies that are businesses, whether for-profit or not-for-profit.''
Additionally, the ACLU and others observed that many members of this
workforce, such as home health aides and personal care assistants, are
now often subject to training requirements and competency evaluations.
Employers and employer associations, however, generally opposed the
proposed revision of Sec. 552.109. See, e.g., CAHSAH, 24Hr Home Care,
ResCare Home Care, NASDDDS, Texas Association for Home Care & Hospice,
Inc. Many of these commenters asserted the proposal is contrary to
Congress's intent as well as the Department's longstanding
interpretation of the companionship services exemption. BrightStar
franchisees, among others, argued that the use of the words ``any
employee'' in Sec. Sec. 13(a)(15) and 13(b)(21) of the Act
demonstrates that Congress intended for the exemptions to apply based
upon the activities of the employee rather than the identity of the
employer. BrightStar franchisees wrote that ``floor debate included
several statements related to concerns about the ability of working
families to afford companionship services for their loved ones and keep
them out of institutionalized nursing home care.'' A comment signed by
Senator Alexander and 13 other Senators stated that the ``statute and
history clearly demonstrate that Congress intended to provide a broad
exemption from the FLSA minimum wage and overtime requirements for all
domestic workers providing companionship services.'' Husch Blackwell
further commented that ``Congress is certainly well aware of the
exemption's application over these
[[Page 60481]]
last several decades, and has not taken action upon this issue during
that time. Its failure to do so is clear evidence that the regulations
as they currently stand appropriately state Congressional intent.'' See
also Chamber of Commerce. CAHSAH and the National Association of Home
Care & Hospice (NAHC), among others, questioned the propriety of the
Department's shift in position as to this issue, especially since it
defended the current regulation in Long Island Care at Home, Ltd. v.
Coke, 551 U.S. 158 (2007). Additionally, NRCPDS asserted that ``wages
should be determined based upon the value of the tasks performed'' and
that the ``idea that the same tasks are valued differently based solely
upon the identity of the employer seems unjustifiable.''
Employers and employer representatives also asserted that the
proposed revision to Sec. 552.109 would be harmful to direct care
workers because raising the cost of services provided through home care
agencies would incentivize employment through informal channels rather
than through such agencies. The Virginia Association for Home Care and
Hospice stated that the proposed change would ``encourage workers to
leave agencies and be hired directly by the client,'' and in this
``underground economy,'' taxes would not be withheld, Social Security
would not be paid, and workers' compensation insurance would not be
provided. See also CAHSAH. VNAA asserted that by discouraging joint
employment, the proposed change could undermine Medicaid's efforts to
expand the use of consumer-directed programs, which rely on agencies to
assist consumers who are not capable of being solely responsible for
managing a direct care worker's employment.
Numerous commenters sought clarification as to which employers
would be considered ``third party employers'' and how the proposed
revisions would affect various types of consumer-directed programs and
other arrangements that have developed to provide home care--including
registries, ``agency with choice'' programs, and ``employer of record''
or fiscal intermediary situations--in which third parties have roles
such as handling tax and insurance compliance. See, e.g., Private Care
Association; Jim Small; ANCOR. Comments from these various types of
entities requested guidance from the Department as to whether direct
care workers under their particular programs could qualify for either
exemption under the Final Rule. Additionally, several advocacy groups
expressed confusion regarding whether the Department's proposed
revision would hold consumers or their families jointly and severally
liable for wages owed pursuant to the FLSA. For example, AARP noted
that it ``strongly opposes the proposal to impose joint and several
liability for FLSA compliance on consumers when the worker is supplied
and employed by a third party employer such as an agency. When agencies
are involved, they should be considered the sole employer.'' See also
The National Consumer Voice for Long-Term Care.
The Department has carefully considered comments submitted
regarding the proposed revisions to Sec. 552.109(a) and (c) and has
decided to adopt the regulation as proposed. The rulemaking record
includes views from a broad and comprehensive array of interested
parties: Academics studying this issue, advocates for the individuals
who need home care services, home care agencies that currently claim
the companionship services exemption, labor unions, associations
representing direct care workers, and representatives of the disability
community. As explained in the NPRM and for the reasons discussed
below, the Department believes that the revised regulation is
consistent with Congress's intent when it created these exemptions and
reflects the dramatic transformation of the home care industry since
this regulation was first promulgated in 1975.
As an initial matter, the Department observes that it is exercising
its expressly delegated rulemaking authority in promulgating this rule.
In creating the companionship services exemption, Congress ``left a gap
for the agency to fill'' as to the meaning and scope of the exemption
at section 13(a)(15), explicitly giving the Secretary authority to
define and delimit the boundaries of the exemption. Chevron U.S.A.,
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984);
see Nat'l Cable & Telecomm Ass'n. v. Brand X Internet Servs., 545 U.S.
967, 980 (2005) (``Filling these gaps . . . involves difficult policy
choices that agencies are better equipped to make than courts.''). When
Congress expressly delegates authority to the agency ``to elucidate a
specific provision of the statute by regulation,'' any regulations
promulgated pursuant to that grant of power and after notice and
comment are to be given ``controlling weight unless they are arbitrary,
capricious, or manifestly contrary to the statute.'' Chevron, 467 U.S.
at 844; see Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 165-
68 (2007); Gonzales v. Oregon, 546 U.S. 243, 255-256 (2006) (Chevron
deference is warranted ``when it appears that Congress delegated
authority to the agency generally to make rules carrying the force of
law, and that the agency interpretation claiming deference was
promulgated in the exercise of that authority'' (internal quotation
marks omitted)).
Accordingly, the Department is now adopting a revised regulation
that is, as many commenters agreed, consistent with Congress's intent
to provide the protections of the FLSA to domestic workers while
providing narrow exemptions for workers performing companionship
services and live-in domestic service workers. Prior to 1974, domestic
service employees who worked for a placement agency that met the annual
earnings threshold for FLSA enterprise coverage, but were assigned to
work in someone's home, were covered by the FLSA. 39 FR 35385. However,
the Department's 1975 regulations, by allowing those covered
enterprises to claim the exemption denied those employees the Act's
minimum wage and overtime protections. This Final Rule reverses this
``roll back''.
The legislative history makes clear that in passing the 1974
amendments to the Act, Congress intended to extend FLSA coverage to all
employees whose ``vocation'' was domestic service, but to exempt from
coverage casual babysitters and companions who were not regular
breadwinners or responsible for their families' support. See House
Report No. 93-913, p. 36. Indeed, it is apparent from the legislative
history that the 1974 amendments were intended only to expand coverage
to include more workers, and were not intended to roll back coverage
for employees of third parties who already had FLSA protections (as
employees of covered enterprises). The focus of the floor debate
concerned the extension of coverage to categories of domestic workers
who were not already covered by the FLSA, specifically, those employed
by an individual or small company rather than by a covered enterprise.
See, e.g., 119 Cong. Rec. at S24800 (``coverage of domestic employees
is a vital step in the direction of insuring that all workers affecting
interstate commerce are protected by the Fair Labor Standards Act'');
see also Senate Report No. 93-690 at p. 20 (``The goal of the
Amendments embodied in the committee bill is to update the level of the
minimum wage and to continue the task initiated in 1961--and further
implemented in 1966 and 1972--to extend the basic protection of the
Fair Labor Standards Act to additional workers and to reduce to the
extent
[[Page 60482]]
practicable at this time the remaining exemptions.'' (emphasis
added)).\23\
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\23\ Several comments focused on statements made during floor
debate concerning the cost of care and preventing nursing home
placement. See BrightStar Care of Tucson; Visiting Nurse Service of
New York. However, the Department notes that the floor debate cited
by these commenters took place in 1972 on earlier domestic service
legislation not containing the exemption that was considered by a
different Congress than the one enacting the 1974 amendments. See,
e.g., 118 Cong. Rec. 24715 (July 20, 1972).
---------------------------------------------------------------------------
Further, there is no indication that Congress considered limiting
enterprise coverage for third party employers providing domestic
services. The only expressions of concern by opponents of the amendment
related to the new recordkeeping burdens on private households. See,
e.g., 119 Cong. Rec. 18,155 (statement of Rep. Harrington); 119 Cong.
Rec. 24,797 (statement of Sen. Dominick). Recognizing this intended
expansion of the Act, the exemptions excluding employees from coverage
must therefore be defined narrowly in the regulations to achieve the
law's purpose of extending coverage broadly. This is consistent with
the general principle that coverage under the FLSA is broadly construed
so as to give effect to its remedial purposes, and exemptions are
narrowly interpreted and limited in application to those who clearly
are within the terms and spirit of the exemption. See, e.g., A.H.
Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945). The Department is
not persuaded by comments contending that because section 13(a)(15) has
never been amended, the prior regulations were therefore consistent
with Congressional intent. See, e.g., Husch Blackwell; U.S. Chamber of
Commerce. As the Supreme Court has observed, Congressional inaction
``is a notoriously poor indication of [C]ongressional intent.''
Schweiker v. Chilicky, 487 U.S. 412, 440 (1988); see also Minor v.
Bostwick Labs, Inc., 669 F.3d 428, 436 (4th Cir. 2012). Therefore, the
Department now acknowledges that the regulatory roll back of coverage
for workers employed in private homes by covered enterprises that
resulted from the 1975 version of Sec. 552.109 was not in accord with
Congress's purpose of expanding coverage.
By excluding direct care workers employed by third party covered
enterprises from FLSA coverage, the Department's 1975 regulations
created an inequity that has increased over time. As the home care
workforce has grown, the impact of the Department's roll back, which is
inconsistent with the 1974 amendments, has become even more magnified.
As noted by many commenters, today, few direct care workers are the
``elder sitters'' envisioned by Congress when enacting the exemption.
See 119 Cong. Rec. at S24801. Instead, direct care workers employed by
third parties are the sorts of domestic service employees Congress
specifically intended the FLSA to cover: Their work is a vocation. See
Senate Report No. 93-690, p. 20; House Report No. 93-913, pp. 36. For
example, a direct care worker who has sought out work through a private
home care agency is engaged in a formal, professional occupation and he
or she may well be the primary ``bread-winner'' for his or her family.
Thus, it is the Department's position that employees providing home
care services who are employed by third parties should have the same
minimum wage and overtime protections that other domestic service and
other workers enjoy.
Significantly, the Supreme Court explicitly affirmed the
Department's authority to address the issue of third party employment
in the domestic service context in Long Island Care at Home, Ltd. v.
Coke, 551 U.S. 158 (2007). The Supreme Court acknowledged that the
statutory text and legislative history do not provide an explicit
answer to the ``third party employment question.'' Id. at 168. Rather,
the Court explained that the FLSA leaves gaps as to the scope and
definition of statutory terms such as ``domestic service employment''
and ``companionship services,'' and it provides the Department with the
power to fill those gaps. Id. at 167. In particular, the Court stated
its belief that ``Congress intended its broad grant of definitional
authority to the Department to include the authority to answer''
questions including ``[s]hould the FLSA cover all companionship workers
paid by third parties? Or should the FLSA cover some such companionship
workers, perhaps those working for some (say, large but not small)
private agencies . . .? How should one weigh the need for a simple,
uniform application of the exemption against the fact that some (but
not all) third-party employees were previously covered?'' Id. at 167-
68. Further, when the Department fills statutory gaps with any
reasonable interpretation, and in accordance with other applicable
requirements, the courts accept the result as legally binding and
entitled to deference. Id. The Supreme Court explicitly recognized that
the Department may interpret its ``regulations differently at different
times in their history,'' and may make changes to its position,
provided that the change creates no unfair surprise. Id. at 170-71. The
Court also recognized that when the Department utilizes notice-and-
comment rulemaking in an attempt to codify a new regulation, as it has
done with this Final Rule, such rulemaking makes surprise unlikely. Id.
at 170.
Although the commenters who noted that the Department is changing
its position as to the proper treatment of third party employers in
Sec. 552.109 are correct, such a change is not only permissible, but
also reasonable. The Department did argue in Coke, as well as in Wage
and Hour Advisory Memorandum (``WHAM'') 2005-1 (Dec. 1, 2005) (found at
http://www.dol.gov/whd/FieldBulletins/index.htm), that the third party
regulation as written in 1975 was the Department's best reading of
these statutory exemptions. In the past, however, the Department
erroneously focused on the phrase ``any employee,'' instead of focusing
on the purpose and objective behind the 1974 amendments, which was to
expand minimum wage and overtime protections to workers employed in
private households that did not otherwise meet the FLSA coverage
requirements. The Supreme Court has ``stressed that in expounding a
statute, we must not be guided by a single sentence or member of a
sentence, but look to the provisions of the whole law, and to its
object and policy.'' U.S. Nat'l Bank of Oregon v. Indep. Ins. Agents of
Am., Inc., 508 U.S. 439, 455 (1993) (internal quotation marks omitted).
Moreover, in view of the Supreme Court's conclusion that the text of
the FLSA does not expressly answer the third party employment question,
the statutory phrase ``any employee'' cannot, standing alone, answer
the question definitively. Moreover, the WHAM failed to consider the
industry changes that have taken place over the decades since the
statutory amendment was enacted. After considering the purpose and
objectives of the amendments as a whole, reviewing the legislative
history, and evaluating the state of the home care industry, the
Department believes that the companionship services exemption was not
intended to apply to third party employers.
In addition, the Department does not believe commenters' concerns
about the harmful effect of the change to Sec. 552.109 are warranted
because the Department did not identify or receive any information
suggesting that such effects have occurred in the 15 states that
already provide minimum wage and overtime protections to all or most
third party-employed home care workers who may otherwise fall under the
federal companionship services exemption.
[[Page 60483]]
These states are Colorado, Hawaii, Illinois,\24\ Maryland,
Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New
York, Pennsylvania, Washington, and Wisconsin. In addition, Maine
extends minimum wage and overtime protections to all companions
employed by for-profit agencies. Some, but not all, privately employed
home care workers in California are exempt from overtime requirements
as ``personal attendants;'' all receive at least the minimum wage. Five
more states (Arizona, Nebraska, North Dakota, Ohio, and South Dakota)
and the District of Columbia provide minimum wage coverage to home care
workers, including companions, employed by third parties.
Significantly, several of the states, such as Colorado and Michigan,
have instituted these protections in the last several years. The
existence of these state protections diminishes the force of objections
regarding the feasibility and expense of prohibiting third parties from
claiming the companionship services and live-in domestic service worker
exemptions. Indeed, the comments received did not point to any reliable
data indicating that state minimum wage or overtime laws had led to
increased institutionalization or stagnant growth in the home care
industry in any state. Rather, the Michigan Olmstead Coalition reported
``we have seen no evidence that access to or the quality of home care
services are diminished by the extension of minimum wage and overtime
protection to home care aides in this state almost six years ago.'' PHI
noted that the growth of home care establishments in Michigan ``is
actually higher in the period after implementing wage and hour
protections than before--41 percent compared to 32 percent.'' See PHI;
see also Workforce Solutions (``There is no data showing that states
with minimum wage and overtime protections for home care workers have
higher rates of institutionalization.''). Indeed, as summarized by
AARP, there is no strong correlation between states that have minimum
wage and overtime protections with expenditures on HCBS versus
institutionalized care.
---------------------------------------------------------------------------
\24\ In Illinois, 30,000 workers in the Home Services Program
under the Illinois Department of Human Services are considered
jointly employed by the state and the consumer and do not receive
overtime pay.
---------------------------------------------------------------------------
Moreover, the Department does not believe that this rule will
create or significantly expand an underground economy where workers
hired directly by a consumer or a third party are not treated as
employees and thus are not paid proper wages, income and FICA taxes are
not withheld, and unemployment and worker's compensation insurance are
not provided. Although difficult to predict, the Department anticipates
that rather than significantly expanding any underground economy, this
rule will bring more workers under the FLSA's protections, which in
turn will create a more stable workforce by equalizing wage protections
with other health care workers and reducing turnover. A more stable
home care workforce also dilutes arguments that continuity of care
would be negatively affected by the rule. This industry is currently
marked by high turnover, which can be very disruptive to consumers. The
Department believes that consumers would benefit from reduced turnover
among direct care workers and the accompanying improvement in quality
of care.
Joint Employment
The Department wishes to clarify how the third party regulation may
apply in evaluating instances of joint employment, what constitutes a
``third party employer,'' independent contractors, and joint and
several liability. Direct care workers and consumers explained that a
variety of care arrangements have been developed in order to provide
home care, many involving potential joint employment relationships. The
Department notes that this regulation does not change any of the
Department's regulations or guidance concerning the employment
relationship and joint employment. In evaluating what constitutes a
``third party employer,'' a ``third party'' will be considered any
entity that is not the individual, member of the family, or household
retaining the services. However, what entity constitutes an
``employer'' is governed by long-standing case law from the U.S.
Supreme Court and other federal appellate courts interpreting the
language of the FLSA and applying the ``economic realities'' test
discussed in greater detail below.
As the Department has previously explained, a single individual may
be considered an employee of more than one employer under the FLSA. See
29 CFR Part 791. Joint employment is employment by one employer that is
not completely disassociated from employment by other employers.
Whether joint employment exists is to be determined based upon all the
facts of the particular case. As an example, an individual who hires a
direct care worker or live-in domestic service worker to provide
services pursuant to a Medicaid-funded consumer directed program may be
a joint employer with the state agency that administers the program.
Generally, where a joint employment relationship exists, ``all joint
employers are responsible, both individually and jointly, for
compliance with all of the applicable provisions of the act.'' Sec.
791.2(a). However, under the revised regulation, in joint employment
situations the individual, member of the family or household employing
the direct care worker or live-in domestic service worker will be able
to claim an exemption provided that the employee meets the duties
requirements for the companionship services exemption or the residence
requirements for a ``live-in'' domestic service worker exemption. The
third party employer will not be able to claim that exemption.
Determinations about the existence of an employment or joint
employment relationship are made by examining all the facts in a
particular case and assessing the ``economic realities'' of the work
relationship. See, e.g., Goldberg v. Whitaker House Cooperative, Inc.,
366 U.S. 28, 33 (1961). Factors to consider may include whether an
employer has the power to direct, control, or supervise the worker(s)
or the work performed; whether an employer has the power to hire or
fire, modify the employment conditions or determine the pay rates or
the methods of wage payment for the worker(s); the degree of permanency
and duration of the relationship; where the work is performed and
whether the tasks performed require special skills; whether the work
performed is an integral part of the overall business operation;
whether an employer undertakes responsibilities in relation to the
worker(s) which are commonly performed by employers; whose equipment is
used; and who performs payroll and similar functions. An economic
realities test does not depend on ``isolated factors but rather upon
the circumstances of the whole activity.'' Rutherford Food Corp. v.
McComb, 331 U.S. 722, 730 (1947). In the past, the Department has
applied this economic realities principle when it promulgated
regulations to clarify the definition of ``joint employment'' under the
Migrant and Seasonal Agricultural Worker Protection Act, 29 CFR
500.20(h), and the Family and Medical Leave Act, 29 CFR 825.106, both
of which incorporate the FLSA definition of ``employ.''
To illustrate how a home care services scenario may be assessed
utilizing the economic realities test, consider the following example:
Example: Mary contacts her state government about receiving home
care services. The state has a ``self-direction program'' that
allows Mary to hire a direct
[[Page 60484]]
care worker through an entity that has contracted with the state to
serve as the ``fiscal/employer agent'' for program participants who
employ direct care workers. The ``fiscal/employer agent'' performs
tasks similar to those that commercial payroll agents perform for
businesses, such as maintaining records, issuing payments,
addressing tax withholdings, and ensuring that workers' compensation
insurance is maintained for the worker, but is not involved in any
way in the daily supervision, scheduling, or direction of the
employee. Mary has complete budget authority over how to allocate
the funds she receives under the Medicaid self-direction program,
negotiates the wage rate with the direct care worker, is wholly
responsible for day-to-day duty assignments, and has the sole power
to hire and fire her direct care worker.
In the above scenario, the fiscal/employer agent is likely not an
employer of the direct care worker, and the consumer is likely the sole
employer. The fiscal/employer agent has no power to hire or fire,
direct, control, or supervise the worker and cannot modify the pay rate
or modify the employment conditions. The work is not performed on the
fiscal/employer agent's premises, and the fiscal/employer agent has
provided no tools or materials required for the tasks performed.
However, any change in the specific facts of this scenario, such as if
direct care workers are required to obtain approval from the fiscal/
employer agent in order to arrive late or be absent from work or if the
fiscal/employer agent sets the direct care workers' specific hours
worked, may lead to a different conclusion regarding the employer
status of the fiscal/employer agent.
The decision on joint employment would likely be different under
the following scenario:
Example: Mary contacts her state government about receiving home
care services. The state has a ``public authority model'' under
which the state or county agency exercises control over the direct
care workers' conditions of employment by deciding the method of
payment, reviewing worker time sheets and determining what tasks
each worker may perform. The agency also exercises control over the
wage rate either by setting the wage rate.
In the above scenario, the state or county agency is likely an
employer of the direct care workers under the FLSA. See, e.g., Bonnette
v. California Health & Welfare Agency, 704 F.2d 1465, 1470 (9th Cir.
1983). The state or county agency directs, controls, and supervises the
workers, and can modify the pay rate and other employment conditions
such as the number of hours worked and the tasks performed. In
addition, the agency may be an employer of the direct care workers even
if a private third party agency is also found to be an employer; such
joint employment arrangements would result in the state or county
agency and the private third party agency being jointly and severally
liable for the direct care workers' wages.
It is critical to note that this fact-specific economic realities
test will be applied to all situations when assessing an employment
relationship or potential joint employment, regardless of the name used
by the third party (e.g., ``fiscal/employer agent,'' ``Agency with
Choice,'' ``fiscal intermediary,'' ``employer of record'') or worker
(e.g., ``registry worker,'' ``independent provider,'' ``independent
contractor''). As the Department has repeatedly noted, with respect to
exemption status, job titles are not determinative. See, e.g., Sec.
541.2; FOH 22a04; Wage and Hour Fact Sheet 17A: Executive,
Administrative, Professional, Computer and Outside Sales Employees
Under the Fair Labor Standards Act. This principle holds true for
determining employment status as well.
With regard to potential misclassification of employees as
independent contractors or other non-employees, the Department will
continue its efforts to combat such misclassification. As the
Department has explained, there is no single test for determining
whether an individual is an independent contractor or an employee for
purposes of the FLSA. Rather, a number of factors must be considered,
including the extent to which the services rendered are an integral
part of the principal's business; the permanency of the relationship;
the amount of the alleged contractor's investment in facilities and
equipment; the nature and degree of control exerted by the principal;
the alleged contractor's opportunities for profit and loss; the amount
of initiative or judgment required for the success of the contractor;
and the degree of independent business organization and operation. See,
e.g., Donovan v. Sureway Cleaners, 656 F.2d 1368, 1370 (9th Cir. 1981).
To further illustrate the economic realities test, consider this
example:
Example: ABC Company advertises as a ``registry'' that provides
potential direct care workers. The registry conducts a background
screening and verifies credentials of potential workers, and assists
clients by locating direct care workers who may be able to meet a
client's needs. ABC Company informs Ann, a direct care worker, of
the opportunity to work for a potential client. If Ann is interested
in the opportunity, she is responsible for contacting the client for
more information. Ann is not obligated to pursue this or any other
opportunity presented, and she is not prohibited from registering
with other referral services or from working directly with clients
independent of ABC Company. The registry does not provide any
equipment to Ann, and does not supervise or monitor any work Ann
performs. ABC Company has no power to terminate Ann's employment
with a client. ABC Company processes Ann's payroll checks according
to information provided by clients, but does not set the pay rate.
In this scenario, Ann is likely not an employee of ABC Company.
There is no permanency in the relationship between the registry and
Ann. The registry does not provide any equipment or facilities,
exercises no control over daily activities, and has no power to hire or
fire. Ann is able to accept as many or as few clients as she wishes.
The client sets the rate of pay and negotiates directly with Ann about
which services will be provided. However, this does not mean that every
``registry'' will not be an employer. Rather, a fact-specific
assessment must be conducted. Indeed, the Department has found
registries to be employers under different facts. See, e.g., Wage and
Hour Opinion Letter, 1975 WL 40973 (July 31, 1975) (finding a nursing
registry to be an employer when the registry maintained a log of
assignments showing the shifts worked, established the rate which would
be charged, and exercised control over the nurse's behavior and the
work schedule).
Some of the comments demonstrated confusion about when a family or
household employing a direct care worker may be jointly and severally
liable for wages owed. See, e.g., AARP; National Consumer Voice for
Long-Term Care. The NPRM stated that ``if the employee fails to qualify
as an exempt companion, such as if the employee performs incidental
duties that exceed the 20 percent tolerance allowed under the proposed
Sec. 552.6(b), or the employee provides medical care for which
training is a prerequisite, the individual, family or household member
cannot assert the exemption and is jointly and severally liable for the
violation.'' 76 FR 81198. There appeared to be a misperception that
joint and several liability would attach in any joint employment
relationship. However, as stated in the NPRM, an individual, family, or
household would be jointly and severally liable for a violation only in
instances when an employee fails to meet the ``duties'' requirement for
the companionship services exemption or the residence requirements for
the live-in domestic service worker exemption. This rulemaking is not
altering the state of the law under such circumstances; if a domestic
service employee is not providing companionship services or
[[Page 60485]]
does not meet the residence requirements for the live-in domestic
service worker exemption, then the family and any third party employer
are both responsible for complying with the FLSA's minimum wage,
overtime, and recordkeeping requirements.\25\ For example, under both
the current regulations and this Final Rule, if a family and an agency
jointly employ a home care worker, and that worker is required to spend
50 percent of her time cleaning the house, that worker is not exempt
under the companionship services exemption and the family and the third
party are jointly and severally liable for any back wages due. However,
under this Final Rule, in those situations where an employee satisfies
the duties test for the companionship services exemption, the
individual, family or household member may claim the exemption, but the
third party joint employer cannot. In those instances, the family or
household member would not be subject to joint and several liability.
---------------------------------------------------------------------------
\25\ The Department notes that it is a good practice for
individuals, family members or household members to keep a record of
work performed in the household whether or not the individual,
family or household member is an employer of the person performing
the work.
---------------------------------------------------------------------------
Similarly, under the Final Rule, if a family and an agency jointly
employ a live-in domestic service employee, the family would be able to
claim the overtime pay exemption under Sec. 13(b)(21), but the third
party employer could not. If there is overtime pay due,\26\ the third
party employer would be liable for overtime pay; however, the family
would not be subject to joint and several liability, provided the
worker satisfies the live-in worker requirements (namely, resides in
the home the requisite amount of time).
---------------------------------------------------------------------------
\26\ When an employee resides on his or her employer's premises,
not all of the time spent on the premises is considered working
time. See the Hours Worked section of this preamble for guidance on
determining compensable hours worked.
---------------------------------------------------------------------------
Finally, the revised regulation refers to ``the individual or
member of the family or household'' who employs the direct care worker
or live-in domestic worker. It is the Department's intent that the
phrase ``member of the family or household'' be construed broadly, and
no specific familial relationship is necessary. For example, a ``member
of the family or household'' may include an individual who is a child,
niece, guardian or authorized representative, housemate, or person
acting in loco parentis to the individual needing companionship or
live-in services.
The Department will work closely with stakeholders and the
Department of Health and Human Services to provide additional guidance
and technical assistance during the period before the rule becomes
effective, in order to ensure a transition that minimizes potential
disruption in services and supports the progress that has allowed
elderly people and persons with disabilities to remain in their homes
and participate in their communities.
E. Other Comments
As noted in various sections of this preamble, the Department
received a number of comments raising concerns about topics that are
related to this rulemaking but are not within the scope of the
revisions to the regulatory text. These issues are discussed below.
First, the Department addresses comments expressing concern that the
rulemaking will cause increased institutionalization. Second, the
Department addresses comments raising questions about paid family
caregivers. Finally, the Department responds to commenters' questions
regarding FLSA principles that are relevant in determining the hours
for which a non-exempt direct care worker must be paid but which are
not changed by this Final Rule.
Community Integration and Olmstead
The Department received several comments from groups that advocate
for persons with disabilities and employers that raised concerns that
requiring the payment of minimum wage and overtime to direct care
workers would increase the cost of home and community based services
(HCBS) funded under Medicaid, which in turn would result in a reduction
of services under those programs and increased institutionalization of
the elderly or persons with disabilities. See, e.g., ADAPT, National
Disability Leadership Alliance (NDLA), Toolworks, Inc., National
Council on Aging, and VNSNY. Specifically, ADAPT expressed concern that
Medicaid reimbursement rates under HCBS programs will not increase to
account for the additional costs for personal care services as a result
of the Department's proposed rule, resulting in individuals going
without essential assistance and eventually being forced into
facilities. As a result, ADAPT asserted that the Department's proposed
rule would promote institutionalization of such individuals.
These views were shared by NDLA, which stated that the Department's
proposal would promote institutionalization because it would increase
the cost of HCBS programs without a concurrent increase in Medicaid
reimbursement rates or the Medicaid caps for available funding. As a
result, NDLA expressed concern that persons with disabilities ``will be
left with the choice of forgoing needed assistance or subjecting
themselves to unwanted institutionalization and loss of community
connection.'' In addition, VNSNY, without providing specifics, stated
that the Department's proposed rule would be ``inconsistent with the
efforts undertaken around the country by public agencies to comply with
the Supreme Court's decision in Olmstead v. L.C. ex rel. Zimring, 527
U.S. 581 (1999).''
The Michigan Olmstead Coalition similarly stated that under the
Americans with Disabilities Act (ADA) and the U.S. Supreme Court's
decision in Olmstead, ``governmental policies must now support and
promote inclusion, not segregation, of people living with
disabilities'' and that ``[p]eople who need long-term supports and
services should not be forced to receive those services in institutions
rather than their own homes and apartments.'' However, the Michigan
Olmstead Coalition stated that many direct care workers do the same
work as workers in nursing homes and both should receive minimum wage
and overtime protections. ``Without similar workplace compensation
protections applied to institutions and home care, the home care
industry faces another governmental policy that creates a disadvantage
relative to nursing homes.'' In addition, the Michigan Olmstead
Coalition stated that without minimum wage and overtime protections for
direct care workers, ``nursing homes are better able to attract and
retain staff creating additional burdens or competitive challenges on
home care agencies.'' The Michigan Olmstead Coalition asserted that the
proposal ``will help end another `institutional bias' that favors
nursing homes.''
Citing Olmstead, the SEIU similarly stated that the Department's
proposed rule was unlikely to result in increased institutionalization
of individuals because ``there has been a decisive policy shift toward
home- and community-based long-term care in this country that is
extremely unlikely to be reversed.'' The SEIU noted that it is
``difficult to imagine'' that publicly funded programs would reverse
course from home and community based services to institutionalization
simply because ``labor standards are brought up to those prevailing
virtually everywhere else.'' The SEIU also noted that one of the
reasons for the shift to home and community based services is due to
the substantial cost savings associated with
[[Page 60486]]
non-institutional care. SEIU explained that these cost savings are not
``simply a difference in hourly labor costs, as is demonstrated by the
fact that many of the states that are leaders in `rebalancing' away
from institutions are also leaders in setting adequate homecare labor
standards.'' The advantages of home and community based services
include that the services can be tailored to each individual's level of
need and home and community based services do not include the overhead
costs of maintaining a care facility.
The Department in no way meant to convey in the proposal that some
increased levels of institutionalization would be considered
acceptable. The Department fully supports the ADA's and Olmstead's
requirement that government programs provide needed services and care
in the most integrated setting appropriate to an individual, and
recognizes the important role that home and community based services
have played in making that possible. The Department agrees with the
Michigan Olmstead Coalition's assertion that protecting direct care
workers under the FLSA will benefit home and community based services
by ensuring that the home care industry can attract and retain
qualified workers, which will improve overall quality of care. As
discussed in more detail below, in order to comply with the ADA and
Olmstead, public entities must have in place an individualized
process--available to any person whose service hours would be reduced
as a result of the Final Rule--to examine if the service reduction
would place the person at serious risk of institutionalization and, if
so, what additional or alternative services would allow the individual
to remain in the community.
Congress enacted the ADA in 1990 ``to provide a clear and
comprehensive national mandate for the elimination of discrimination
against individuals with disabilities.'' 42 U.S.C. 12101(b)(1).
Congress found that ``historically, society has tended to isolate and
segregate individuals with disabilities, and, despite some
improvements, such forms of discrimination against individuals with
disabilities continue to be a serious and pervasive social problem.''
42 U.S.C. 12101(a)(2). For those reasons, Congress prohibited
discrimination against individuals with disabilities by public entities
under Title II of the ADA:
[N]o qualified individual with a disability shall, by reason of
such disability, be excluded from participation in or be denied the
benefits of the services, programs, or activities of a public
entity, or be subjected to discrimination by any such entity.
42 U.S.C. 12132.
Pursuant to Congressional authority, the Attorney General issued
regulations implementing Title II of the ADA, which are based on
regulations issued under section 504 of the Rehabilitation Act of 1973.
See 42 U.S.C. 12134(a); 28 CFR 35.190(a); Executive Order 12250, 45 FR
72995 (1980), reprinted in 42 U.S.C. 2000d-1. The Title II regulations
require public entities to ``administer services, programs, and
activities in the most integrated setting appropriate to the needs of
qualified individuals with disabilities.'' 28 CFR 35.130(d). The
preamble discussion to Title II explains that ``the most integrated
setting'' is one that ``enables individuals with disabilities to
interact with non-disabled persons to the fullest extent possible.'' 28
CFR part 35, app. A (2010) (addressing Sec. 35.130); see also
Statement of the Dep't of Justice on Enforcement of the Integration
Mandate of Title II of the Americans with Disabilities Act and Olmstead
v. L.C., at 2 (June 22, 2011) (Olmstead Enforcement Statement),
available at http://www.ada.gov/olmstead/q&a_olmstead.htm. Moreover,
``integrated settings'' are described as ``those that provide
individuals with disabilities opportunities to live, work, and receive
services in the greater community, like individuals without
disabilities.'' Olmstead Enforcement Statement, at 3.
Giving deference to the Attorney General's regulations and
interpretation of the ADA, the Supreme Court in Olmstead v. L.C., 527
U.S. 581 (1999), held that Title II prohibits the unjustified
segregation of individuals with disabilities. Id. at 597-98. The
Supreme Court concluded that public entities are required to provide
community-based services to persons with disabilities when (a) such
services are appropriate; (b) the affected persons do not oppose
community-based treatment; and (c) community-based services can be
reasonably accommodated, taking into account the resources available to
the entity and the needs of others who are receiving disability
services from the entity. Id. at 607. The Court explained that this
holding ``reflects two evident judgments.'' Id. at 600. ``First,
institutional placement of persons who can handle and benefit from
community settings perpetuates unwarranted assumptions that persons so
isolated are incapable or unworthy of participating in community
life.'' Id. ``Second, confinement in an institution severely diminishes
the everyday life activities of individuals, including family
relations, social contacts, work options, economic independence,
educational advancement, and cultural enrichment.'' Id. at 601.
The Department of Justice has issued guidance further clarifying
the scope of a public entity's Olmstead obligations. Public entities
may be in violation of the ADA's integration requirement when they: (1)
Directly or indirectly operate facilities and/or programs that
segregate individuals with disabilities; (2) finance the segregation of
individuals with disabilities in private facilities; or (3) through
planning service system design, funding choices, or service
implementation practices, promote or rely upon the segregation of
individuals with disabilities in private facilities or programs.
Olmstead Enforcement Statement, at 3. ``[B]udget cuts can violate the
ADA and Olmstead when significant funding cuts to community services
creates a risk of institutionalization or segregation.'' Id. at 5. If
budget cuts require the elimination or reduction of community services
for individuals who would be at serious risk for institutionalization
without such services, such cuts or reductions in services can violate
the ADA's integration requirement. Id. at 6. Institutionalization need
not be imminent or inevitable for a violation of the ADA's integration
mandate to be found. See M.R. v. Dreyfus, 663 F.3d 1100, 1116-17 (9th
Cir. 2011); accord Pashby v. Delia, 709 F.3d 307, 322 (4th Cir. 2013).
Rather, an Olmstead violation can result when a public entity fails to
provide community services or cuts services that ``will likely cause a
decline in health, safety, or welfare that would lead to the
individual's eventual placement in an institution.'' Olmstead
Enforcement Statement, at 5.
To comply with the ADA's integration requirement, public entities
must reasonably modify their policies, procedures or practices when
necessary to avoid discrimination or unjustified institutionalization.
28 CFR 35.130(b)(7); accord Pashby, 709 F.3d at 322. The obligation to
make reasonable modifications may be excused only where a public entity
demonstrates that the modifications would ``fundamentally alter'' the
programs or services at issue. Id.; see also Olmstead, 527 U.S. at 604-
07. ``A `fundamental alteration' requires the public entity to prove
`that, in the allocation of available resources, immediate relief for
plaintiffs would be inequitable, given the responsibility the State [or
local government] has taken for the care and treatment of a large and
diverse population of persons with disabilities.' '' Olmstead
Enforcement Statement, at 6 (citing Olmstead, 527
[[Page 60487]]
U.S. at 604). DOJ has further indicated that in order to raise a
fundamental alteration defense, a public entity must show that it has
developed a comprehensive, effectively working Olmstead plan and is
implementing that plan accordingly. Id. at 7.
Several appellate courts have concluded that a fundamental
alteration defense based solely on budgetary concerns is insufficient.
See, e.g., Pashby, 709 F.3d at 323-24; M.R., 663 F.3d at 1118-19; Pa.
Prot. & Advocacy, Inc. v. Pa. Dep't of Pub. Welfare, 402 F.3d 374, 380
(3d Cir. 2005); Radaszewski v. Maram, 383 F.3d 599, 614 (7th Cir.
2004); Fisher v. Oklahoma, 335 F.3d 1175, 1181 (10th Cir. 2003). ``Even
in times of budgetary constraints, public entities can often reasonably
modify their programs by re-allocating funding from expensive
segregated settings to cost effective integrated settings.'' Olmstead
Enforcement Statement, at 7.
As previously noted, a public entity has an affirmative obligation
to ensure its compliance with the ADA's integration mandate and take
necessary steps to ensure its policies do not place individuals at risk
of institutionalization. See, e.g., Fisher, 335 F.3d at 1181-84. The
Department of Justice (DOJ) and the Office for Civil Rights (OCR) at
the Department of Health and Human Services have taken the position
that in order to comply with the ADA and the Supreme Court's decision
in Olmstead, public entities must have in place an individualized
process--available to any person whose service hours would be reduced
as a result of the Final Rule--to examine if the service reduction
would place the person at serious risk of institutionalization and, if
so, what additional or alternative services would allow the individual
to remain in the community. See October 22, 2012 Letter from DOJ and
OCR available at http://www.ada.gov/olmstead/olmstead_cases_list2.htm#mr. It will be important for public entities to work closely
with advocates and persons with disabilities to ensure that these
processes address critical elements for determining whether a person is
at risk and that persons with disabilities are aware of these
processes.
For these reasons, the Department agrees with those commenters who
argued that the proposed rule will further the goals of Olmstead and
will not create needless institutionalization. However, we will monitor
implementation of the rule and its impact on consumers.
Family or Household Care Providers
Paid Family or Household Members in Certain Medicaid-Funded and Certain
Other Publicly Funded Programs Offering Home Care Services
The Department received a number of comments discussing the
potential impact of the proposed rule on paid family care providers.
See, e.g., Joni Fritz, ANCOR, ADAPT and the National Council on
Independent Living, NASDDDS, Foothills Gateway, Inc. Arrangements in
which a family member of the consumer is paid to provide home care
services arise in certain Medicaid-funded and certain other publicly
funded programs that allow the consumer (or the consumer's
representative) to select and supervise the care provider, and further
permit the consumer to choose a family member as a paid direct care
worker. Family or household members may also be hired as paid direct
care workers through other types of Medicaid-funded programs. The
Department recognizes that consumers need not be homebound in order to
qualify for home care services. Under these programs, the particular
services to be provided and the number of hours of paid work are
described in a written agreement, usually called a ``plan of care,''
developed and approved by the program after an assessment of the
services the consumer requires and the consumer's existing supports,
such as unpaid assistance provided by family or household members.
Some commenters expressed concern that the services paid family
care providers typically perform, such as household work, meal
preparation, assistance with bathing and dressing, etc., would not fall
within the definition of companionship services under the proposed
rule. See, e.g., National Association of States United for Aging and
Disabilities, ANCOR, NASDDDS. If paid family care providers are not
performing exempt companionship services under the FLSA, these
commenters wrote, the services they provide would become more
expensive, and consequently, the options for employing family members
through Medicaid-funded programs or for more than 40 hours per week
would be severely limited. Id. Additionally, Foothills Gateway, Inc., a
non-profit agency that provides Medicaid-funded services to individuals
with developmental disabilities in Colorado, expressed concern that if
paid family care providers are entitled to minimum wage and overtime
for all hours during which they provide services to the consumer,
including those that were previously unpaid, the costs of care would
far exceed those Medicaid will reimburse, making the paid family
caregiving model unsustainable.
The Department is aware of and sensitive to the importance and
value of family caregiving to those in need of assistance in caring for
themselves to avoid institutional care. It recognizes that paid family
caregiving, in particular through certain Medicaid-funded and certain
other publicly funded programs, is increasing across the country, and
that such programs play a critical role in allowing individuals to
remain in their homes. The Department also recognizes that some paid or
unpaid caregivers who are not family but are household members, meaning
they live with the person in need of care based on a close, personal
relationship that existed before the caregiving began--for example, a
domestic partner to whom the person is not married--are the equivalent
of family caregivers.
The Department cannot adopt the suggestion of several commenters
that the services paid family care providers typically perform be
categorically considered exempt companionship services. Although as
commenters stated, family care providers may often spend a significant
amount of time providing assistance with ADLs and IADLs, the Department
is defining companionship services to include only a limited amount of
such assistance for the reasons described in the section of this Final
Rule explaining the revisions to Sec. 552.6. Furthermore, there is no
basis in the FLSA for treating domestic service employees who are
family members of their employers differently than other workers in
that category. Congress explicitly exempts family members when it is
its intention to do so. See 29 U.S.C. 203(e)(3); 203(s)(2);
213(c)(1)(A), (B). The provisions of the statute regarding domestic
service and companionship services do not indicate intention to exempt
family members. See 29 U.S.C. 206(f), 207(l), 213(a)(15).
Interpretation of ``Employ'' With Regard to Family or Household Care
Providers
The Department recognizes the significance and unique nature of
paid family and household caregiving in certain Medicaid-funded and
certain other publicly funded programs as described above. In
interpreting the economic realities test to determine when someone is
employed (i.e., suffered or permitted to work, 29 U.S.C. 203(g)), the
Department has determined that the FLSA does not necessarily require
that once a family or household member is paid to provide some home
care services, all care provided by that
[[Page 60488]]
family or household member is part of the employment relationship. In
such programs, as described above, the Department will not consider a
family or household member with a pre-existing close, personal
relationship with the consumer, to be employed beyond a written
agreement developed with the involvement and approval of the program
and the consumer (or the consumer's representative), usually called a
plan of care, that reasonably defines and limits the hours for which
paid home care services will be provided. The determination of whether
such an agreement is reasonable includes consideration of whether it
would have included the same number of paid hours if the care provider
had not been a family or household member of the consumer.
The Department believes this interpretation follows from the
application of the FLSA ``economic realities'' test to the unique
circumstances of home care provided by a family or household member.
Ordinarily, a family or household member who provides unpaid home care
to another family or household member would not be in an employment
relationship with the recipient of the support. But under the FLSA,
family members can be hired to be domestic service employees of other
family members, in which case, unless a statutory exemption applies,
they are entitled to minimum wage and overtime for hours worked. See 29
U.S.C. 206(f), 207(l) (requiring the payment of minimum wage and
overtime compensation to ``any employee engaged in domestic service''
without creating any exception for family members); Velez v. Sanchez,
693 F.3d 308, 327-28 (2d Cir. 2012) (explaining that a familial
relationship does not preclude the possibility that the economic
realities of the situation show that an individual is a domestic
service employee). The decision to select a family or household member
as a paid direct care worker through a Medicaid-funded or certain other
publicly funded program creates an employment relationship under the
FLSA, and the services paid family or household care providers perform
in those circumstances likely will not, because of the nature of the
paid duties and possibly also the involvement of a third party
employer, be exempt companionship services. Ordinarily, under the FLSA,
including in the domestic service employment context, if an employment
relationship exists, all hours worked by an employee for an employer,
as defined at 29 CFR part 785 and Sec. 552.102 and discussed elsewhere
in this Final Rule, are compensable. But in the case of certain
Medicaid-funded and certain other publicly funded programs, different
considerations apply where a prior familial or household relationship
exists which is separate and apart from the creation of any employment
relationship and where the relevant paid services are the provision of
home care services. Specifically, in the context of direct care
services under a Medicaid-funded or certain other publicly funded home
care program, the FLSA ``economic realities'' test does not require
that the decision to select a family or household member as a paid
direct care worker means that all care provided by that person is
compensable. In other words, in these circumstances, the Department
does not interpret the law as transforming, and does not intend
anything in this Final Rule to transform, all care by a family or
household member into compensable work.
For example, a familial relationship, but not an employment
relationship, would exist where a father assists his adult, physically
disabled son with activities of daily living in the evenings. If the
son enrolled in a Medicaid-funded or certain other publicly funded
program and the father decides to become his son's paid care provider
under a program-approved plan of care that funds eight hours per day of
services that consist of assistance with ADLs and IADLs, the father
would then be in an employment relationship with his son (and perhaps
the state-funded entity) for purposes of the FLSA. As explained in the
sections of this Final Rule addressing Sec. 552.6 and Sec. 552.109,
based on the nature of the paid services and possibly also the
involvement of a third-party employer, the father's paid work would not
fall under the companionship services exemption. If the relevant
requirements (described below) are met, including that the hours of
paid work described in a plan of care or similar document are
reasonable as described above, the father's employment relationship
with his son (and, if a joint employment relationship exists, the state
or certain other publicly funded employer administering the program)
extends only to the eight hours per day of paid work contemplated in
the plan of care; the assistance he provides at other times is not part
of that employment relationship (or those employment relationships) and
therefore need not be paid.
The limits on the employment relationship between a consumer and a
family or household care provider and a third-party entity and that
care provider arise from the application of the ``economic realities''
test, described in more detail in the section of this Final Rule
discussing joint employment. Specifically, where a prior familial or
prior household relationship exists separate and apart from any paid
arrangement for home care services, the economic realities test applies
differently to the two roles played by the family or household member.
The Second Circuit has identified a number of useful factors for
applying the economic realities test in the family domestic service
employment context, calling for consideration of: ``(1) The employer's
ability to hire and fire the employee; (2) the method of recruiting or
soliciting the employee; (3) the employer's ability to control the
terms of employment, such as hours and duration; (4) the presence of
employment records; (5) the expectations or promises of compensation;
(6) the flow of benefits from the relationship; and (7) the history and
nature of the parties' relationship aside from the domestic labor.''
Velez, 693 F.3d at 330. Based on an analysis of these factors in the
special situation of paid family or household care providers, an
employment relationship would exist only as defined and limited by a
written agreement developed with the involvement and approval of a
Medicaid-funded or similar publicly funded program, usually called a
plan of care, that reasonably sets forth the number of hours for which
paid home care services will be provided.
Under an analysis of the economic realities of the work compensated
under a plan of care or similar written agreement, the consumer or the
entity administering the Medicaid-funded or similar publicly funded
home care program (or perhaps both) are employers of the family or
household care provider. (Again, whether the entity administering a
program is a third party employer of the care provider is determined as
described in the section of this preamble discussing joint employment.)
The consumer, and/or the entity, recruit and hire the family or
household member to provide the services described in the plan of care,
may fire the family or household member from the paid position, and
control the number of hours of work and the type of work the family or
household member must perform. There is a clear expectation and promise
of compensation, and employment records must be kept in order to
receive payment. During the hours for which a family or household care
provider is
[[Page 60489]]
compensated under a plan of care, the care provider is obligated to
perform the services he or she was hired to provide. In addition, a
paid family or household care provider is not permitted to substitute
someone else to receive payment from Medicaid for services provided
pursuant to the plan of care without employer approval.
On the other hand, during the time when the family or household
care provider may perform similar services beyond the hours that he or
she has been hired to work under the plan of care, an analysis of the
economic realities of the situation leads to the conclusion that the
caregiver is not employed, and that the consumer and any entity
administering the Medicaid-funded or similar publicly funded program
are not employers. The family or household member has not been hired to
perform this additional care, nor was he or she recruited for a paid
position performing them. The family or household member has no
expectation of compensation, nor has any been promised, and there will
not be employment records regarding any unpaid services. During this
time, the family or household member's activities are not restricted by
an agreement to provide certain services, and the family or household
member can choose to come and go from the home and have other family
members or other people provide the supports. Importantly, the unpaid
support stems from a prior familial or household relationship that is
separate and apart from the initiation of any employment relationship.
The discussion above addresses only the unique circumstances that
exist in the context of domestic service employment by paid family and
household member caregivers. The Department believes this bifurcated
analysis is warranted because of the special relationships between
family and household members and the special environment of the home.
It does not apply outside the home care service context; the Department
views work for a family business, for example, as subject to the
typical FLSA law and regulations regarding the employment relationship
and hours worked. This analysis also does not generally apply to
relationships that do not involve preexisting family ties or a
preexisting shared household. Therefore, except as noted below, it
would not apply to a direct care worker who did not have a family or a
household relationship with the individual in need of services prior to
the individual's need arising or the creation of the plan of care. In
other words, a direct care worker who becomes so close to the consumer
as to be ``like family,'' or a direct care worker who becomes part of
the consumer's household when hired to be a live-in employee, does not
have a bifurcated relationship with the consumer. In those
circumstances, all services the direct care worker provides fall within
the employment relationship between the consumer and worker and between
any third party employer and the worker; therefore, if those direct
care services do not fall under the companionship services exemption,
they must be compensated as required under the FLSA. By contrast, if
the consumer and caregiver enter into a new family relationship during
the course of an employment relationship (e.g., through marriage or
civil union), then, although the family relationship did not predate
the employment relationship, the bifurcated analysis described above
would apply.
Additionally, the discussion above applies to third party employers
that administer or facilitate the administration of certain Medicaid-
funded or certain other publicly funded home care programs. These
entities may be public agencies that run such programs or private
organizations that have been designated to play a role in the
functioning of the programs. These entities may benefit from this
unique analysis only because of the entanglement with the special
relationships between family and household members that necessarily
result from the selection of family and household members as paid care
providers through certain Medicaid-funded or certain other publicly
funded programs.
Furthermore, the Department emphasizes that under this bifurcated
analysis, the employment relationship is limited to the paid hours
contemplated in the plan of care or other written agreement developed
and approved by certain Medicaid-funded or certain other publicly
funded home care programs only if that agreement is reasonable. As
noted above, a determination of reasonableness will take into account
whether the plan of care would have included the same number of paid
hours if the care provider had not been a family or household member of
the consumer. In other words, a plan of care that reflects unequal
treatment of a care provider because of his or her familial or
household relationship with the consumer is not reasonable. For
instance, the program may not reduce the number of paid hours in a plan
of care because the selected care provider is a family or household
member. For example, an older woman who can no longer care for herself
may enroll in a Medicaid-funded program. The program is administered by
the county in which she lives and she has been assessed to need paid
services for 30 hours per week beyond the existing unpaid assistance
she receives from her daughter and other relatives. If the hours in the
plan of care are reduced by the county to 15 hours per week because the
woman's daughter is hired as the paid care provider, the paid hours in
the plan of care do not reflect the economic reality of the employment
relationship and therefore will not determine the number of hours that
must be paid under the FLSA. In addition, a program may not require an
increase in the hours of unpaid services performed by the family or
household care provider in order to reduce the number of hours of paid
services. See 42 CFR 441.540(b)(5) (mandating that as to certain types
of Medicaid-funded home care programs, unpaid services provided by a
family or household member ``cannot supplant needed paid services
unless the . . . unpaid [services] . . . are provided voluntarily to
the individual in lieu of an attendant''); Final Rule, Medicaid
Program; Community Choice First Option, Centers for Medicare and
Medicaid Services, 77 FR 26828, 26864 (May 7, 2012) (explaining that
unpaid services ``should not be used to reduce the level of [paid]
services provided to an individual unless the individual chooses to
receive, and the identified person providing the support agrees to
provide, these unpaid [services] to the individual in lieu of a paid
attendant''). Although the Department distinguishes between an unpaid
familial or household relationship and a paid employment relationship
between family and household members, it does not condone or intend to
overlook subterfuges that may seek to treat family members less
equally. This interpretation may not be used in a manner that
interferes with the ability of all direct care workers to enjoy the
full protections of the FLSA.
The ``economic realities'' analysis also applies to certain private
pay home care situations, such as those funded by long-term care
insurance, where a family or household member is paid for home care
services. Specifically, where a program permits the selection of a
family or household member as a paid home care provider, if a familial
or household relationship existed prior to and separate and apart from
any employment relationship, use of the bifurcated application of the
economic realities test would be appropriate. Application of the
factors for applying
[[Page 60490]]
the economic realities test in the family domestic service employment
context described earlier in this section could lead to the conclusion
that some of the hours of caregiving are part of an employment
relationship and some hours are part of a familial or household
relationship. How the divide between the two relationships is
determined may vary depending on the structure of each program but, as
in certain Medicaid and certain other publicly funded programs
described above, the Department would look to a written agreement that
reasonably sets forth the number of hours for which paid home care
services will be provided.
FLSA ``Hours Worked'' Principles
Although the Department did not propose any changes to its existing
rules defining what are considered hours worked under the FLSA, many
commenters asked how the hours worked principles under the FLSA apply
to domestic service employment. For instance, many commenters raised
questions about when domestic service employees are considered to be
working even though some of their time is spent sleeping, traveling,
eating, or engaging in personal pursuits. The Department emphasizes
that its regulations regarding when employees must be compensated for
sleep time, travel time, meal periods or on-call time were not a part
of this rulemaking, and they are unchanged by this Final Rule. Domestic
service employees who do not qualify for the companionship services
exemption or the live-in domestic service employee exemption are
subject to existing rules on how to calculate hours worked, like any
other employee covered under the FLSA. To address commenters'
questions, however, the Department is providing the following guidance
regarding the Department's established rules on compensable hours
worked.
The Department received several comments requesting clarification
on when sleep time, meal periods, or other off-duty periods would be
compensable as hours worked under the FLSA. For example, a direct care
worker requested that the Department define hours worked and
differentiate between sleep time and other periods when the employee is
awake. Another individual wanted to know whether a direct care worker
who is on the job for a 24-hour period must be paid overtime while
sleeping, eating a meal, watching television or making a personal
telephone call. Other commenters suggested that the Department make
clear that the final rules on companionship services and live-in
domestic service employees do not alter the Department's longstanding
regulations concerning the compensability of sleep time and meal
periods.
The Department also received a number of comments expressing
concerns about domestic service employees being paid for sleep time or
meal periods. Several employers suggested that their direct care
workers should not be paid overtime for sleep periods or for other
periods when the employee is engaged in personal activities and is not
actively working. See, e.g., Husky Senior Care; Scott Shaw Enterprises;
and Stephen McCollum. One individual, who was starting a home care
business, stated that such companies should not be required to pay
direct care workers for any time they are sleeping, eating, or
attending to their own personal needs. Access Living stated that a
direct care worker who stays overnight or is a live-in employee and
assists the consumer by taking him or her to the bathroom or
repositioning the client at night should only be paid for such
activities and should not be compensated for the entire night or for
periods when the direct care worker is asleep. Access Living requested
clarification on the sleep time rules. VNAA stated that direct care
workers who sleep over should not be paid overtime during periods when
they are essentially ``standing by'' and not actively providing support
services. VNAA urged the Department to provide greater flexibility in
the rule for paying overtime to live-in or sleep-over employees.
Similarly, the Department received numerous comments from
employers, non-profits, and advocacy organizations that serve persons
with disabilities requesting that live-in roommates not be required to
receive minimum wage and overtime pay for periods of sleep time. See,
e.g., Community Vision; TASH; Community Link; and Friends of
Broomfield. Community Vision, a non-profit organization that provides
support services for many adults with developmental disabilities, and
many others stated that ``[r]equiring live-in roommates to be paid for
sleep time puts solid agreements between individuals with significant
disabilities and their live-in roommates at grave risk, and
unintentionally results in an unnecessary burden for all interested
parties.''
Both NELP and AARP recognized that the Department has regulations
that address the compensability of waiting time, on-call time, and
sleep time. AARP noted that for shifts of less than 24 hours, all hours
are considered work hours even though the employee may sleep and engage
in other personal activities (see discussion below of off-duty hours).
AARP further noted that for a shift of 24 hours or more, the parties
may agree to exclude a sleep period of eight hours, unless the sleep is
interrupted to such an extent that the employee cannot get five hours
of sleep during the night. In addition, NELP noted that live-in
domestic service employees and their employers are permitted to come to
an agreement to exclude sleep time, time spent on meals and rest
breaks, and other periods when the employee is completely relieved of
duty.
AARP stated that ``[s]ome slight modification [to the Department's
rules] to account for the fact that both consumer and the worker may be
asleep for most of the shift might make the new regulations more
workable for both the employers and employees.'' AARP suggested that
the Department allow employers to pay only the regular rate for sleep
time even for overtime hours if the sleep time is largely uninterrupted
or allow the parties to agree to an overnight flat rate of sufficient
size to ensure that the worker is paid at least the minimum wage for
all shift hours.
Sleep Time
While the Department carefully considered all of the comments
received on when sleep time should be compensable, the Department notes
that no changes were proposed to its longstanding interpretation
regarding the compensability of sleep time discussed in 29 CFR
785.21-.23. The sleep time rules have been in effect for many decades
and reflect case law, including Supreme Court decisions, that govern
when time spent sleeping is work time. Under the Department's
regulations, an employee who is required to be on duty for less than 24
hours is working even though he or she is permitted to sleep or engage
in other personal activities when not busy. See Sec. 785.21. Thus, an
employee on duty for less than 24 hours, such as a security guard
assigned to a hospital, would need to be paid for the entire period
even though there may be times of inactivity when the employee may, for
example, read a magazine. This general rule applies in the same way to
domestic service employees who are on duty for less than 24 hours.
Where an employee is required to be on duty for 24 hours or more,
the employer and employee may agree to exclude a bona fide meal period
or a bona fide regularly scheduled sleeping period of not more than
eight hours from the employee's hours worked
[[Page 60491]]
under certain conditions. See Sec. 785.22. The conditions for the
exclusion of such a sleeping period from hours worked are (1) that
adequate sleeping facilities are furnished by the employer, and (2)
that the employee's time spent sleeping is usually uninterrupted. When
an employee must return to duty during a sleeping period, the length of
the interruption must be counted as hours worked. If the interruptions
are so frequent that the employee cannot get at least five hours of
sleep during the scheduled sleeping period, the entire period must be
counted as hours worked. Id.; see also Wage and Hour Opinion Letter,
1999 WL 1002352 (Jan. 7, 1999). Where no expressed or implied agreement
exists between the employer and employee, sleeping time is compensable.
Where an employee resides on the employer's premises permanently or
for extended periods of time, not all of the time spent on the premises
is considered working time. See Sec. Sec. 552.102, 785.23. Such an
employee may engage in normal private pursuits and thus have enough
time for eating, sleeping, entertaining, and other periods of complete
freedom from all duties where he or she may leave the premises for his
or her own purposes. For a live-in domestic service employee, such as a
live-in roommate, the employer and employee also may agree to exclude
the amount of time spent during a bona fide meal period, sleep period
and off-duty time. See Sec. Sec. 552.102, 785.22, 785.23. However, if
the meal periods, sleep time, or other periods of free time are
interrupted by a call to duty, the interruption must be counted as
hours worked. In these circumstances, the Department will accept any
reasonable agreement of the parties taking into consideration all of
the pertinent facts. However, as more fully discussed above, the
employer must track and record all hours worked by domestic service
employees, including live-in employees, and the employee must be
compensated for all hours actually worked notwithstanding the existence
of an agreement.
It is not necessary to create a special exemption for live-in
roommates. Both AARP and NELP recognized the Department's longstanding
position on when employees who work 24 hours or more or are live-in
employees. The Department believes that its existing sleep time rules
discussed above address the concerns raised in the comments regarding
when sleep time must be compensated. The Department's longstanding
rules make clear that live-in roommates need only be compensated for
hours worked and those hours exclude sleep time, meal-time, as well as
other off-duty time if there is an agreement to exclude such time and
the employees are not performing work.
The Department received a few comments expressing concern that if
there is no express or implied agreement with respect to sleep time,
all hours must be counted as work time. Under the existing sleep time
rules, uninterrupted time spent sleeping need not be counted as work
time so long as an agreement exists between the employer and employee.
29 CFR 785.22. Bright Star Healthcare of Baltimore, for example,
expressed concern that it would not be allowed to enter into agreements
with its current employees to exclude sleep time. Bright Star feared
that it would be required to fire all of its employees before asking
whether they will agree to enter into such arrangements voluntarily,
and then rehire them on that condition. Bright Star stated that
terminating current employees in order to enter into agreements to
exclude sleep time would be a ridiculous hurdle for employers and
employees, and would not be in the best interest of those parties.
The Department agrees that terminating employees and then
requesting that they sign voluntary agreements to exclude sleep time
would be a burdensome and unnecessary hurdle for employers and
employees. Because many direct care workers may not have been
previously subject to the sleep time rules due to application of the
companionship services exemption, the Department recognizes that many
employers may currently exclude sleep time, or wish to exclude sleep
time, but do not have an agreement with their employees that would meet
the regulatory requirements. The Department believes that sufficient
time exists before the effective date of this Final Rule for the
employer and employee to enter into an agreement to exclude a scheduled
sleeping period of not more than 8 hours from the employee's hours
worked (subject to the rules regarding interruptions to sleep described
above) if adequate sleeping facilities are furnished by the employer
and the employee's time spent sleeping usually is uninterrupted.
The general rule is where there was previously an express or
implied agreement to exclude sleep time from compensable hours worked,
the employee can unilaterally withdraw his or her consent, and the
employer would then be required to compensate the employee for any
future sleep time that may occur. See Wage and Hour Opinion Letter
FLSA-1303, 1995 WL 1032483 (Apr. 7, 1995). While the employer may not
terminate an employee for refusing to enter into an agreement or for
otherwise withdrawing their consent, see Cunningham v. Gibson County,
Tenn., 108 F.3d 1376, 1997 WL 123750 (6th Cir. Mar. 18, 1997)
(unpublished), the employer would not be required to agree to a
continuation of the same terms and conditions of employment. The
employer and employee are free to establish new conditions of
employment such as rate of pay, hours of work, or reassignment. See
Wage and Hour Opinion Letter FLSA-1303 (April 7, 1995). For example, if
an employee refuses to enter into an agreement regarding the exclusion
of sleep time, an employer might decide to assign that employee only to
shifts of less than 24 hours.
With regard to AARP's suggestion that the Department allow
employers to pay only the regular rate for sleep time even for overtime
hours, assuming such time is otherwise compensable, the statute
precludes the Department from adopting this proposal. Section 7 of the
FLSA requires the employer to pay overtime compensation for hours
worked over 40 in a workweek ``at a rate not less than one and one-half
times the regular rate at which [the employee] is employed.'' 29 U.S.C.
207(a). Thus, allowing the employer to pay the regular rate or straight
time pay instead of time and one-half of the regular rate of pay for
sleep time that is otherwise compensable during overtime hours would
require amending the FLSA.
AARP also suggested that the Department allow the employee and
employer to agree to a flat rate for overnight hours so long as the
employee receives at least the FLSA minimum wage for all shift hours.
The FLSA already allows an employer to pay an employee a flat rate for
work performed during overnight hours so long as the employee's regular
rate of pay during the workweek is at least the FLSA minimum wage and
any overtime pay is calculated at not less than time and one-half of
the regular rate of pay for all hours worked over 40 in a workweek. The
employer may also pay a domestic service employee a per diem rate
(i.e., a day rate) under the FLSA, provided the employee's regular rate
of pay is at least the FLSA minimum wage for all hours worked during
the workweek and overtime is paid at not less than time and one-half of
the regular rate of pay for all hours worked over 40 in a workweek.
Sec. 778.112.
Meal Periods
The Department carefully considered all of the comments received on
[[Page 60492]]
whether meal or eating periods should be compensable and reiterates
that no changes were proposed to the Department's longstanding
interpretation on the compensability of meal periods discussed in 29
CFR 785.19. An employer may exclude ``bona fide meal periods'' from a
domestic service employee's hours worked. Sec. 785.19. Bona fide meal
periods are periods where the employee is completely relieved from duty
for the purposes of eating a regular meal. Id. Meal periods are not
considered hours worked if employees are completely relieved from their
duties, are allowed to take their meals uninterrupted by the employer,
and are provided sufficient time to eat their meal. It is not necessary
that an employee be permitted to leave the premises during meal
periods. See Wage and Hour Opinion Letter, FLSA 2004-7NA, 2004 WL
5303035 (Aug. 6, 2004).
Bona fide meal periods do not include coffee breaks or time for
snacks; such short rest periods are compensable. Further, the employee
is not relieved from duty if he or she is required to perform any
duties while eating. For instance, a domestic service employee is not
relieved from duty if he or she is eating with the consumer and is
required to feed or otherwise assist that individual with eating.
Generally, 30 minutes is considered sufficient time for a bona fide
meal period; however, a shorter period may be sufficient under special
circumstances. Section 31b23 of the Wage and Hour Field Operations
Handbook (FOH) enumerates the factors considered on a case-by-case
basis in determining whether a meal period of less than 30 minutes is
bona fide including, for example, whether the employees have sufficient
time to eat a regular meal, whether there are work-related
interruptions to the meal period, and whether the employees have agreed
to the shorter period. The FOH provides that periods less than 20
minutes will be specially scrutinized by Wage and Hour Investigators to
ensure that the time is sufficient to eat a regular meal under the
circumstances presented.
Off-Duty Time
While the Department did not receive any comments specifically
addressing when employees are engaged in off-duty time, the Department
is describing its current regulations in order to address any confusion
about the definition of hours worked.
Under the Department's longstanding regulations, if an employee is
completely relieved from duty and is free to use the time effectively
for his or her own purposes, such time periods are not hours worked.
Sec. 785.16. Typically, the employee must be told in advance that he
or she may leave the premises and will not have to resume work until a
definite time. Whether the time is long enough to enable the employee
to use the time effectively for his or her own purposes depends upon
all of the facts and circumstances of each case. For example, a
domestic service employee who is completely relieved of his or her
duties from 1:00 p.m. to 5:00 p.m. and chooses to watch television or
run personal errands is not performing compensable work and need not be
paid for these hours. However, an employee who is required to remain on
call on the employer's premises or so close thereto that he or she
cannot use the time effectively for his or her own purposes is working
while on call and must be compensated for such time. In contrast, an
employee who is not required to remain on the employer's premises but
is merely required to leave word where he or she may be reached is not
working while on call. Sec. 785.17.
Further, an employer and a live-in domestic service employee may
exclude by agreement periods of complete freedom from all duties when
the employee may either leave the premises or stay on the premises for
purely personal pursuits. Sec. 552.102(a). These periods must be of
sufficient duration to enable the employee to make effective use of the
time. For example, a live-in direct care worker who assists her
roommate in the morning for three hours, then goes to class at the
local university, returns home to study, watches television, and does
her own laundry before assisting the roommate for two hours in the
evening, has only worked five hours; the hours spent engaged in
personal pursuits are considered bona fide off-duty time and are not
compensable hours worked.
Rest and Waiting Periods
As described above, the Department received a few comments
suggesting that employees should not be paid unless actively engaged in
providing services. The Department is not creating a special set of
rules for determining compensable hours worked for domestic service
employees, but will continue to determine work time in accordance with
longstanding administrative and judicial interpretations of the FLSA.
The FLSA generally requires compensation for ``all time during which an
employee is necessarily required to be on the employer's premises, on
duty or at a prescribed work place.'' Anderson v. Mt. Clemens Pottery
Co., 328 U.S. 680, 690-91 (1946); see Sec. 785.7 (compensable time
ordinarily includes all the time during which an employee is
necessarily required to be on the employer's premises, on duty or at a
prescribed work place). Employers must typically pay for all time
during the workday ``whether or not the employee engages in work
throughout all of that period.'' 29 CFR 790.6(b). For example, a nurse
who must watch over an ill patient and be available to assist the
individual is on duty and must be paid for this time. Thus, an employee
who reads a book, knits, or works a puzzle while awaiting assignments
is working during the period of inactivity, because the employee must
be on the premises and could be summoned to work at any moment. In such
cases, the employee is ``engaged to wait.'' See Sec. 785.14; Skidmore
v. Swift, 323 U.S. 134 (1944).
As discussed above, there are exceptions to this principle for bona
fide meal and sleep periods and off-duty time. However, rest periods of
short duration, running from 5 to about 20 minutes, are counted as
hours worked. See Sec. 785.18; FOH Sec. 31a01; see also Wage and Hour
Opinion Letter, 1996 WL 1005233 (Dec. 2, 1996). Such periods promote
the efficiency of the employee and are common in industry. Thus, when a
domestic service employee--in the same manner as an office or hospital
employee--takes a 10-minute rest break to drink coffee or make a phone
call, such time must be counted as hours worked.
Travel Time
The Department also did not propose any changes to its longstanding
travel time rules in the NPRM. Under the travel time rules, normal
home-to-work travel is not compensable hours worked whether the
employee works at a fixed location or at different job sites. Sec.
785.36. On the other hand, travel time from job site to job site during
the workday must be counted as hours worked. Sec. 785.38. These
existing rules apply to all employees, including domestic service
employees, who are not otherwise exempt from the minimum wage and
overtime requirements of the FLSA.
The Department received a number of comments about the requirement
to pay direct care workers for travel time, exclusive of commuting
time. Many worker advocacy organizations and individuals supported the
requirement to pay direct care workers for travel time. See, e.g., NELP
and Worksafe. For example, The National Consumer Voice for Quality
Long-Term Care and several individuals stated that direct care workers
deserve FLSA protections, including compensation for travel time.
Moreover, NELP recognized that the
[[Page 60493]]
``failure to pay for travel time suppresses workers' already low
earnings and not infrequently drives their real hourly wages below the
minimum wage.'' Worksafe similarly noted that when direct care workers
are not paid for travel time, the employees are working more hours than
they are paid for, which in turn drives down their wages and increases
the length of their shifts. In addition, the IHS's Global Insight
Survey (Survey) of home care franchisees concluded that 50 percent of
the responding home care employers are already paying for the time
spent by direct care workers traveling between clients. The Survey
further found that many of these franchisees are paying for travel time
between clients, even in states with no minimum wage and overtime
requirements for these workers. The Department also received comments
from employers stating that they were paying direct care workers for
travel time. See Comfort Keepers and Home Care Partners. Further, AARP
and Senator Tom Harkin and 18 other Senators stated that employers may
be able to minimize travel costs through efficient scheduling.
Some third party employers as well as the Consumer Directed
Personal Assistance Association of New York State (CDPAANYS) objected
to added costs of paying employees for travel time between clients. For
example, A-1 Health Care, Inc., a third party home care provider,
indicated that over half of its employees spend an average of three
hours per day traveling between clients for which they are not
currently paid. This employer noted that if the Department's travel
time rules applied to its employees, it would likely schedule these
workers to avoid travel time. CDPAANYS suggested that because an
employee working for two distinct employers, such as Macy's and the
GAP, would not be compensated for travel time between the two jobs, a
home care employee working for multiple clients of the same employer
should not be compensated for time traveling between clients. CDPAANYS
further speculated that the requirement to pay for travel time between
clients may violate Medicaid or federal tax requirements, and other
comments from advocacy groups that serve persons with disabilities and
third party employers asked that the requirement to pay for travel time
be re-evaluated because Medicaid may currently not pay for such time.
See, e.g., A-1 Health Care, Inc. and National Disability Leadership
Alliance.
In addition, some employers, coalitions of employers, individuals
with disabilities, and advocacy groups that serve persons with
disabilities objected to compensation for travel time because they
worried that potential increased costs may make travel for persons with
disabilities who need the assistance of a direct care worker in order
to travel--particularly overnight--for vacation or work, to visit
family, or to attend conferences or medical appointments, cost-
prohibitive. See, e.g., S.T.E.P., California Foundation for Independent
Living Centers (CFILC), and NDLA.
While the Department did not propose any changes to its
longstanding travel time rules in the NPRM, all comments received
concerning when direct care workers should be paid for travel time were
considered. The general FLSA principles applicable to all employers on
the compensability of travel time continue to be applicable under this
rule and are discussed in Sec. Sec. 785.33-.41.
Although the comment from CDPAANYS characterized time spent
traveling between multiple clients of a single employer as ``commuting
time'' for which compensation is not required, the Department has long
distinguished between normal commuting time from home to work and
travel time between worksites during the workday. Compare Sec. 785.35,
with Sec. 785.38. CDPAANYS speculated that the requirement to pay for
travel time between clients may violate federal tax requirements;
however Internal Revenue Service regulations regarding the
deductibility of the daily transportation expenses incurred by the
individual during different commuting scenarios have no bearing on
whether such commute time is compensable under the FLSA. IRS
Publication 463 (2012). Under the Department's longstanding
regulations, normal home-to-work travel is not hours worked regardless
of whether the employee works at a fixed location or at different job
sites. Sec. 785.35; see Wage and Hour Opinion Letter, W-454, 1978 WL
51446 (Feb. 9, 1978). Thus, if a direct care worker travels to the
first consumer site directly from home, and returns directly home from
the final consumer site, this commuting travel time generally does not
need to be paid. Sec. 785.35; see Wage and Hour Opinion Letter, W-454,
1978 WL 51446 (Feb. 9, 1978). On the other hand, employees who travel
to more than one worksite for an employer during the workday must be
paid for travel time between each worksite. Sec. 785.38; see Wage and
Hour Opinion Letter, W-454, 1978 WL 51446 (Feb. 9, 1978). Travel that
is ``all in the day's work'' must be compensated. Sec. 785.38. For
example, if a domestic service employee drives a consumer to a doctor's
appointment or to the grocery store, that time is ``all in the day's
work'' and must be compensated.
Thus, while an employee working for two different employers need
not be compensated for time spent traveling between the two employers,
an employee working for multiple consumers of a single employer must be
compensated for the time spent traveling between those consumers
because such travel is undertaken for the benefit of the employer.
Sec. 785.38. This Final Rule does nothing to alter this longstanding
policy.
Example: Jeff is a direct care worker employed by a home care
agency. At 8:00 a.m. he drives from his home to the home of his
first client, Sue. Jeff arrives at Sue's home at 8:45 a.m. He works
at Sue's home until 12:15 p.m. From 12:15 p.m. until 12:45 p.m.,
Jeff drives directly to the home of his second client, Gertrude.
Jeff works for Gertrude until 4:45 p.m., the end of his shift. From
4:45 until 5:45 p.m. Jeff drives to his home. The home care agency
must compensate Jeff for the time he spent driving from Sue's home
to Gertrude's home. The agency need not compensate Jeff for the time
spent traveling from his home to Sue's home in the morning or from
Gertrude's home to his home at night because this time is spent in
ordinary home-to-work commute.
Neither federal tax requirements nor Medicaid rules counsel a
departure from normal FLSA travel rules for direct care workers. The
FLSA requirement that employees be paid for time spent traveling
between multiple clients of a single employer is longstanding and does
not conflict with these laws. Though Medicaid may not provide
reimbursement for time that an employee spends traveling between
clients, nothing in the Medicaid law prevents a third party employer
from paying for that time. Medicaid, however, may reimburse for the
costs of travel, including the costs of overnight travel with an
attendant when ``necessary . . . to secure medical examinations and
treatment for a recipient.'' 42 CFR 440.170. Likewise, whether travel
expenses may be deducted for tax purposes has no bearing on whether
time spent traveling between clients is hours worked under the FLSA.
Further, the Department agrees with commenters, such as AARP and
Senator Harkin, who wrote that employers may be able to minimize some
of the cost of travel between clients through scheduling and thus have
some control over the amount of travel costs incurred. Indeed, A-1
Health Care, Inc. stated that it will likely adjust its workers'
schedules to avoid paying for travel
[[Page 60494]]
time. This issue is more fully discussed in the economic analysis.
Of particular concern to individuals with disabilities, their
advocates, and employers was the requirement to pay for travel time for
periods of extended travel. The Department fully supports the right of
individuals with disabilities to participate in their communities and
to travel for various personal and work-related purposes. The comments
received demonstrate that, while traveling, direct care workers provide
valuable personal care and related services to ensure the comfort,
safety, and health of individuals with disabilities. For example, one
direct care worker commented:
I even traveled with my client after her stroke so she could
visit her friends. This was much harder because we had to have
oxygen, get a hospital bed, and had to make sure the hotels would
accept a hospital bed. I also had to be sure to have all her
medications so we wouldn't run out. I ordered all of her personal
care items, too. On one occasion we arrived late at night at the
hotel [, and] the hospital bed was not set up. My client was tired
after nine hours of travel and we had to get the bed set up fairly
quickly.
The Department considers all travel ``that keeps an employee away
from home overnight'' to be a special class of ``travel away from
home.'' See Sec. 785.39; see also Wage and Hour Opinion Letter (Dec.
14, 1979). ``Travel away from home is clearly work time when it cuts
across the employee's workday. The employee is simply substituting
travel for other duties.'' Sec. 785.39. Thus, if a direct care worker
accompanies a consumer on travel away from home, the employee must be
paid for all time spent traveling during the employee's normal work
hours. On the other hand, the Department has adopted a non-enforcement
policy for travel away from home as a passenger on an airplane, train,
boat, bus or automobile if the travel occurs outside of the employee's
normal work hours. Sec. 785.39; see Wage and Hour Opinion Letter (Dec.
14, 1979). However, a direct care worker who is required to travel as a
passenger with the consumer ``as an assistant or helper'' and is
expected to perform services as needed is working even though traveling
outside of the employee's regular work hours. See Sec. 785.41.
Example: Steve, a direct care worker, ordinarily provides
assistance to Beth on Monday-Friday from 8:00 a.m. to 5:00 p.m., his
normal work hours. Steve agrees to provide home care services to
Beth on a trip to Phoenix to visit her family for a week. Steve
meets Beth at the airport at 11:00 a.m. on Sunday for a three hour
flight. The time spent traveling is hours worked because it occurs
during Steve's normal work hours of 8:00 a.m. to 5 p.m., even though
the travel occurs on a Sunday, and Steve ordinarily works only
Monday-Friday.
Example: Gina, a direct care worker, ordinarily works Monday-
Friday from 8:00 a.m. to 5:00 p.m. providing services for Daren.
Gina agrees to provide home care services on a weekend trip Daren
takes to Tulsa for his college reunion. Gina meets Daren at the
airport at 7:00 p.m. on Saturday and is expected to provide care
services to Daren as needed throughout the four hour flight. During
the flight, Gina is on duty for the entire trip and assists Daren
with feeding and toileting and gives him an insulin shot; she spends
the remainder of the flight time reading a book. Because Daren has
asked Gina to accompany him on the flight to be on duty and assist
or help as needed, Gina must be compensated for the entire flight,
although she was able to spend some of the time reading. However, if
Gina is completely relieved of duties for the entire flight and is
able to use the time effectively for her own purposes, such as
taking a nap or watching a movie, those hours would not be
compensable.
Moreover, direct care workers must be compensated for all hours
they work while traveling for the benefit of consumers in accordance
with existing FLSA rules. See Sec. 785.41 (``Any work which an
employee is required to perform while traveling must, of course, be
counted as hours worked.''). However, it is clear that not all time
spent while away on travel is hours worked under the FLSA, and there
may be significant periods of time while on travel that a direct care
worker is not providing services to an elderly person or individual
with disabilities and is not ``engaged to wait'' and need not be
compensated. For example, periods when the direct care worker is
completely relieved from duty and which are long enough to enable the
employee to use the time effectively for his or her own purposes are
excluded from hours worked as off-duty time, as are bona fide meal and
sleep periods, as discussed previously in this section. See Wage and
Hour Opinion Letter (May 7, 1981).
Example: Horatio works as a direct care worker and accompanies
his client, Jamie, to Washington, DC, where Jamie will attend a
conference. In the morning, Horatio assists Jamie with toileting,
bathing, and wound care. At 8:30 a.m., Horatio drives Jamie to the
conference site, arriving at 9:00 a.m. From 9:00 a.m. until noon,
Horatio is relieved of all duty and uses the time to go to a museum.
At noon, Horatio meets Jamie at the site of the conference and
resumes work. The time from 9:00 a.m. until noon is not hours worked
under the FLSA, and Horatio need not be paid for that time.
As described above, not all time spent by an employee in travel is
compensable hours work. Therefore, the Department believes that the
comments received may overestimate the costs associated with overnight
travel by a consumer with a direct care worker.
IV. Effective Date
The Department has set an effective date for this Final Rule of
January 1, 2015. As discussed below, the Department believes that this
effective date takes into account the complexity of the federal and
state systems that are a significant source of funding for home care
work and the needs of the diverse parties affected by this Final Rule
(including consumers, their families, home care agencies, direct care
workers, and local, state and federal Medicaid programs) by providing
such parties, programs and systems time to adjust.
A number of commenters requested an extended phase-in period in
order to allow for systemic changes at the state and local levels, to
ensure that there is no adverse impact on access to home care services,
and to accommodate the hiring of new workers and scheduling changes for
the existing workforce. See, e.g., VNAA, DCA, AARP, and NRCPDS.
Specifically, the AARP noted that the changes to the Department's
regulations would be new to direct care workers and consumers, as well
as many third party employers, state Medicaid programs, consumer-
directed programs, and other publicly financed programs. ``Because it
may take some time for consumers and family caregivers to learn about
what the changes would mean for them, take providers some time to
prepare to comply (for instance by hiring additional staff), and take
public programs some time to determine what the changes mean for them
and implement them, AARP urges DOL to consider whether a reasonable
transition period (e.g., a phase-in period or a grace period during
which no penalties for noncompliance are assessed) might be
advisable.'' See AARP; see also Small Business Administration's Office
of Advocacy (Advocacy) (requesting a delayed effective date in order to
``allow small business to change their business practices'').
The length of time requested by commenters for any phase-in period
varied significantly. For example, the VNAA requested an 18-month
phase-in period ``to allow agencies to undertake an orderly process for
adding new workers and that an accurate assessment of the costs
involved be provided.'' The Direct Care Alliance cited similar reasons
for a phase-in period, but recommended a time period of only 90 days,
``to allow time for consumers, workers and employers to make any
adjustments that are necessary to comply with the overtime pay
[[Page 60495]]
requirements.'' See also PHI (requesting a 90-day phase-in period
generally, and a 180-day phase-in period for publicly funded consumer-
directed programs). Other commenters requested that the Final Rule
become effective ``immediately'' or ``without delay.'' See, e.g., 9to5,
National Association of Working Women; Catherine Joaquin, Filipino
Advocates for Justice; individual family caregiver Annette Heldeca.
Several commenters explicitly noted the rule's potential impact on
consumer-directed programs and requested an extended phase-in period
``particularly for publicly-funded consumer-directed programs.'' See,
e.g., PHI. CDPAANYS asked that the Department carve out consumer-
directed services from the scope of the regulations. In the
alternative, CDPAANYS stated, ``[b]arring this, we urge you to delay
implementation so that the numerous technical issues that were raised
can be reexamined and worked through individually. This will prevent
long-term damage to [consumer-directed programs] that ha[ve]
successfully improved the quality of life for millions of Americans.''
Similarly, Disability Rights California asked the Department to delay
the implementation of the change of regulations for consumer-directed
programs so that states, such as California, can review and assess the
impact of this Final Rule. Noting that state and program administrators
will need to update service codes and definitions and establish new
operations and monitoring systems to comply with the new regulations,
NRCPDS recommended a 12-month period of non-enforcement, in order to
allow ``states and program participants to identify solutions that
minimize a negative impact on existing service delivery.''
The Department believes that because this Final Rule will extend
the FLSA's basic minimum wage, overtime and recordkeeping protections
to more workers, the rule should become effective as quickly as
practicable. This position is consistent with the broad goals of the
FLSA, a remedial statute designed to correct ``labor conditions
detrimental to the maintenance of the minimum standard of living
necessary for health, efficiency and the general well-being of
workers.'' 29 U.S.C. 202(a). The statute requires that these
corrections be made ``as rapidly as practicable . . . without
substantially curtailing employment or earning power.'' 29 U.S.C.
202(b). The Department has determined that the regulations issued in
1975 no longer reflect Congress's intent in enacting the 1974 FLSA
amendments given the changes in the home care industry that have taken
place in the past 38 years.
Because of the unique circumstances surrounding this rule, however,
the Department believes that a January 1, 2015 effective date is most
appropriate. Specifically, this extended effective date is reasonable
due to the integral role played by complex federal and state systems
that are a significant source of funding for home care work, and the
needs of the diverse parties affected by this Final Rule. The
Department recognizes that the multiple federal and state programs that
often fund, administer, and oversee direct care for consumers will
require a period of time to adjust to the new regulations. Federal,
state, and local agencies, as well as private entities, may need to
implement new protocols, apply for changes to their Medicaid programs,
adjust funding streams, and legislatively address budgetary and
programmatic changes. States will need time to work with the Department
of Health and Human Services (HHS) to review consumer-directed
programs, make any needed programmatic changes, and prepare any
necessary budget allocations, in order to maintain the important and
growing role that consumer-directed programs fulfill. State and local
entities will also need to work with consumers and their families to
ensure they understand any adjustments that may occur on the provision
of services. Furthermore, employers will have to make many of the usual
adjustments associated with revised FLSA regulations--such as
scheduling changes, hiring and training additional workers, and
modifying service agreements--in conjunction with any adjustments made
by federal, state and local agencies under the new regulations. In view
of the unique nature of the publicly funded programs that support a
significant portion of home care, the Department believes an extended
effective date allows time for the regulated community to avoid
disruptions to home care services because of the restrictions of
federal or state budget processes or the need to comply with the HHS
process for modifying Medicaid programs. Although not all home care is
funded by these complex public systems, the Department is setting a
single effective date for the entire regulated community to avoid the
administrative burdens for employers, confusion amongst employees, and
complications for enforcement that would result from accepting some
commenters' suggestion that the rule's effect be delayed only as it
applies to consumer-directed programs.
Additionally, the Final Rule's impact falls on populations that
depend on home care services to remain in their communities and the
Department anticipates that this effective date will allow time for
state budgets and other components of the public funding systems that
support home care to adjust. The Department also recognizes that there
will be individuals, families and households who as employers will have
new obligations under this Final Rule; an extended effective date will
allow families additional time to become familiar with their
responsibilities under the FLSA and evaluate scheduling or staffing
needs in order to comply with the regulations.
Thus, a January 1, 2015 effective date provides time for these
systemic changes to take place, and for employers to fully implement
the Final Rule. This effective date exceeds the 30-day minimum delayed
effective date required under the Administrative Procedure Act, 5
U.S.C. 553(d), and the 60-day delayed effective date for ``major
rules'' under the Congressional Review Act, 5 U.S.C. 801(a)(3)(A).
Although the Department typically utilizes the legislatively required
effective dates, as applicable, the Department has in the past, in
response to comments, extended the effective date for a significant
FLSA rule. For example, the 2004 update to 29 CFR part 541, the
regulations that govern whether employees are executives,
administrative personnel, professionals, outside sales or computer
employees exempt from minimum wage and overtime requirements, adopted a
delayed effective date of 120 days in response to public comments in
that rulemaking, including one seeking a 180-day delayed effective
date. See 69 FR 22126 (Apr. 23, 2004). For this Final Rule, the
comments received concerning a proposed effective date ranged from a
typical effective date to at least 18 months. The Department believes
that an effective date of January 1, 2015, which falls well within the
range suggested by commenters, is reasonable under these unique
circumstances and responsive to the comments received from
stakeholders, including employee and employer advocacy groups, as well
as state agencies.
The Department will work closely with stakeholders and HHS to
provide additional guidance and technical assistance during the period
before the rule becomes effective, in order to ensure a successful
transition for all involved parties.
[[Page 60496]]
V. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, requires that the
Department consider the impact of paperwork and other information
collection burdens imposed on the public. Under the PRA, an agency may
not collect or sponsor the collection of information, nor may it impose
an information collection requirement unless it displays a currently
valid Office of Management and Budget (OMB) control number. See 5 CFR
1320.8(b)(3)(vi).
The Office of Management and Budget (OMB) has assigned control
number 1235-0018 to the FLSA information collections. In accordance
with the PRA, the December 27, 2011 NPRM solicited comments on the FLSA
information collections as they were proposed to be changed. 44 U.S.C.
3506(c)(2). The Department also submitted a contemporaneous request for
OMB review of the proposed revisions to the FLSA information
collections, in accordance with 44 U.S.C. 3507(d). On February 29,
2012, the OMB issued a notice that continued the previous approval of
the FLSA information collections under the existing terms of clearance.
The OMB asked the Department to resubmit the information collection
request upon promulgation of the Final Rule and after considering
public comments on the FLSA NPRM dated December 27, 2011. OMB has pre-
approved the information collections and will take effect on the same
date as this Final Rule.
Circumstances Necessitating Collection: The Fair Labor Standards
Act (FLSA), 29 U.S.C. 201 et seq., sets the federal minimum wage,
overtime pay, recordkeeping and youth employment standards of most
general application. Section 11(c) of the FLSA requires all employers
covered by the FLSA to make, keep, and preserve records or employees
and of wages, hours, and other conditions and practices of employment.
An FLSA covered employer must maintain the records for such period of
time and make such reports as prescribed by regulations issued by the
Secretary of Labor. The Department has promulgated regulations at 29
CFR part 516 to establish the basic FLSA recordkeeping requirements.
The Department has also issued specific recordkeeping requirements in
29 CFR part 552 which is the subject of this collection. The Department
has amended recordkeeping requirements in Sec. 552.102 and Sec.
552.110 regarding agreements for live-in domestic workers. The
Department also notes that the amendments to the definition of
companionship services results in fewer employees being exempt from the
minimum wage and overtime requirements of the FLSA.
Public Comments: In addition to soliciting comments on the
substantive recordkeeping provisions discussed above, the Department
sought public comments regarding the burdens imposed by information
collections contained in the proposed rule. As previously discussed,
the Department received some general comments offering support for
change to the regulations addressing recordkeeping requirements.
Organizations such as EJC, Jobs with Justice, DCA and others expressed
support for the revised recordkeeping rules.
The Department also received some general comments voicing
opposition to recordkeeping requirements. Organizations such as the
Visiting Nurse Service of New York, and Home Care Association of New
York State expressed concern about burdens associated with the new
recordkeeping requirements identified in the NPRM.
The National Federation of Independent Business (NFIB), for
instance, asserted that the Department estimated that paperwork and
recordkeeping associated with the proposed rule would cost in excess of
$22.5 million per year. They expressed their view that this is a
substantial burden that will disproportionately impact small
businesses. The Department seeks to clarify the estimated $22,580,605
cost listed in the NPRM; this amount reflected the cost associated with
the entire information collection that is required of all employers in
the United States that are subject to the FLSA minimum wage and
overtime requirements. As noted below, the cost associated with the
changes resulting from this Final Rule is estimated to be approximately
$8.96 million. The PRA, in order to reduce redundancy, requires a
federal agency to view any given information collection requirement of
a rule in light of other existing information collections that might
meet the same purpose. The regulations implementing the PRA also
require an agency to notify the public of the full burden of an
information collection, including the burden imposed by unchanged
information collections. 5 CFR 1320.5(a)(1)(iv)(B)(5). The PRA
discussion in a regulatory preamble, therefore, will often include
burdens that are unaffected by changes to the rule. This differs from
how the overall regulatory impact analysis is summarized. The
regulatory impact analysis calculates the burden only for the marginal
changes of a rule. This rule addresses only employees who will newly be
subject to the minimum wage and overtime requirements of the FLSA. The
rulemaking also coincides with the periodic renewal required by the PRA
of the entire information collection under the FLSA. The amount cited
by NFIB reflects the estimated cost to the wider universe of all
employers subject to the FLSA recordkeeping requirements, of which the
overwhelming majority are not impacted by this rule but are included in
the same information collection as other employers since the
requirements are the same for those employers.
VNAA makes the general statement that the ``rule does not
accurately reflect costs'' in recordkeeping. The organization indicates
that the requirement to make, keep, and preserve a record showing the
exact hours worked by each employee will increase recordkeeping
responsibilities dramatically. The organization, however, does not
provide alternate methodologies or explain how or why the recordkeeping
requirements will impact their organization so significantly. Without
alternative data, the Department believes it is appropriate to assign
the same level of recordkeeping burden as experienced by other FLSA-
covered employers to those employers that will newly be required to
make, keep, and maintain records of hours worked and those employers
that now must make, keep, and maintain records for previously exempt
workers.
The National Association for Homecare & Hospice expressed concern
that the Department of Labor fell short of the analysis required under
the PRA but failed to identify in what way the methodology presented in
the PRA section of the proposed rule did not address information
collection requirements or burdens. Further, the commenter did not
identify an alternative methodology with which to examine the burden
associated with this rule.
In addition, the Department received a number of form letters that
addressed the recordkeeping requirements. Some form letters made
general comments in support of the recordkeeping requirements. Other
form letters expressed concern about the additional costs associated
with recordkeeping. No comments, however, directly addressed the
methodology for estimating the public burdens under the PRA or offered
alternative methods for calculating burden under the PRA. With respect
to the concerns addressed about cost of recordkeeping regulations, the
requirements to maintain records are no
[[Page 60497]]
different for the employers who are the subject of this rule than for
other employers in the United States that are subject to the minimum
wage and overtime pay requirements under the FLSA. Further, as noted in
the economic analysis, most of the agencies that employ domestic
workers have at least one employee who is already subject to FLSA
recordkeeping requirements. As explained in the PRA materials submitted
to OMB, the Department utilized a 1979 study of domestic service
employees on the number of live-in workers and assumed for purposes of
the PRA that a similar percentage of the current domestic service
worker population is employed in live-in service today. The Department
estimates that the total costs to employers of the Final Rule's
information collection requirements is approximately $8.96 million of
the total of $29.78 million in information collection costs of all
employers subject to the FLSA.
An agency may not conduct an information collection unless it has a
currently valid OMB approval, and the Department submitted the
identified information collection contained in the proposed rule to OMB
for review in accordance with the PRA under Control Number 1235-0018.
See 44 U.S.C. 3507(d); 5 CFR 1320.11. The Department has resubmitted
the revised FLSA information collection to OMB for approval, and the
Department intends to publish a notice announcing OMB's decision
regarding this information collection request. A copy of the
information collection request can be obtained at http://www.reginfo.gov or by contacting the Wage and Hour Division as shown in
the FOR FURTHER INFORMATION CONTACT section of this preamble. A summary
of the number of respondents, annual responses, burden hours and costs
of all of the recordkeeping provisions of the FLSA follow.
OMB Control Number: 1235-0018.
Affected Public: Businesses or other for profit, Not-for-profit
institutions
Total Respondents: 3,911,600 (272,000 affected by this Final Rule).
Total Annual Responses: 40,998,533 (710,240 from this Final Rule).
Estimated Burden Hours: 1,250,164 (376,008 from this Final Rule)
Estimated Time per Response: various, with an average of 1.8
minutes.
Frequency: various with an average of 10.54.
Total Burden Cost (capital/startup): 0.
Total Burden Costs (operation/maintenance): $29,778,906 ($3,755,997
from this Final Rule) ($8,956,511 in Year 1 from this Final Rule which
drops substantially in Year 2 due to decrease in regulatory
familiarization).
VI. Executive Orders 12866 (Regulatory Planning and Review) and 13563
(Improving Regulation and Regulatory Review)
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if the
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule is economically significant within the meaning
of Executive Order 12866, or a ``major rule'' under the Small Business
Regulatory Flexibility Act. Therefore, the Office of Management and
Budget has reviewed this rule. The Department believes that this rule
will have a significant economic impact on a substantial number of
small entities; therefore this Final Rule contains a final regulatory
flexibility analysis.
A. Regulatory Impact Analysis of the Revisions to the Companionship
Regulations
Background
The provisions of the FLSA apply to all enterprises that have
employees engaged in commerce or in the production of goods for
commerce and have an annual gross volume of sales made or business done
of at least $500,000 (exclusive of excise taxes at the retail level
that are separately stated); or, are engaged in the operation of a
hospital, an institution primarily engaged in the care of the sick, the
aged, or the mentally ill who reside on the premises; a school for
mentally or physically disabled or gifted children; a preschool,
elementary or secondary school, or an institution of higher education
(regardless whether such hospital, institution or school is public or
private, or operated for profit or not); or, are engaged in an activity
of a public agency.
There are two ways an employee may be covered by the provisions of
the FLSA: (1) enterprise coverage, where any employee of an enterprise
covered by the FLSA is covered by the provisions of the FLSA, and (2)
individual coverage, where even if the enterprise is not covered,
individual employees whose work engages the employee in interstate
commerce or in the production of goods for commerce or in domestic
service is covered by the provisions of the FLSA. Covered employers are
required by the provisions of the FLSA to: (1) pay employees who are
covered and not exempt from the Act's requirements not less than the
Federal minimum wage for all hours worked and overtime premium pay at a
rate of not less than one and one-half times the employee's regular
rate of pay for all hours worked over 40 in a workweek, and (2) make,
keep, and preserve records of the persons employed by the employer and
of the wages, hours, and other conditions and practices of employment.
In 1974, Congress expressly extended FLSA coverage to ``domestic
service'' workers performing services of a household nature in private
homes not previously subject to minimum wage and overtime requirements.
While domestic service workers are covered by the FLSA even if they
work for a private household and not a covered enterprise, Congress
created an exemption from the minimum wage and overtime compensation
requirements for casual babysitters and persons employed in ``domestic
service employment to provide companionship services for individuals
who (because of age or infirmity) are unable to care for themselves,''
and an exemption from the overtime compensation requirement for live-in
domestic service employees.\27\
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\27\ 29 U.S.C. 202(a), 206(f), 207(l), 213(a)(15), and
213(b)(21).
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Need for Regulation and Why the Department Is Considering Action
In 1974, Congress extended coverage of the FLSA to many domestic
service employees performing services of a household nature in private
homes not previously subject to minimum wage and overtime compensation
requirements. Section 13(a)(15) of the Act exempts from its minimum
wage and overtime compensation provisions domestic service employees
employed ``to provide companionship services for individuals who
(because of age or infirmity) are unable to care for themselves (as
such terms are defined and delimited by regulations of the
Secretary).'' Section 13(b)(21) of the FLSA exempts from the overtime
compensation provision any employee employed ``in domestic service in a
household and who resides in such household.''
The Department issued regulations in 1975 to implement these
exemptions. Since the 1975 regulations were promulgated, the home care
industry has evolved and expanded in response
[[Page 60498]]
to the increasing size of the population in need of such services, the
growing demand for home- and community-based care instead of
institutional care for persons of all ages, and the availability of
public funding assistance for such services through public payers
(including Medicare, Medicaid, and other federal programs such as the
Veterans Health Administration, and other state and local
programs).\28\ As the industry has expanded, so has the range of tasks
performed by workers providing home care services. The range now
includes assistance with activities of daily living (ADLs),
instrumental activities of daily living (IADLs), and paramedical tasks
(such as catheter hygiene or changing of aseptic dressings).\29\ Public
funding programs do not typically cover services such as social
support, fellowship or protection.\30\ According to the U.S. Department
of Health and Human Services (HHS), ``[s]imple companionship or
custodial observation of an individual, absent hands-on or cueing
assistance that is necessary and directly related to ADLs and IADLs, is
not a Medicaid personal care service.'' \31\
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\28\ Congressional Research Service. Memorandum dated February
21, 2012, titled ``Extending Federal Minimum Wage and Overtime
Protections to Home Care Workers under the Fair Labor Standards Act:
Impact on Medicare and Medicaid,'' p. 3, WHD-2011-0003-5683.
\29\ Seavey and Marquand, 2011, p. 7. WHD-2011-0003-3514.
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
\30\ Seavey and Marquand, 2011, p. 8. WHD-2011-0003-3514.
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
\31\ Smith, G., O'Keefe, J., et al. (2000). Understanding
Medicaid Home and Community Services: A Primer, George Washington
University, Center for Health Policy Research.
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The Department believes that the current application of the
companionship services exemption in the home care industry is not
consistent with the original Congressional intent. The scope of
services provided to individuals in their homes has expanded beyond
those provided in 1975 when the regulations were first promulgated. In
addition, courts have interpreted the definition of ``companionship
services'' to include a broad range of workers. For example, in McCune
v. Oregon Senior Services Division, 894 F.2d 1107 (9th Cir. 1990), the
Ninth Circuit held that certified nursing assistants were not ``trained
personnel'' excluded from the regulatory definition of companionship
services because, unlike registered nurses and licensed practical
nurses, certified nursing assistants received only 60 hours of
training. Comparably, the Seventh Circuit in Cox v. Acme Health Servs,
Inc., 55 F.3d 1304 (7th Cir. 1995), held that a home health aide who
completed 75 hours of required training did not qualify as ``trained
personnel'' subject to the Act's minimum wage and overtime compensation
provisions and instead performed ``companionship services'' within the
meaning of the term as defined in the Department's regulations.
Therefore, in the NPRM the Department proposed to modify, and the
Final Rule does modify, the definition of companionship services to
exclude personnel who perform medically related services that typically
require and are performed by trained personnel, and to provide a 20
percent tolerance for care (assistance with ADLs and IADLs). As a
result, to qualify for the companionship services exemption, workers
must spend at least 80 percent of their time in activities that
constitute fellowship or protection. Those workers who provide services
that exceed the 20 percent tolerance for the provision of care
(assistance with ADLs and IADLs) must be paid in accordance with
federal minimum wage and overtime requirements.
Objectives and Legal Basis for Rule
Section 13(a)(15) of the FLSA exempts from its minimum wage and
overtime compensation provisions domestic service employees who perform
companionship services. Due to significant changes in the home care
industry over the last 38 years, workers who today provide home care
services to individuals often are performing duties and working in
circumstances that were not envisioned when the companionship services
regulations were promulgated. During the 1970s when the exemption was
enacted such work was generally performed in institutional settings and
not in the service recipient's private home.
Section 13(b)(21) provides an exemption from the Act's overtime
compensation requirements for live-in domestic service workers. The
current regulations allow an employer of a live-in domestic service
worker to maintain a copy of the agreement of hours to be worked and to
indicate that the employee's work time generally coincides with that
agreement, instead of requiring the employer to maintain an accurate
record of hours actually worked by the live-in domestic service worker.
The Department is concerned that not all hours worked are actually
captured by such agreement and paid, which may result in a minimum wage
violation. The current regulations do not provide a sufficient basis to
determine whether the employee has in fact received at least the
minimum wage for all hours worked.
The Department has re-examined the regulations and determined that
the regulations, as currently written, have expanded the scope of the
companionship services exemption beyond those employees whom Congress
intended to exempt when it enacted Sec. 13(a)(15) of the Act, and do
not provide a sufficient basis for determining whether live-in domestic
service workers subject to Sec. 13(b)(21) of the Act have been paid at
least the minimum wage for all hours worked. Therefore, the
Department's Final Rule amends the regulations to revise the
definitions of ``domestic service employment'' and ``companionship
services,'' and to require employers of live-in domestic service
workers to maintain an accurate record of hours worked by such
employees. In addition, the Final Rule limits the scope of duties that
may be performed under the companionship services exemption, and
prohibits third party employers from claiming the exemption for
employees performing companionship services. The Final Rule also
prohibits third party employers from claiming the overtime compensation
exemption for live-in domestic service employees. The effective date
for this Final Rule is January 1, 2015.
Summary of Public Comments on the Preliminary Regulatory Impact
Analysis
A number of commenters, including Americans for Limited Government,
International Franchise Association (IFA), the Private Care Association
(PCA), the Private Duty Home Care Association (PDHCA) and the National
Private Duty Association (NPDA),\32\ submitted comments on the economic
analysis included in the proposed rule. The comments focused on seven
major topics: the terminology used to describe the market; the number
of affected workers; the characterization of the home care services
market, including the number of overtime hours worked; the price
elasticity of demand used in the dead-weight loss analysis; the quasi-
fixed costs associated with worker turnover and hiring; the managerial
costs of regulatory familiarization and scheduling; and possible
scenarios for management of overtime compensation costs.
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\32\ Since the submission of the comments the NPDA has changed
its name to the Home Care Association of America. This Final Rule
will refer to the organization as the NPDA.
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This section will describe each of these concerns raised in the
comments,
[[Page 60499]]
the Department's analysis and response to the comment, and any
revisions made to the economic analysis.
Terminology
Several commenters, including AARP, California Association for
Health Services at Home, and private citizens such as Sue Ostrowski,
Robert Melcher, and Laurie Edwards-Tate, noted that the terms used in
the Department's economic analysis are not consistent with industry
usage and may be misinterpreted. The Department agrees and has revised
the language in the economic analysis to be more precise. Specifically,
the analysis uses the following terms:
``Home care:'' The economic impact analysis has been revised to
refer to the broader ``home care'' industry rather than ``home health
care,'' which specifically covers medical assistance performed by
certified personnel. Thus, the term home care industry includes the
home health care industry. The current exemption has been applied to
both types of services and, therefore, this Final Rule impacts both the
home health care industry and the home care industry.
``Direct care worker:'' The NPRM used a variety of terms to refer
to the workers potentially affected by the rule change; commenters
found this confusing. For example, AARP pointed out that the term
``caregiver'' is often used to refer specifically to ``family
caregivers'' rather than other types of workers and recommended that
the Department use the term ``direct care worker'' instead. Therefore
the terminology has been refined to use direct care worker to refer to
those workers who may be affected by the rule change because they may
be currently treated as exempt companions. The term ``direct care
worker'' will be used unless the Department is referring to a specific
occupation (e.g., home health aide or personal care aide) as defined by
our data sources or directly quoting from a comment.
``Independent providers:'' Independent providers are direct care
workers who may be hired directly by the consumer to provide home care
services. Consumers may identify the direct care worker through a
registry, referral service, advertising, or word of mouth. Employment
arrangements may range from formal agreements with administrative,
liability, and payroll services provided by a registry to informal
agreements between the direct care worker and the consumer. Numerous
commenters, including Members of Congress (Senator Lamar Alexander,
Congressman Lee Terry), employers (Matched Caregivers Continuous Care,
Angels Senior Home Solutions), and members of the public (Brandi
Johnson, Lauren Reynolds, A. Miller, Ryan Heideman, Kimberly Flair and
others) made it clear that the term ``grey market'' was easily
misinterpreted to mean possibly illegal arrangements. Although
difficult to predict, the Department anticipates this rule will bring
more workers under the FLSA's protections, which in turn will create a
more stable workforce by equalizing wage protections with other health
care workers and reducing turnover. The Department has no basis for
estimating the percentage of such arrangements where proper income and
payroll taxes are paid versus those where they are not. In light of
this, the analysis has abandoned the term ``grey market'' and now
refers solely to independent providers.
``Consumer:'' Several commenters objected to the use of the terms
``client,'' ``patient,'' and ``care recipient'' to describe individuals
who purchase home care services. In particular, AARP noted that the
term ``patient'' is inappropriate because not all consumers of home
care services are receiving medical care. To be consistent with the
terminology in the field, the analysis now refers to all such
individuals as ``consumers.''
Number of Affected Workers
The Department also received comments concerning the estimated
number of affected workers in two particular states.
The Illinois Department of Human Services explained that ``home
health aide'' and ``personal care'' employees are exempt under state
law if they are jointly employed by the state (for the purposes of
collective bargaining) and the consumer. These exempt employees are
currently covered by a collective bargaining agreement that does not
include overtime. Other direct care workers in the state are covered by
both minimum wage and overtime compensation requirements. They note
that for the 30,000 workers in the program ``overtime pay, however, is
not mandated by Illinois statute and has not been a benefit for these
providers, as allowed by the exemption for FLSA, because of its cost to
the state.''
The Department incorporated the 30,000 jointly-employed Illinois
workers into the overtime analysis. The Department estimates national-
level transfer payments based on national-level averages of wages and
hours worked, not for particular states or subgroups of workers within
states. Although Illinois data indicates that more than 12 percent of
these 30,000 direct care workers exceed 40 hours, within any state or
region, some direct care workers or groups of workers will exceed the
national average while others will work less than the national average.
At the national level, however, the average will accurately represent
the burden of the rule despite this variance at the state and local
level.
Finally, review of the data submitted by Illinois showed the data
might not be completely reliable. For example, Illinois states that
10,000 HHAs and PCAs worked close to 3 million hours of overtime, and
the cost of overtime compensation would exceed $32 million.\33\ These
figures suggest that the overtime compensation differential would be
$10.67 per hour, which implies the underlying straight-time wage rate
is approximately $21.34. However, the comment stated that the workers
are paid $11.55 per hour or more. As a result of these ambiguities and
inconsistencies, the Department chose to add these workers to the
national overtime projection, but did not use Illinois' additional
data.
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\33\ State of Illinois DHS, WHD-2011-0003-7904.
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A joint comment from the California Association of Counties (CSAC),
County Welfare Directors Association of California (CWDA), California
Association of Public Authorities for In-Home Supportive Services
(CAPA), and California In-Home Supportive Services (IHSS) Consumers
Alliance (CICA) points out that California provides overtime for some
workers under the contract-agency mode, ``but it is not the case for
individual providers who are paid by the IHSS Program. Out of
approximately 440,000 IHSS cases in California, less than 2,000 are
under the contract mode and the vast majority of IHSS workers are
individual providers.'' Further, out of the 380,000 IHSS direct care
workers, ``there are approximately 50,000 IHSS providers who routinely
submit timesheets who work more than 40 hours a week.'' The comment
further noted that a 1983 ``landmark ruling established that IHSS
providers were employees of the state and counties for the purposes of
the minimum wage provisions of the FLSA''.\34\ Legal Aid Society-
Employment Law Center and NELP also noted that most workers in
California do not receive overtime. Based on the information received
from the commenters, the Department adjusted the economic analysis to
include California and add 380,000 IHSS workers to the analysis in the
category of states not covered by
[[Page 60500]]
overtime provisions, as it appears that these workers were not included
in BLS Occupational Employment Statistics data (as discussed in more
detail in the Costs and Transfers section).
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\34\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420, pg. 2.
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Characterization of the Home Care Services Market
The principal concerns about the definition of the home care market
were related to the sources of funding used to pay for home care
services, and the size of the non-medical, private pay market. More
specifically, NPDA references the Navigant analysis of the NPRM which
comments that the assessment of funding sources was made based on
limited information, and that the private pay market is larger than
estimated in the NPRM. Note, the industry describes this part of the
home care market as both ``private duty'' and ``private pay,'' using
the terms synonymously.\35\ For the purposes of this discussion, the
Department uses the term ``private pay'' to refer to the market for
non-medical services that are paid for privately (i.e., out-of-pocket
payment or payment by long-term care insurance).
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\35\ See NPDA Web site, http://www.privatedutyhomecare.org/sections/consumers/whatisprivate.php (note: this Web site no longer
exists, however, WHD has the archived version, which can be found at
http://web.archive.org/web/20120624032530/http://www.privatedutyhomecare.org/sections/consumers/whatisprivate.php).
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Several industry organizations (IFA, National Association for Home
Care and Hospice (NAHC), PDHCA, and NPDA) administered two surveys in
response to the NPRM that suggest the existence of a larger private pay
market, but these surveys failed to provide any conclusive empirical
evidence in support of this claim. These surveys were fielded to IFA
members; the overall response rates were fairly low, and respondents
self-selected into the survey. This can lead to selection bias; in
other words, the respondents who chose to participate in the survey may
be different from the overall population in a way that shifts the
results of the survey. For example, the IFA members that responded to
the survey may have been particularly motivated to participate due to
campaigns to raise awareness of the NPRM in specific states, and that
would lead the results to include a greater proportion of members from
those states than a random sample would include. As a result, it is not
clear if the results are representative of IFA members or the industry
as a whole.
In response to the comments on the characterization of the home
care market in the NPRM, the Department examined alternative data
sources. The Department reviewed the nationally representative source
Medical Expenditure Panel Survey (MEPS), published by the Department of
Health and Human Services, Agency for Healthcare Research and Quality,
which addresses the home care market. The MEPS is intended to capture
the use of long-term non-medical care (e.g., companionship and
homemaker services) and short-term acute medical home care.
MEPS data offered little in terms of support for the premise that a
large private pay market for home care services exists. Private pay
appears to be more frequently used with independent providers, whereas
Medicare and Medicaid pay for the majority of agency services. The data
also showed only a relatively small percentage of consumers pay out-of-
pocket for agency care. Therefore, the assertion that the Department
underestimated the impact of increased overall costs on the purchase of
home care services is generally not warranted.
Closely related to the previous issue, commenters also pointed out
that Medicare and Medicaid programs will cover only home health care,
but not home care services. The Department believes it is appropriate
to include Medicare and Medicaid as funding sources for services
potentially impacted by this Final Rule.
Medicare provides eligible individuals with skilled nursing
services when the services are provided on a part-time or intermittent
basis. Skilled nursing services are provided either by a registered
nurse or a licensed practical nurse. Home health aide services may be
Medicare-covered when given on a part-time or intermittent basis if
needed as support services for skilled nursing care. Home health aide
services must be part of the care for the identified illness or injury.
Medicare does not cover home health aide services unless the individual
is also receiving skilled care such as nursing care or other physical
therapy, occupational therapy, or speech-language pathology services
from the home health agency. Medicare does not pay for personal care
services when that is the only care the individual needs.\36\ The
Department does not have data regarding the extent to which Medicare-
certified agencies have availed themselves of the current companionship
services exemption for home health aide or other services they provide;
however, to the extent that such agencies have used the current
exemption, the Department expects those agencies to be impacted by this
Final Rule.
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\36\ Medicare and Home Health Care, pgs 8-10, Available at:
http://www.medicare.gov/Pubs/pdf/10969.pdf.
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Medicaid is a federal-state partnership providing health coverage
to identified populations, including seniors and persons with
disabilities. States are required to cover home health benefits and may
offer to cover personal care services, through Medicaid-funded
programs. Such services may be provided through home and community-
based services (HCBS) programs, including HCBS waivers, self-directed
personal assistance services programs, Money Follows the Person
programs and Community First Choice programs. The Department also
expects this Final Rule to impact Medicaid-funded home health and
personal care service providers.
A report by the Congressional Research Service states:
``Neither the Medicare nor the Medicaid program explicitly
covers services termed `companionship services'. However, to some
extent these programs provide certain home care services to eligible
beneficiaries through home health services (under Medicare and
Medicaid) and personal care services (under Medicaid). Furthermore,
federal statute, regulations, and guidance do not specify or
regulate wage and employee benefit levels in Medicare (Title XVIII
of the Social Security Act) or Medicaid (Title XVIX of the Social
Security Act).'' \37\
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\37\ Congressional Research Service. Memorandum dated February
21, 2012, titled ``Extending Federal Minimum Wage and Overtime
Protections to Home Care Workers under the Fair Labor Standards Act:
Impact on Medicare and Medicaid,'' WHD-2011-0003-5683.
Medicare and Medicaid directly reimburse the service provider a
specified dollar amount to cover a specified quantity of services or
defined episode of care. The agency uses this revenue to pay the direct
care worker's wages (which may include straight time, overtime, and
benefits), as well as to cover other costs of doing business (such as
overhead and administrative fees). Medicare and Medicaid rates do not
explicitly cover agency overhead, nor do they dictate that the entire
amount must go to the direct care worker's wages. Thus, agencies are
able to use Medicare and Medicaid reimbursement to cover training and
overtime costs.
Industry commenters (IFA, NAHC, NPDA, and PCA) also stated that
direct care workers work considerably more overtime than the impact
analysis suggested, thereby underestimating the costs and impact of the
rule. The centerpiece of this argument was the assertion that 24-hour
care consumers
[[Page 60501]]
are a principal component of the market and, because they prefer a
single direct care worker, using multiple direct care workers to manage
overtime costs may be difficult and result in reduced quality of care.
These commenters asserted that paying overtime in this situation may
make home care unaffordable, forcing consumers into nursing homes.
In these comments, industry groups appear to use the terms ``24-
hour care'' and ``live-in care'' synonymously. These terms are not
identical and make interpretation of at least some comments,
statements, and reported survey results problematic. While 24-hour care
implies a single direct care worker scheduled to cover a 24-hour
period, the Department defines a ``live-in'' worker as one who resides
on his or her employer's premises permanently or for an extended period
of time (e.g., for at least five consecutive days or nights). Thus,
while a live-in worker might provide 24-hour care, 24-hour care does
not require a live-in direct care worker. The rules governing the
determination of overtime differ significantly between the two types of
direct care worker schedules, as will be discussed in more detail
below. These differences may also have implications for projecting
industry response to the rule.
For the NPRM, the Department calculated that 10 percent of affected
direct care workers are employed 45 hours per week (5 hours of
overtime), and an additional 2 percent are employed 52.5 hours per week
(12.5 hours of overtime). These estimates are derived from the PHI
analysis of National Home Health Aide Survey (NHHAS) and U.S. Census
Bureau's Annual Social and Economic Supplement (ASEC) data on overtime
worked in this industry. The NHHAS is a multistage probability sample
survey sponsored by the Department of Health and Human Services' Office
of the Assistant Secretary for Planning and Evaluation (ASPE) that was
designed to provide nationally representative estimates of agency-
employed direct care workers who assist with ADLs. The two-stage
sampling process first randomly selected agencies with probability
proportionate to size, then randomly sampled up to six direct care
workers from each agency selected; a total of 3,377 workers were
interviewed.\38\
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\38\ Bercovitz, A, Moss, AJ, et al. (2010). Design and Operation
of the National Home Health Aide Survey: 2007-2008. National Center
for Health Statistics. Vital Health Statistics. 1(49). Available at:
http://www.cdc.gov/nchs/data/series/sr_01/sr01_049.pdf.
---------------------------------------------------------------------------
As a result of comments on overtime estimates, the Department
reviewed hours worked by direct care workers as reported in the 2007
NHHAS. When calculating overtime directly instead of using estimates
based on summaries reported in publicly available analyses of the
NHHAS, the Department found that those direct care workers who work for
a single employer more than 40 hours, but less than 50 hours per week,
average 6.4 hours of overtime, while those who work for a single
employer 50 hours or more per week average 21.0 hours of overtime per
week. Therefore, the Department made appropriate changes, described
below, in the analysis.
Price Elasticity
Price elasticity represents the percentage change in quantity
demanded induced by a percentage point change in labor cost, i.e., how
responsive the home care services market is to changes in workers'
wages. Price elasticity of demand for labor is composed of two separate
effects: the substitution effect, driven by the change in the cost of
labor relative to its substitutes holding output constant, and the
scale effect, driven by making labor more expensive relative to agency
budget. PCA suggested that the NPRM's deadweight loss analysis for home
care services only included the substitution effect. The Department
reviewed this assertion and found that it was accurate, i.e., the cited
elasticity does not incorporate the industry scale effects. PCA also
provided an alternative estimate that used aggregated state-level data
on the average wages and employment of home health aides and personal
care aides for the period between 2001 and 2009. While PCA's
econometric estimate suggested that demand is price elastic \39\
(responsive to changes in price), their estimate's validity is
questionable. For example, the estimate did not pass a basic set of
robustness checks designed to control for state-level differences in
variation. Accounting for these differences rendered PCA's estimate
statistically indistinguishable from zero. The Department attempted to
use PCA's analysis with improved data and methods, but the analysis did
not return a valid result.
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\39\ By convention, if the price elasticity of demand lies
between 0 and -1.0, economists call demand ``inelastic;'' if the
price elasticity of demand lies between -1.0 and -[infin], demand is
``elastic.'' When demand is inelastic, a given change in supply,
resulting from increased labor costs for example, will have
relatively little impact on how much of the product or service is
purchased, but will result in a relatively large increase in price.
Conversely, if demand is elastic, then the equivalent change in
supply will have a much larger impact on the quantity purchased, but
a much smaller impact on price. Thus, the significance of PCA's
estimated price elasticity of demand is that, if correct, it would
result in a much larger decrease in home care services and a much
larger deadweight loss as a result of the rule.
---------------------------------------------------------------------------
In the absence of a reliable method to estimate the price
elasticity of demand from existing data, the Department surveyed
academic literature to find suitable substitutes. The Department
accepts PCA's point that the market contains a private pay sector and a
public-funds-reimbursed sector that might differ substantially in terms
of consumer response to price changes. More specifically, the price
elasticity of demand is considerably greater (in absolute terms) for
consumers who pay for home care services predominantly out of pocket,
though this segment is small relative to the overall home care market.
Likewise, the Department believes that the demand for home care
services reimbursed by a third party is highly inelastic.
The Department used the market for health care services, where the
final consumer is only responsible for a relatively small fraction of
the cost, to approximate the consumer response to changes in the price
of home care services that are reimbursed by public funds. The RAND
Health Insurance Experiment (HIE), which took place between 1974 and
1975 and covered 7,791 individuals in 6 U.S. cities, is still
considered the ``gold standard'' in the estimation of demand for health
care services because it remains to date the only large-scale study
based on a randomized controlled trial. A study using HIE data
estimated a -0.17 price elasticity of the demand for outpatient medical
care for those paying for 0 to 25 percent of care out-of-pocket.\40\
Similar non-experimental studies return comparable price elasticity
values.\41\
---------------------------------------------------------------------------
\40\ Manning, W. et al. (1992). Health Insurance and the Demand
for Medical Care: Evidence from a Randomized Experiment. The
American Economic Review, 77(3), pp. 251-277.
\41\ Mueller, C. and A. Monheit (1988), Insurance Coverage and
the Demand for Dental Care: Results for Non-Aged White Adults,
Journal of Health Economics, 7(1), pp. 59-72.
Smith, D. (1993). The Effects of Copayments and Generic
Substitution on the Use and Costs of Prescription Drugs. Inquiry,
30(2), pp. 189-198.
Contoyannis, P. et al. (2005). Estimating the Price Elasticity
of Expenditure for Prescription Drugs in the Presence of Non-Linear
Price Schedules: An Illustration from Quebec, Canada, Health
Economics, 14(9), pp. 909-923.
---------------------------------------------------------------------------
The Department used the market for non-reimbursed nursing home
care, where there are often considerable out-of-pocket costs, to
approximate consumer response in the private pay sector. Long-term home
care and nursing homes can be considered substitutes in the sense that
long-term
[[Page 60502]]
home care provides assistance with activities of daily living (ADLs)
and instrumental activities of daily living (IADLs) to those who would
be unable to live independently in the absence of support services.
Many elderly individuals and people with disabilities, often given
limited options, have entered facilities such as a nursing home or
assisted living community where those services are provided along with
room and board. Some home care appears to be priced accordingly; the
Department's calculations of flat fee home care (i.e., 24-hour care)
rates charged to consumers show they are quite similar to published
average daily nursing home rates.\42\
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\42\ See discussion of private pay pricing structure in the
``Tasks, Wages, and Hours'' section of the analysis; agencies charge
approximately $250 per day for 24-hour care while the average
private nursing home rate in 2011 was about $240 per day according
to the MetLife market Survey of Long-term Care Costs. However, the
IHS Global Insight survey, Economic Impact of Eliminating the FLSA
Exemption for Companionship Services, 2012, WHD-2011-0003-8952,
shows that less than 10 percent of consumers cared for by survey
respondents receive 24-hour home care, while 65 percent require less
than 40 hours of care per week. Thus, for the vast majority of
consumers, home care is less expensive than institutional care, and
for the 10 percent (or less) of consumers receiving 24-hour home
care, the cost is about the same as institutional care.
---------------------------------------------------------------------------
The National Long Term Care Survey, a nationally representative
sample of elderly persons with disabilities living in community-based
and institutional settings, has served as the basis for multiple
analyses of the demand for nursing home care. In 1993, a study of
survey data estimated a price elasticity of the hazard of nursing home
entry of -0.7, and another study from 1998 found that the price
elasticity of demand for institutionalized care is -0.98. Estimates of
the price elasticity of demand for nursing home care based on state-
specific data range from -0.69 to -3.85.\43\ Although the range of
estimated elasticities is large, three of the four studies found
elasticities in the range -0.69 to -0.98. Therefore the Department
judged that a value of -1.0 best represented the overall evidence on
the price elasticity of demand for nursing home care, and thus the best
proxy for private pay home care as well.
---------------------------------------------------------------------------
\43\ Headen, A. (1993). Economic Disability and Health
Determinants of the Hazard of Nursing Home Entry, Journal of Human
Resources, 28(1), pp. 81-110.
Rechovsky, J. (1998). The Roles of Medicaid and Economic Factors
in the Demand for Nursing Home Care, Health Services Research, 33(4
Pt 1), pp. 787-813.
Knox, K., E. Blankmeyer and J. Stutzman. (2006). Private Pay
Demand for Nursing Facilities in a Market with Excess Capacity.
Atlantic Economic Journal. 34(1), pp. 75-83.
Mukamel and Spector (2002).The Competitive Nature of the Nursing
Home Industry: Price Mark Ups and Demand Elasticities.'' Applied
Economics, 34(4), pp. 413-420.
---------------------------------------------------------------------------
The use of proxies for the price elasticities of demand for
reimbursed and unreimbursed home care services due to the lack of
direct estimates creates uncertainty concerning their true value and
the subsequent impacts of the rule on the market for these services.
The numerical value of an elasticity is a function of the availability
of reasonable substitutes for the product or service, amongst other
things. Thus, to the extent that unpaid services provided by family
members and/or the use of inferior quality caregivers are considered
good substitutes for agency caregivers, the demand for reimbursed home
care services might be more elastic than -0.17. Similarly, the extent
to which a nursing home is an unacceptable substitute for unreimbursed
home care services might make the demand for those services less
elastic than -1.0.
Although both these statements concerning these elasticities may be
true, the Department believes this will have relatively little effect
on the results of the model. First, the specified elasticities create
natural limits: although demand for reimbursed services might be larger
than -0.17, it is unlikely to be larger than the demand for
unreimbursed services, while the converse is true concerning the demand
for unreimbursed services. Thus it is likely that the true values lie
between -0.17 and -1.0. Second, if the demand for reimbursed home care
services is more elastic, it will increase the impact of the rule
(e.g., greater reduction in services utilized; larger deadweight loss);
conversely, a less elastic demand for unreimbursed services will
decrease the impact of the rule. Thus, if both statements are true, the
impacts will be to some extent offsetting. Third, the total impact of
the rule is essentially a weighted average of the two market components
(reimbursed and unreimbursed home care services); increasing the
elasticity of the reimbursed market segment and reducing it for the
unreimbursed market segment is likely to result in a small change in
the weighted average, and therefore would have a small effect on
impacts.
In the NPRM, the Department stated that the overwhelming majority
of home care (75 percent) is paid with public funds. Commenters such as
NPDA, IFA, and the Small Business Administration's Office of Advocacy
(Advocacy) expressed concern that the size of the non-medical, private
pay market may be larger than the impact analysis suggests. More
specifically, they argued there are a large number of small home care
businesses in the private pay sector that are not adequately reflected
in the economic analysis.\44\ The Department surveyed several academic
and industry sources in an attempt to gain a better understanding of
the private pay market. However, we find no representative, national-
level data that suggests that there exists a larger private pay market
for which the Final Rule does not account.
---------------------------------------------------------------------------
\44\ Small Business Administration (SBA) Office of Advocacy,
WHD-2011-0003-7756.
---------------------------------------------------------------------------
To reflect the findings discussed about the price elasticity of
demand and the market share of the private pay sector, the Department
agrees that it is necessary to revise the method it used to project the
deadweight loss caused by the Final Rule. The Department calculated
separately the impacts for the market in which care is primarily
reimbursed through public funds, which accounts for 75 percent of all
direct care workers, and has a price elasticity of demand of -0.17, and
the private pay market, which accounts for 25 percent of all direct
care workers, and has a price elasticity of demand of -1.0.
The changes that the Department made in response to PCA's comments
concerning the price elasticity of demand for home care services had a
relatively small effect on the results of the analysis. First, the
price elasticity for reimbursed services (-0.17) used in the final
analysis is of a very similar magnitude to that used in the NPRM (-
0.15); indeed the conceptual basis for selecting reimbursed medical
care as a proxy is the same concept used in the NPRM, although in
practice the derivation of the NPRM value was flawed. Second, although
we use a price elasticity of demand for private pay home care that is
close to the value found by PCA (-1.0 compared to PCA's estimate of -
1.18), again the impact of using this value in the final analysis is
relatively small because it applies to only 25 percent of the total
market for home care services.
Quasi-Fixed Costs
According to PCA, the quasi-fixed costs are non-trivial and may
account for up to 19 percent of annual wages.\45\ Quasi-fixed costs are
those that change with the number of workers hired rather than with the
number of hours worked. Examples include hiring costs, training costs,
social insurance and other private benefits.
---------------------------------------------------------------------------
\45\ William Dombi, WHD-2011-0003-9595, pg. 25.
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[[Page 60503]]
The Department believes that although this figure might be accurate
for the home care industry in general, it is too large for
companionship services. Recruiting and training costs appear to be
small for direct care workers. For example, evidence from the 2011
Annual Private Duty Home Care Benchmarking Study indicates that the
median initial training is between 4 and 9 hours, and less than 25
percent of establishments provide more than 9 hours. In the same
source, employee referrals and listings on the Internet were cited as
the two most popular recruiting methods. In addition, reductions in
employee turnover rates may result in lower net costs associated with
hiring and turnover, as discussed below in an analysis of turnover and
hiring costs. However, the Department accepts that hiring costs
constitute a direct cost, rather than a transfer from employers to
employees, and includes these costs in determining the impacts of the
Final Rule.
Managerial Costs of Scheduling
NPDA and others argued that the NPRM underestimated the cost of
regulatory familiarization and the managerial cost of scheduling
complications due to overtime. The Department assumed industry would
incur minimal regulatory familiarization costs because most of the
affected firms already have employees covered by the FLSA. For example,
the BLS National Employment Matrix data report for Home Health Care
Services (62-1600) in 2010 includes over 200 occupations including
nursing aides, therapists, and health practitioners who provide
services other than companionship services to consumers in their
homes.\46\ Therefore, the Department believes most agencies will
already be well acquainted with the minimum wage and overtime
compensation requirements of the FLSA, and will only need to
familiarize themselves with the regulations that apply to one distinct
group of workers. The regulatory text is quite limited in scope and
length, and because agencies are third party employers and will not be
eligible to claim the exemption, the time required for familiarization
will be quite limited. Furthermore, the Department expects that many
firms will rely on guidance and educational materials from the
Department and industry to familiarize themselves with changes to the
rule. Similarly, the Department believes that most firms already employ
staff entitled to overtime compensation and must therefore manage these
workers accordingly. In the NPRM, the Department requested information
on the incremental time and cost of managing workers subject to the
FLSA's overtime compensation requirement, but none was provided. In the
absence of new evidence, the Department did not change its estimate.
---------------------------------------------------------------------------
\46\ BLS National Employment Matrix, Home Health Care Services
(62-1600) 2010. Available at: http://www.bls.gov/emp/ep_table_109.htm.
---------------------------------------------------------------------------
Overtime Scenarios
Industry groups such as IFA and NPDA, and private citizens such as
Martin Hayes, Henri Chazaud, and Melina Cowan expressed concern over
the Department's handling of overtime. These comments typically focused
on two aspects of overtime. First, many agencies stated they would
engage in at least some form of overtime management to avoid paying for
overtime. Second, while overtime management would typically involve
scheduling additional direct care workers, industry group criticism
also appears to rely on the implicit assumption that using multiple
direct care workers is often not a realistic alternative because of the
need for continuity of care.
However, continuity of care does not necessarily require a single
direct care worker, but rather can involve a small group of direct care
workers intimately familiar with the consumer and his or her needs. In
this way care will not be disrupted if one of those direct care workers
is no longer willing or able to provide the needed services. Moreover,
although consumers may prefer single direct care workers, with an
industry turnover rate apparently exceeding 40 percent, it is likely
that many consumers already receive care from more than one worker or a
combination of direct care workers and family members when other
workers are unavailable. As previously discussed, 24-hour care is not
necessarily synonymous with having a live-in direct care worker.
Assuming at least two direct care workers are currently used to provide
24-hour care, 7 days per week, adding a third direct care worker may
allow effective management of overtime while introducing relatively
little disruption to continuity of care. For example, if one of the
three direct care workers can get from 5 to 8 hours of non-compensable
sleep time per 24-hour period, hours entitled to overtime compensation
might vary from zero to 15 hours per week, compared to 18 to 46
overtime hours per week with two direct care workers.\47\ Modifying
work patterns to increase the number of direct care workers (and
therefore reduce the need for overtime compensation) does not preclude
the industry from offering consumers the option to pay a higher rate in
return for fewer direct care workers.
---------------------------------------------------------------------------
\47\ With two direct care workers, one working three 24-hour
shifts a week and the other working four 24-hour shifts a week,
weekly overtime ranges from 18 to 46 hours. Each day, 24-hours are
spent on site but between 6 and 10 hours are not compensated (for
bona fide sleep and meal periods), resulting in between 14 and 18
hours worked per day. For the worker employed three days, weekly
hours are between 42 and 54 hours. The worker employed four days a
week works between 56 and 72 hours. Overtime ranges from 18 ((42-40)
+(56-40)) to 46 hours ((54-40) + (72-40)). With three direct care
workers, each works two 24-hour shifts a week, and two of the three
split the remaining day into two 12-hour shifts. This results in one
direct care worker being on site 48 hours a week, but once sleeping
and eating time is deducted (between 12 and 20 hours) this worker is
paid for between 28 and 36 hours per week, resulting in no overtime.
The other two workers have the same schedule, plus one 12-hour
shift. Shifts less than 24 hours are not entitled to deducted sleep
time, but 0.5-1 hour is assumed to be deducted for meal breaks.
Therefore, these two workers will work between 39 and 47.5 hours a
week, resulting in between no overtime and 15 hours of overtime per
week.
---------------------------------------------------------------------------
Survey results submitted by the NAHC \48\ distinguished whether
respondents are currently required to pay overtime, i.e., are located
in ``overtime states.'' These reports provide some support for the
position that the rule will not be as onerous to the private pay market
as claimed. For example, 15 to 20 percent of agencies that responded to
the industry's surveys that operate in non-overtime states already pay
overtime voluntarily. Moreover, firms operating in overtime and non-
overtime states already have very similar characteristics. Firms
operating in states requiring overtime compensation not only have a
similar percentage of consumers receiving 24-hour care as firms
operating in states without overtime compensation requirements, but
actually have higher rates of overtime worked per employee than firms
that do not have to pay the overtime wage differential.
---------------------------------------------------------------------------
\48\ WHD-2011-0003-9496.
---------------------------------------------------------------------------
In addition, firms in states without a state overtime compensation
requirement anticipate considerably worse impacts than those actually
experienced by firms in states with a state overtime compensation
requirement. It is possible that state-specific conditions might result
in different impacts in the states that have not yet implemented
overtime compensation requirements than in those states that have
already implemented such requirements. However, the 15 percent of
survey respondents that voluntarily pay overtime compensation reported
[[Page 60504]]
impacts similar to those reported by agencies that were required to pay
overtime. For example, 86 percent of firms in non-overtime states
report they intend to limit overtime, but only 62 percent of firms in
overtime states and 60 percent of voluntary overtime compensation
payers found it necessary to do so. Likewise, 76 percent of firms in
non-overtime states anticipate a significant increase in cost due to
overtime requirements, but only 40 percent of firms in states that
already require overtime compensation, and 34 percent of voluntary
payers reported experiencing a significant increase in cost.
Unfortunately, the term ``significant increase'' is not defined in the
survey and therefore this experience cannot be used for projecting
costs and impacts.
Empirical research has also found that employers are likely to
respond to mandated overtime premiums by making adjustments so as to
not absorb the entire cost of overtime.\49\ For example, similar to the
NAHC survey, the IFA survey found 95 percent of respondents in states
where there are no overtime regulations stated they would eliminate all
scheduled overtime hours, while two percent said they would reduce
overtime hours and three percent said they would make no changes to
current scheduling.\50\ In view of the research, employer comments and
industry survey evidence, the Department believes employers responding
to the Final Rule changes by paying for 100 percent or 0 percent of
overtime are highly unlikely scenarios. Therefore, in the Final Rule
the Department adjusted OT Scenario 1 to reflect 60 percent of overtime
paid, OT Scenario 2 to reflect 40 percent of overtime paid, and OT
Scenario 3 to reflect 10 percent of overtime paid. The latter two
scenarios represent the more aggressive responses to the rule indicated
in the industry surveys and comments. Based on the combination of two
industry surveys, empirical research, and employer comments, the
Department believes that OT Scenario 2 reflects the most likely impacts
of the Final Rule, and therefore focuses on the results of that
scenario in the following analysis.
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\49\ Barkume, Anthony. (2010). The Structure of Labor Costs with
Overtime Work in U.S. Jobs, Industrial and Labor Relations Review,
64(1), pp. 128-142.
\50\ The IFA survey does not compare anticipated business
responses in states without current overtime regulations with actual
business responses in states with current overtime regulations.
However, other responses provided in the IFA survey (WHD-2011-0003-
8952) show similar patterns to the NAHC survey. First, respondents
in states that require overtime do not differ substantially from
those in states without such requirements in terms of customers
receiving live-in care, customers receiving more than 40 hours of
care per week, and average overtime worked per week by employees.
Second, among respondents in states without current overtime
regulations, 18 percent already pay overtime premiums and 50 percent
already pay travel time voluntarily. Third, other questions
demonstrate considerable inconsistencies in their responses. For
example, many respondents anticipate raising the rates charged to
their customers; on average, the reported rate increases would be an
amount in excess of that needed to offset the cost of any overtime
pay incurred. However, if 95 percent of firms are eliminating all
overtime, there will be little reason to increase fees. Thus,
although the Department agrees that employers will likely respond so
as not to absorb the entire cost of overtime, industry survey
responses concerning the anticipated magnitude of this affect cannot
be accepted at face value.
---------------------------------------------------------------------------
Travel Time Compensation
Several industry groups, including IFA and PDHCA, expressed concern
over the method used to estimate travel time between consumers, which
under the revised rule must be compensated. The Department based its
ratio of travel time compensation to overtime compensation on New York
City's amicus brief for the U.S. Supreme Court case, Long Island Care
at Home, Ltd. v. Coke, 551 U.S. 158 (2007). The Department received
criticism that this ratio (travel time compensation as 19.2 percent of
total overtime compensation) underestimated the true cost of travel
time compensation. The estimate relies on New York City data and,
therefore, the geographic scope is limited; travel time compensation
may be higher in other locations, such as remote rural areas.
Additionally, since travel time compensation is proportional to
estimated overtime compensation, the reliability of this estimate is
dependent upon accurately estimated overtime compensation.
Although the Department requested additional data on travel time,
commenters did not provide alternative methods or data to estimate
travel time. The Department considered alternative sources, most
notably the National Home Health Aid Survey (NHHAS).\51\ The NHHAS is a
nationally representative survey of agency-employed home health aides
who assist with ADLs. The NHHAS reports travel time for the last day
worked; however, attempts to estimate weekly and annual travel time
from these data suffer from several limitations. These limitations
include evident reporting error (such as reporting travel time between
consumers when the respondent cares for a single consumer) and the lack
of some data necessary to estimate cost (such as days worked per week).
Due to lack of confidence in its estimate of travel time from NHHAS
data and a lack of alternative data sources, the Department continues
to rely on the ratio provided by New York City in its amicus brief for
the Final Rule analysis. Moreover, although the Department revised the
overtime scenarios for the Final Rule, the Department continues to
project travel time based on the proposed rule's overtime scenario in
which agencies compensate 100 percent of all overtime hours. Thus,
travel time estimates in the Final Rule are conservative estimates
which significantly overestimate the cost of travel time.
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\51\ United States Department of Health and Human Services.
Centers for Disease Control and Prevention. National Center for
Health Statistics. National Home Health Care Survey, 2007.
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[[Page 60505]]
Summary of Impacts
Table 1 illustrates the potential scale of projected costs,
transfer effects and other impacts of the revisions to the FLSA
regulations implementing the companionship services exemption. The
Department projects that the average annualized direct costs of the
rule will total about $6.2 to $6.8 million per year over 10 years
(depending on how firms handle overtime and additional hiring).\52\ In
addition to the direct cost to employers of the rule, there are also
transfer effects resulting from the rule. The primary impacts shown in
Table 1 are income transfers to direct care workers in the form of:
Compensation for time spent traveling between consumers (average
annualized value of $104.3 million per year); and payment of an
overtime premium when hours worked exceed 40 hours per week. Because
overtime compensation depends on how employers adjust scheduling to
eliminate or reduce overtime hours, the Department considered three
adjustment scenarios resulting in payment of: 60 percent of current
overtime hours worked (OT Scenario 1, with an average annualized value
of $326.3 million per year); 40 percent of current overtime hours
worked (OT Scenario 2, with an average annualized value of $217.5
million per year); and 10 percent of current overtime hours worked (OT
Scenario 3, with an average annualized value of $54.4 million per
year).\53\ As discussed in the previous section, this represents a
change from the overtime scenarios in the NPRM, which used payment of
100 percent, 50 percent, and 0 percent to represent possible
adjustments. The Department revised these scenarios in response to the
many comments, including comments from International Franchise
Education Association, NPDA and private citizens, indicating agencies
would respond to the rule by eliminating overtime from direct care
worker schedules. While 100 percent payment of overtime remains a
theoretical upper bound estimate, it is so unlikely that it loses
validity in representing projections of how the market might adjust and
the costs it might incur. Therefore, the Department selected payment of
60 percent of current overtime hours to represent the upper bound of
overtime compensation (OT Scenario 1). Similarly, it would be more
costly for agencies to completely eliminate overtime than pay at least
some overtime when unavoidable, such as when the cost of hiring a new
worker might exceed the cost of paying overtime. In addition, comments
on the NPRM, such as the survey results submitted by NAHC, indicated
some agencies already pay overtime in states with no overtime
requirements. Thus, no overtime compensation seemed equally unlikely to
occur, and the Department now uses OT Scenario 3, in which agencies pay
10 percent of baseline overtime, for its lower bound overtime cost
scenario.
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\52\ As will be explained in further detail, the Department
examined three scenarios on how firms adjust overtime hours worked
in response to the overtime compensation premium requirement; within
each of these overtime scenarios, we consider three benchmarks for
reallocating overtime hours between new hires and current part time
workers, for a total of 9 combinations of overtime and hiring
decisions. However, to simplify the presentation, we include only
three combinations of overtime adjustment and new hiring in the
tables; these are: OT Scenario 1: 60 percent of current overtime
hours are paid the overtime premium, and of the remaining 40 percent
of overtime hours, 30 percent are allocated to new hires while 70
percent are redistributed to current part-time employees; OT
Scenario 2: 40 percent of current overtime hours are paid the
overtime premium, and of the remaining 60 percent of overtime hours,
20 percent are allocated to new hires while 80 percent are
redistributed to current part-time employees; OT Scenario 3: 10
percent of current overtime hours are paid the overtime premium, and
of the remaining 90 percent of overtime hours, 10 percent are
allocated to new hires and 90 percent redistributed to current part-
time employees. Under this combination of overtime and hiring
decisions, OT Scenarios 1 and 2 incur the same hiring costs in year
1 as shown in Table 1.
\53\ Estimated total overtime hours, and therefore total
overtime wage premiums, are larger for the Final Rule than for the
proposed rule. This results from four factors. First, the Department
increased its estimate of average overtime worked for that fraction
of direct care workers who work overtime (we now estimate 12 percent
of workers average 8.8 hours of overtime per week instead of 6.3
hours per week as in the proposed rule). Second, the Department
determined that 26,000 of California's agency-employed direct care
workers that were considered entitled to overtime under the proposed
rule are not, in fact, entitled to overtime compensation under state
law. Third, the 380,000 direct care workers in California's In-Home
Supportive Services (IHSS) program are also not generally entitled
to overtime compensation; 50,000 of these workers routinely exceed
40 hours per week. Finally, 30,000 direct care workers considered
jointly employed by the state of Illinois and the consumer are not
currently entitled to overtime compensation. The total number of all
overtime hours being worked by workers without overtime coverage is
estimated to be 73.5 million hours. Thus estimated overtime costs
increased substantially due to both an increase in the estimated
number of overtime hours worked, and an increase in the number of
those who work overtime.
---------------------------------------------------------------------------
Although the transfer of income to workers in the form of higher
wages is not considered a cost of the rule from a societal perspective,
higher wages do increase the cost of providing home care services,
potentially resulting in the provision of fewer services. This
potential reduction in the provision of services may cause market
inefficiency if it raises marginal labor costs and if we consider the
current labor market to be in a competitive equilibrium, and this
allocative inefficiency is a cost from a societal perspective. On the
other hand, marginal labor cost may rise by less than the amount of the
wage change because higher wages for workers may result in lower
turnover rates and reduced recruitment and training costs for firms.
With a 7 percent real rate, the Department measures the range of
average annualized deadweight loss attributable to this allocative
inefficiency as $177,000 when 60 percent overtime compensation
adjustment is assumed, $99,000 when 40 percent overtime compensation
adjustment is assumed and $24,000 when a 10 percent adjustment in
overtime compensation is assumed. In perspective, the deadweight loss
represents approximately 0.0001 percent of industry revenue with an
associated disemployment impact of 0.06 percent of workers under OT
Scenario 2. The relatively small deadweight loss occurs because both
the demand for and supply of home care services appear to be inelastic
in the largest component of this market, in which public payers
reimburse home care; thus, the equilibrium quantity of home care
services is not very responsive to changes in price. Average annualized
benefits from reduced turnover range from $10.1 million per year under
OT Scenario 3 to $34.1 million per year under OT Scenario 1, with
average annualized net benefits ranging from $3.9 million per year
(Scenario 3) to $27.3 million per year (Scenario 1). Under OT Scenario
2, which the Department believes to be the most likely outcome, average
annualized benefits total $23.9 million per year with average
annualized net benefits of $17.1 million per year.
[[Page 60506]]
Table 1--Summary of Impact of Changes to FLSA Companionship Services Exemption
----------------------------------------------------------------------------------------------------------------
Future years ($ mil.) \a\ Average annualized value ($
Year 1 ($ -------------------------------- mil.)
mil.) -------------------------------
Year 2 Year 10 3% Real rate 7% Real rate
----------------------------------------------------------------------------------------------------------------
Costs \i\
----------------------------------------------------------------------------------------------------------------
Regulatory Familiarization:
Agencies.................... $6.9 $0.6 $0.6 $1.3 $1.4
Families Hiring Self- $5.4 $2.8 $3.6 $3.4 $3.5
Employed Workers...........
----------------------------------------------------------------------------------------------------------------
Hiring Costs \b\:
30% OT remaining in OT 1.... $8.4 $0.8 $0.8 $1.6 $1.8
20% OT remaining in OT 2.... $8.4 $0.8 $0.8 $1.6 $1.8
10% OT remaining in OT 3.... $6.3 $0.6 $0.6 $1.2 $1.3
Total costs (30% of OT 1)....... $20.6 $4.2 $5.0 $6.4 $6.7
Total costs (20% of OT 2)....... $20.6 $4.2 $5.0 $6.4 $6.7
Total costs (10% of OT 3)....... $18.6 $4.0 $4.8 $6.0 $6.2
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Minimum Wages (MW) \c\:
to Agency-Employed Workers.. $0.0 $0.0 $0.0 $0.0 $0.0
to Self-Employed Workers.... $0.0 $0.0 $0.0 $0.0 $0.0
Travel Wages.................... $68.1 $78.1 $151.8 $107.1 $104.3
Overtime Scenarios:
OT 1 \d\.................... $213.2 $244.2 $474.8 $335.2 $326.3
OT 2 \e\.................... $142.1 $162.8 $316.5 $223.5 $217.5
OT 3 \f\.................... $35.5 $40.7 $79.1 $55.9 $54.4
----------------------------------------------------------------------------------------------------------------
Total Transfers by Scenario
----------------------------------------------------------------------------------------------------------------
MW + Travel + OT 1.............. $281.3 $322.3 $626.5 $442.3 $430.5
MW + Travel + OT 2.............. $210.2 $240.9 $468.3 $330.6 $321.8
MW + Travel + OT 3.............. $103.7 $118.8 $230.9 $163.0 $158.7
----------------------------------------------------------------------------------------------------------------
Deadweight Loss ($ millions)
----------------------------------------------------------------------------------------------------------------
MW + Travel + OT 1.............. $0.116 $0.132 $0.257 $0.182 $0.177
MW + Travel + OT 2.............. $0.065 $0.074 $0.144 $0.101 $0.099
MW + Travel + OT 3.............. $0.016 $0.018 $0.035 $0.025 $0.024
----------------------------------------------------------------------------------------------------------------
Total Cost of Regulations \g\
----------------------------------------------------------------------------------------------------------------
RF + HC + DWL(OT 1)............. $20.8 $4.3 $5.2 $6.6 $6.8
RF + HC + DWL(OT 2)............. $20.7 $4.2 $5.1 $6.5 $6.8
RF + HC + DWL(OT 3)............. $18.6 $4.0 $4.8 $6.0 $6.2
----------------------------------------------------------------------------------------------------------------
Disemployment (number of workers)
----------------------------------------------------------------------------------------------------------------
MW + Travel + OT 1.............. 1,086 1,184 1,976 1,531 (\h\)
MW + Travel + OT 2.............. 812 885 1,477 1,144 (\h\)
MW + Travel + OT 3.............. 400 436 728 564 (\h\)
----------------------------------------------------------------------------------------------------------------
Benefits from Reduced Turnover \b\ \g\
----------------------------------------------------------------------------------------------------------------
OT 1............................ $40.3 $34.9 $30.9 $33.8 $34.1
OT 2............................ $30.2 $24.7 $20.7 $23.6 $23.9
OT 3............................ $14.9 $10.7 $7.7 $9.9 $10.1
----------------------------------------------------------------------------------------------------------------
Net Benefits \g\
----------------------------------------------------------------------------------------------------------------
OT 1............................ $19.6 $30.6 $25.7 $27.3 $27.3
OT 2............................ $9.4 $20.5 $15.5 $17.1 $17.1
OT 3............................ -$3.7 $6.7 $2.9 $3.9 $3.9
----------------------------------------------------------------------------------------------------------------
\a\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so
these two values are reported.
\b\ We use three scenarios under which agencies redistribute overtime hours to either current part-time workers
or new hires to manage overtime costs: 40 percent of overtime hours are redistributed under OT Scenario 1, 60
percent under OT Scenario 2, and 90 percent under OT Scenario 3. Of this redistributed overtime, various
percentages are redistributed to part-time workers and new hires: New hires constitute 30 percent of
redistributed hours under OT Scenario 1 (12 percent of total overtime), 20 percent under OT Scenario 2 (12
percent of total), and 10 percent under OT Scenario 3 (9 percent of total).
\c\ 2011 statistics on HHA and PCA wages indicate that few workers, if any, are currently paid below minimum
wage (i.e., in no state is the 10th percentile wage below $7.25 per hour). See the BLS Occupational Employment
Statistics, 2011 state estimates. Available at: http://stats.bls.gov/oes/.
\d\ Of the total, about 31 percent (e.g., $66.6 million in Year 1) is attributable to IHSS direct care workers;
30 percent of IHSS costs (e.g., $20.0 million in Year 1) are included in the turnover and deadweight loss
analyses.
[[Page 60507]]
\e\ Of the total, about 31 percent (e.g., $44.4 million in Year 1) is attributable to IHSS direct care workers;
30 percent of IHSS costs (e.g., $13.3 million in Year 1) are included in the turnover and deadweight loss
analyses.
\f\ Of the total, about 31 percent (e.g., $11.1 million in Year 1) is attributable to IHSS direct care workers;
30 percent of IHSS costs (e.g., $3.3 million in Year 1) are included in the turnover and deadweight loss
analyses.
\g\ Results based on the combination of overtime scenario and hiring costs presented under Hiring Costs.
\h\ Annual average.
\i\ Excludes paperwork burden, estimated in Section V.
Note that there are additional impacts that are not presented in
this table because they could not be quantified; these include impacts
such as the opportunity cost of managerial time to optimize worker
schedules to reduce or avoid overtime hours or reduce travel time. The
Department also acknowledges the potential costs to direct care workers
who may receive fewer hours from their home care agency employers and
therefore will have to search for and coordinate multiple jobs for an
increased number of consumers. The Department anticipates that these
impacts will likely in the long run be small compared to the impacts
presented in Table 1. First, most impacted employers already employ
workers subject to the FLSA and are familiar with scheduling such
workers. Second, high industry turnover rates suggest that agencies
frequently have openings and are looking to hire new workers.
Furthermore, if most agencies respond to the rule by reducing overtime
hours worked by current employees and hiring additional employees to
work those hours, the number of job openings can be expected to
increase. Thus, the Department expects direct care workers who lose
hours at one agency will readily be able to find an opening at another
agency. Likewise, the Department has not attempted to quantify
potential benefits such as decreased injury rates, or transfers such as
the change in reliance on public assistance.
Also not captured in Table 1 are the special circumstances
surrounding entities that administer Medicaid-funded or other publicly
funded programs that would, under the Final Rule, be subject to the
provisions relating to third-party employers because they qualify as
employers under the FLSA's economic realities test (as described in the
section of this preamble discussing joint employment). For example, in
the short run, continuation of direct care workers' current work
schedules that exceed 40 hours per week may be infeasible for such
entities, thus potentially resulting in reduced continuity of care for
high-needs consumers. Other effects may also result from this Final
Rule. Such consequences may be avoidable in the long run if Medicaid
and other relevant programs adapt to allow overtime billing. Further,
as discussed elsewhere in this preamble, long-term continuity of care
may improve as a result of this Final Rule due to both decreased
turnover rates and reduced disruption, because another worker already
familiar to the consumer is available as a substitute when the primary
direct care worker is temporarily unavailable.
Regulatory Alternatives
The Department believes it has chosen the most effective option
that updates and clarifies the Application of the Fair Labor Standards
Act to Domestic Service Final Rule. Based on the commenters'
suggestions, among the options considered by the Department but not
described in the NPRM, the least restrictive option was taking no
regulatory action. A more restrictive option was to add to the
provisions being finalized a limit on the personal care services that
can be performed. NELP and the National Council on Aging among others
suggested that the Department require an initial assessment be
conducted to determine if a direct care worker is performing primarily
fellowship and protection for the consumer. They suggested that if it
is found that the direct care worker is not engaged primarily in
fellowship and protection, then the subsequent list of personal care
services should not be considered at all and the worker should not be
considered exempt. The National Council on Aging further expressed the
view that toileting, bathing, driving, and tasks involving positioning
and/or transfers be excluded from the list of permissible duties. ANCOR
suggested that the list be made exclusive and include fewer tasks. The
commenter added that the Department should consider providing an
allowance for household work defined as no more than one hour in a
seven day period. AFSCME expressed the view that those workers who
regularly engage in mobility tasks should not be considered companions.
The Department carefully considered such views in the development of
this Final Rule. The Department ultimately settled on a broader set of
permissible care services than initially proposed as well as less
restrictive than options suggested by some of these commenters. The
Department views inclusion of assistance with activities of daily
living and instrumental activities of daily living as a balanced
approach that allows for some delivery of care services by the direct
care worker under the companionship services exemption while at the
same time recognizing and making an effort to address the health and
safety concerns of direct care workers and consumers. Taking no
regulatory action does not address the Department's concerns discussed
above under Need for Regulation. The Department found the most
restrictive option to be overly burdensome on business.
Pursuant to the OMB Circular A-4, the Department considered several
other approaches to accomplish the objectives of the rule and minimize
the economic impact on home care entities and other employers,
including those suggested in comments on the NPRM as well as more
traditional approaches.
Many commenters indicated a concern with the cost of overtime
compensation and less of a concern with the FLSA's minimum wage
provision. See e.g., Henry Chazuad, ANCOR. One suggested alternative
was to maintain the exemption from overtime compensation for third
party employers of live-in workers, consistent with the laws in at
least three states (Michigan, Nevada, and Washington). The Department
recognizes that this approach would represent incremental progress
towards narrowing the exemption for this set of workers and result in a
very small economic impact on the industry from the Final Rule.
However, the Department believes this approach is inconsistent with
Congress's intent to provide FLSA protections to domestic service
workers, while providing a narrow exemption for live-in domestic
service workers. It is apparent from the legislative history that the
1974 amendments were intended to expand coverage to include more
workers, and were not intended to roll back coverage for employees of
third parties who already had FLSA protections as employees of covered
enterprises. Moreover, this approach does not support the objectives of
the rule or the purposes of the overtime requirements of the FLSA, one
of which is to spread employment.
Another alternative suggested was to allow employers to exclude
some nighttime hours from ``hours worked'' to
[[Page 60508]]
reduce the potential burden of overtime compensation to workers
providing care on higher hour cases (12- or 24-hour shifts). For
example, Minnesota and North Dakota state laws exclude up to eight
hours from the overnight hours (from 10:00 p.m. to 9:00 a.m.) from the
``hours worked'' for purposes of minimum wage and overtime
calculations. This Final Rule does not include revisions to the
longstanding regulations applicable to all FLSA-covered employers
addressing when sleep time constitutes hours worked and when sleep time
may be excluded from hours worked. Therefore, employers still have the
opportunity to exclude bona fide sleep hours; however, there would be
no basis under the FLSA for treating sleep time hours differently for
domestic service workers than for other employees. The Department's
existing regulations already provide for the exclusion of sleep time
from compensable hours worked under certain conditions. As previously
discussed in the Hours Worked section of this preamble, under the
Department's existing regulations, an employee who is required to be on
duty for less than 24 hours is working even though he or she is
permitted to sleep or engage in other personal activities when not
busy. See Sec. 785.21. Where an employee is required to be on duty for
24 hours or more, the employer and employee may agree to exclude a bona
fide meal period or a bona fide regularly scheduled sleeping period of
not more than eight hours from the employee's hours worked under
certain conditions. See Sec. 785.22. The conditions for the exclusion
of such a sleeping period from hours worked are (1) that adequate
sleeping facilities are furnished by the employer, and (2) that the
employee's time spent sleeping is usually uninterrupted. When an
employee must return to duty during a sleeping period, the length of
the interruption must be counted as hours worked. If the interruptions
are so frequent that the employee cannot get at least five hours of
sleep during the scheduled sleeping period, the entire period must be
counted as hours worked. Id.; see also Wage and Hour Opinion Letter,
1999 WL 1002352 (Jan. 7, 1999). Where no expressed or implied agreement
exists between the employer and employee, the eight hours of sleeping
time constitute compensable hours worked. This description of these
longstanding rules in the Final Rule's preamble is provided to help to
educate small business employers regarding their ability to exclude
sleep time from hours worked. See Sec. 785.22. However, because there
would be no basis under the FLSA for treating sleep time hours
differently for domestic service workers than for other employees, the
commenters' suggestion was not adopted.
Another approach suggested would be to calculate overtime
compensation based on a different rate of pay than straight time; for
example, under New York state law overtime hours are paid at one and a
half times the minimum wage rather than the worker's regular rate of
pay for some workers. Again, there is no legal basis in the FLSA for
calculating overtime compensation at a rate other than one-and-one-half
times the employee's regular rate of pay. Moreover, the Department does
not believe that this supports the objective of the rule or the spread
of employment under the Act. In terms of economic burden, this
alternative could reduce the cost to employers of overtime by
approximately 25 percent under OT Scenario 2; however, 15 states
currently require payment of overtime at time and a half of regular pay
with no evidence of significant economic burden. Quoting the Michigan
Olmstead Coalition ``we have seen no evidence that access to or the
quality of home care services are diminished by the extension of
minimum wage and overtime protection to home care aides in this state
almost six years ago.''
Another alternative discussed by commenters is to exclude travel
time from hours worked in order to decrease the burden of overtime
compensation. However, the comments provided little justification for a
departure from the general FLSA principles applicable to all employers
on the compensability of travel time set forth in 29 CFR 785.33-.41.
Excluding travel time that is ``all in the day's work'' from
compensable hours worked, for example, would be inconsistent with the
Portal-to-Portal Act amendment to the FLSA and inconsistent with how
such travel time is treated for all other employees. Sec. Sec. 785.38;
790.6. Furthermore, the analysis above suggests that travel time adds a
relatively small amount to the burden of this rulemaking.
The Department also considered several traditional alternatives.
Those alternatives include:
Informational measures rather than regulation. The
Department has made a variety of informational and educational
assistance materials related to this Final Rule available on its Web
site and will add to those materials during the period in which
employers are reviewing and revising their policies and practices to
come into compliance with this Final Rule. In addition, WHD offices
throughout the country are available to provide compliance assistance
at no charge to employers. The Department has planned robust outreach
efforts and will make every effort to work with employers to ensure
compliance.
Differing requirements based on size of firm or geographic
region. The FLSA sets a floor below which employers may not pay their
employees. To establish differing compliance requirements for
businesses based on size or geographic location would undermine this
important purpose of the FLSA. The Department makes available a variety
of resources to employers for understanding their obligations and
achieving compliance. Therefore the Department declines to establish
differing compliance requirements based on the size or location of a
business.
Use of performance rather than design standards. Under the
Final Rule, the employer may achieve compliance through a variety of
means. The employer may: hire additional workers and/or spread
employment over the employer's existing workforce to ensure employees
do not work more than 40 hours in a workweek, and/or pay employees time
and one-half for time worked over 40 hours in a workweek. In addition,
the FLSA recordkeeping provisions require no particular order or form
of records to be maintained so employers may create and maintain
records in the manner best fitting their situation. The Department
makes available a variety of resources to employers for understanding
their obligations and achieving compliance.
Compliance periods of various lengths. The Department has
set an effective date for this Final Rule of January 1, 2015. The
Department believes this delayed effect date takes into account the
complex federal and state systems that are a significant source of
funding for home care work, and the needs of the diverse parties
affected by this Final Rule (including consumers, their families, home
care agencies, direct care workers, and local, state, and federal
Medicaid programs) by providing such parties, programs and systems time
to adjust. The Department considered application of a 60-day delayed
effective date, the minimum legally permitted effective date for a
major rule (Congressional Review Act, 8 U.S.C. 801(a)(3)). A 60-day
delayed effective date would most expeditiously extend the FLSA's
protections to workers affected by this rule; however, the Department
was concerned that such an effective date would not be sufficient for
Federal, state, and local agencies, as well as private entities, to
implement new protocols, apply for
[[Page 60509]]
changes to their Medicaid programs, adjust funding streams, and
legislatively address budgetary and programmatic changes. The
Department also considered a delayed effective date of two years. While
a two-year delayed effective date would, in the Department's view,
provide more than ample time for Federal, state, and local entities to
complete any necessary programmatic changes, the workforce affected by
this rule would continue to be without the wage protections available
to most other workers, contributing to high turnover rates which
negatively impact continuity of care. The Department believes that the
January 1, 2015 effective date for this rule appropriately balances the
needs of workers and the consumers utilizing their services.
B. State Law Requirements
There are numerous state laws pertaining to direct care workers; as
the industry has grown and expanded over the past 38 years the laws
have increased in number and complexity to match the demands placed on
workers. The State Medicaid Manual requires states to develop
qualifications or requirements (such as background checks, training,
age, supervision, health, literacy, or education, or other
requirements) for Medicaid-financed personal care attendants. These
state programs can each have multiple delivery models, including
agency-directed or consumer-directed with care given by agencies or
independent providers. These delivery models are not necessarily
mutually exclusive. In general, for the purposes of this analysis, we
refer to independent providers as workers who are hired directly by the
consumer, and therefore they are not counted in the statistics on home
care providers used as the basis for this analysis, with the exception
of independent providers who advertise their availability through state
registries.
When Congress created the companionship services exemption in 1974,
a ``companion'' was likely to be a family member or friend with the
time for and interest in providing support to an elderly family member
or friend or a family member or friend with a disability. A direct care
worker today must meet a more extensive and expanding set of criteria--
such as background checks and training--to provide services in most
states. A 2006 report by the HHS Office of the Inspector General (OIG)
found that states have established multiple sets of worker requirements
that often vary among the programs within a state and among the
delivery models within programs, resulting in 301 sets of requirements
nationwide.\54\ Four of the consumer-directed programs in the OIG
review had no attendant requirements.
---------------------------------------------------------------------------
\54\ U.S. Department of Health and Human Services (HHS) Office
of the Inspector General (OIG). (2006). States' Requirements for
Medicaid-Funded Personal Care Service Attendants, available at:
http://oig.hhs.gov/oei/reports/oei-07-05-00250.pdf.
---------------------------------------------------------------------------
Furthermore, states define these requirements differently, and
specify different combinations of requirements in different programs.
The most common requirements include: background checks; training;
supervision; minimum age; health; education/literacy; and other, such
as meeting state motor vehicle and licensure requirements if providing
transportation.
The number of states that included each requirement in at least one
program and the number of state program sets that include each
requirement are summarized in Table 2.
Table 2--Six Most Common Attendant Requirements
----------------------------------------------------------------------------------------------------------------
Number of States that Number of sets
Requirement utilized requirement in containing requirement
at least one program (of 301 sets)
----------------------------------------------------------------------------------------------------------------
Background Checks............................................. 50 245
Training...................................................... 46 227
Age........................................................... 42 219
Supervision................................................... 43 198
Health........................................................ 39 162
Education/Literacy............................................ 31 125
----------------------------------------------------------------------------------------------------------------
Source: DHSS OIG, 2006. p. 9.
States' laws also vary in whether they extend minimum wage and overtime
provisions to direct care workers. In many states ``companions'' are
not explicitly named in the regulations, but workers providing such
services often fall under those regulations that apply to domestic
service employees.
Fifteen states extend minimum wage to most, and overtime coverage
to some, direct care workers who would otherwise be excluded under the
current Federal regulations: Colorado, Hawaii, Illinois, Maine,
Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New
Jersey, New York, Pennsylvania, Washington, and Wisconsin. However, in
some states certain types of these workers remain exempt, such as those
employed directly by households or by non-profit organizations. In
Illinois, 30,000 personal care and home health aide workers in the Home
Services Program under the Illinois Department of Human Services do not
receive overtime compensation. Additionally, New York's overtime law
provides that workers who are exempt from the FLSA and employed by a
third party agency need only be paid time and one-half the minimum wage
(as opposed to time and one-half of the worker's regular wage).\55\
Minnesota's overtime provision applies only after 48 hours of work.
---------------------------------------------------------------------------
\55\ Under the 2010 Domestic Workers Bill of Rights, most New
York direct care workers employed directly by the household in which
they work receive full time-and-a-half overtime protections. The law
applies to third party employers if any household services, such as
cleaning, are performed.
---------------------------------------------------------------------------
Six states (Arizona, California, Nebraska, North Dakota, Ohio, and
South Dakota) and the District of Columbia extend minimum wage, but not
overtime, protection to direct care workers. There are again some
exemptions for those workers employed directly by households or who
live in the household. Per Wage Order 15 in California, some direct
care workers in California receive overtime; others are exempt from
overtime requirements as ``personal attendants'' based upon the duties
they perform; all receive minimum wage.
Twenty-nine states do not include direct care workers in their
minimum wage and overtime provisions: Alabama,
[[Page 60510]]
Alaska, Arkansas, Connecticut, Delaware, Florida, Georgia, Idaho,
Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, New
Hampshire, New Mexico, North Carolina, Oklahoma, Oregon, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, West
Virginia, and Wyoming.\56\
---------------------------------------------------------------------------
\56\ National Employment Law Project (NELP). 2012. WHD-2011-
0003-9452, Fair Pay for Home Care Workers, available at: http://www.nelp.org/page/-/Justice/2011/FairPayforHomeCareWorkers.pdf?nocdn=1.
---------------------------------------------------------------------------
Of the 21 states plus the District of Columbia that extend the
minimum wage to at least some direct care workers, 12 have a state
minimum wage that is higher than the current federal minimum wage of
$7.25 an hour.\57\ These state laws are summarized in Table 3.
---------------------------------------------------------------------------
\57\ U.S. Department of Labor (DOL). 2013. Minimum Wage,
available at: http://www.dol.gov/whd/minwage/america.htm#Consolidated.
Table 3--State Minimum Wage and Overtime Coverage of Non-Publicly Employed Direct Care Workers
----------------------------------------------------------------------------------------------------------------
Analysis and citations
State State minimum wage \a\ MW OT Neither \b\
----------------------------------------------------------------------------------------------------------------
AL............... ............................... .......... .......... x ........................
AK............... $7.75.......................... .......... .......... x ........................
AZ............... $7.80.......................... x .......... .......... Minimum wage but no
overtime coverage for
companions as defined
in the FLSA. No state
overtime law. See Ariz.
Rev. Stat. Ann. Sec.
Sec. 23-362, 23-363;
see also Office of the
Attorney General of the
State of Arizona,
Opinion No. I07-002
(Feb. 7, 2007).
AR............... $6.25.......................... .......... .......... x ........................
CA............... $8.00.......................... x .......... .......... All companions as
defined in the FLSA are
entitled to minimum
wage. Privately
employed direct care
workers who are
classified as
``personal attendants''
employed by either ``a
private householder or
by any third party
employer recognized in
the healthcare industry
to work in a private
household'' and paid
family caregivers are
exempt from overtime
requirements. Whether
home care employees are
exempt ``personal
attendants'' is fact-
specific and based upon
the duties performed by
the workers. Generally
home care employees who
are part of
California's In-Home
Supportive Services
program are not
entitled to overtime.
Industrial Welfare
Commission Order No. 15-
2001; see also State of
California, Department
of Industrial
Relations, Opinion Ltr.
``Interpretation of IWC
Wage Order 15:
Definition of `personal
attendant' '' (Nov. 23,
2005).
CO............... $7.78.......................... x x .......... Minimum wage and
overtime coverage for
third party-employed
direct care workers who
do work beyond
Colorado's definition
of ``companion.''
Colorado's definition
of ``companion'' is
much narrower than the
FLSA definition.
Companions may not help
to bathe and dress the
person, do any amount
of housekeeping, or
remind the person to
take medication. People
who do those tasks are
more than just
``companions'' they are
``personal care''
attendants. Personal
care attendants are
entitled to minimum
wage and overtime.
However, PCAs employed
directly by private
households are exempt
from minimum wage and
overtime. Colorado
Minimum Wage Order No.
26 Sec. 5; 7 Colo.
Code Regs. Sec. 1103-
1:5.
CT............... $8.25.......................... .......... .......... x ........................
DE............... $7.25.......................... .......... .......... x ........................
DC............... $8.25.......................... x .......... .......... Minimum wage for
companions as defined
in the FLSA. D.C. Mun.
Regs. tit. 7, Sec.
902.1, 902.3, 902.4
(West 2011).
FL............... $7.79.......................... .......... .......... x ........................
GA............... $5.15.......................... .......... .......... x ........................
HI............... $7.25.......................... x x .......... Minimum wage and
overtime coverage for
companions as defined
in the FLSA, but
exemption for those
employed directly by
private households.
Haw. Rev. Stat. Sec.
387-1.
ID............... $7.25.......................... .......... .......... x ........................
IL............... $8.25.......................... x x .......... Minimum wage and
overtime coverage for
any person whose
primary duty is to be a
companion for
individual(s) who are
aged or infirm or
workers whose primary
duty is to perform
health care services in
or about a private
home. The 30,000
personal care and home
health aide workers in
the Home Services
Program under the
Illinois Department of
Human Services do not
receive overtime
compensation. Those
employed solely by
private households may
be exempt under a
general exemption for
employers with fewer
than four employees.
820 Ill. Comp. Stat.
Sec. 105/3(d); Ill.
Adm. Code Sec.
210.110.
IN............... $7.25.......................... .......... .......... x ........................
IA............... $7.25.......................... .......... .......... x ........................
KS............... $7.25.......................... .......... .......... x ........................
KY............... $7.25.......................... .......... .......... x ........................
LA............... ............................... .......... .......... x ........................
ME............... $7.50.......................... x x .......... Minimum wage and
overtime coverage for
all companions as
defined in the FLSA. No
relevant exemptions.
Me. Rev. Stat. Ann.
tit. 26, Sec. Sec.
663, 664.
[[Page 60511]]
MD............... $7.25.......................... x x .......... Minimum wage coverage
for all companions as
defined in the FLSA.
Overtime coverage for
most direct care
workers but exemption
for workers employed by
non-profit agencies
that provide
``temporary at-home
care services''. Md.
Code Ann., Lab. & Empl.
Sec. 3-415.
MA............... $8.00.......................... x x .......... Minimum wage and
overtime coverage for
all companions as
defined in the FLSA. No
relevant exemptions.
Mass. Gen. Laws Ch.
151, Sec. 1.
MI............... $7.40.......................... x x .......... Minimum wage and
overtime coverage for
companions as defined
in the FLSA, but
exemption for live-in
workers. Mich. Comp.
Laws Sec.
408.394(2)(a).
Exemption for workers
employed solely by
private household as a
result of exemption for
employer with fewer
than two employees.
Mich. Comp. Laws Sec.
408.382(c).
MN............... $6.15 or $5.25 for employers x x .......... Minimum wage and
grossing under $625,000 per overtime coverage after
year. 48 hours for all
companions as defined
in the FLSA, but
nighttime hours where
companion is available
to provide services but
does not actually do so
need not be
compensated. Minn.
Stat. Sec.
177.23(11).
MS............... ............................... .......... .......... x ........................
MO............... $7.35.......................... .......... .......... x ........................
MT............... $7.80.......................... x x .......... Minimum wage and
overtime coverage for
companions as defined
in the FLSA, but
exemption for those
employed directly by
private households.
Mont. Code. Ann. Sec.
39-3-406(p).
NE............... $7.25.......................... x .......... .......... Minimum wage but no
overtime coverage for
companions as defined
in the FLSA. No state
overtime law. De facto
exemption for most
households as a result
of general exemption
for employers with
fewer than four
employees. Neb. Rev.
Stat. Sec. Sec. 48-
1202, 48-1203.
NV............... $8.25 \c\...................... x x .......... Minimum wage and
overtime coverage for
companions as defined
in the FLSA, but
exemption for live-in
workers. Also, business
enterprises with less
than $250,000 annually
in gross sales volume
need not pay overtime.
Nev. Rev. Stat. Sec.
608.250(2)(b).
NH............... $7.25.......................... .......... .......... x ........................
NJ............... $7.25.......................... x x .......... Minimum wage and
overtime coverage for
all companions as
defined in the FLSA. No
relevant exemptions.
N.J. Stat. Ann.Sec.
34:11-56a et seq.
NM............... $7.50.......................... .......... .......... x ........................
NY............... $7.25.......................... x x .......... Minimum wage coverage
for all companions as
defined in the FLSA.
N.Y. Labor Law Sec.
651(5). There is
overtime coverage for
all companions but
those employed by third
party agencies receive
overtime at a reduced
rate of 150% of the
minimum wage (rather
than the usual 150% of
their regular rate of
pay). N.Y. Labor Law
Sec. Sec. 2(16),
170; N.Y. Comp. Codes
R. & Regs. tit. 12,
Sec. 142-2.2.
Overtime coverage for
live-in workers after
44 hours/week (rather
than the usual 40
hours) at the same
rates detailed above.
Id.
NC............... $7.25.......................... .......... .......... x ........................
ND............... $7.25.......................... x .......... .......... Minimum wage but no
overtime coverage for
companions as defined
in the FLSA. However,
companions who are
certain first or second-
degree relatives of the
person receiving care
do not receive minimum
wage. Additionally,
nighttime hours where
companion is available
to provide services but
does not actually do so
need not be
compensated. N.D. Cent.
Code Sec. 34-06-03.1.
OH............... $7.85.......................... x .......... .......... Minimum wage but not
overtime coverage for
companions as defined
in the FLSA. Ohio Rev.
Code Ann. Sec.
4111.03(A), Sec.
4111.14 (West 2011).
Additional overtime
exemptions for live-in
workers. Id. Sec.
4111.03(D)(3)(d).
OK............... $7.25.......................... .......... .......... x ........................
OR............... $8.95.......................... .......... .......... x ........................
PA............... $7.25.......................... x x .......... Minimum wage and
overtime coverage for
companions as defined
in the FLSA, but
exemption for those
employed solely by
private households. Pa.
Stat. Ann. tit. 43,
Sec. 333.105(a)(2).
Bayada Nurses v.
Commonwealth of
Pennsylvania, 8 A.3d
866 (Pa. 2010).
RI............... $7.75.......................... .......... .......... x ........................
SC............... ............................... .......... .......... x ........................
SD............... $7.25.......................... x .......... .......... Minimum wage but no
overtime coverage for
companions as defined
in the FLSA. No state
overtime law. S.D.
Codified Laws Sec.
Sec. 60-11-3, 60-11-
5.
TN............... ............................... .......... .......... x ........................
TX............... $7.25.......................... .......... .......... x ........................
UT............... $7.25.......................... .......... .......... x ........................
VT............... $8.60.......................... .......... .......... x ........................
VA............... $7.25.......................... .......... .......... x ........................
[[Page 60512]]
WA............... $9.19.......................... x x .......... Washington minimum wage
and overtime coverage
for most companions as
defined in the FLSA,
but exemption for live-
in workers. Wash. Rev.
Code Sec.
49.46.010(5)(j).
WV............... $7.25.......................... .......... .......... x ........................
WI............... $7.25.......................... x x .......... Minimum wage and
overtime coverage for
most companions as
defined in the FLSA,
but overtime exemption
for those employed
directly by private
households, Wis. Admin.
Code Sec. 274.015,
and those employed by
non-profit
organizations. Wis.
Admin. Code Sec. Sec.
274.015, 274.01.
Companions who spend
less than 15 hours a
week on general
household work and
reside in the home of
the employer are also
exempt from minimum
wage. Wis. Admin. Code
Sec. 272.06(2).
WY............... $5.15.......................... .......... .......... x ........................
----------------------------------------------------------------------------------------------------------------
Abbreviations: MW = Minimum Wage, OT = Overtime, FLSA = Fair Labor Standards Act.
Sources: \a\ DOL, 2013; \b\ NELP, 2011. \c\ Nevada minimum wage is $7.25 per hour for employees to whom
qualifying health benefits have been made available by the employer.
C. Data Sources
The primary data services used by the Department to estimate the
number of workers, establishments, and customers likely to be impacted
by the rule include:
2011 Bureau of Labor Statistics (BLS) Occupational Employment
Survey, employment and wages by state for SOC codes 39-9021
(Personal Care Aides) and 31-1011 (Home Health Aides);
2011 BLS Quarterly Census of Employment and Wages, for NAICS
6216 and 62412;
2010 BLS National Employment Matrix;
2007 Statistics of U.S. Businesses, for NAICS 6216 and 62412;
and
2007 Economic Census, by state for NAICS 6216 and 62412.
BLS does not have a separate Standard Occupational Classification
(SOC) code for ``Companions;'' instead, workers who provide
companionship services are often classified as Personal Care Aides
(PCAs; SOC 39-9021). However, considerable overlap exists between the
duties of PCAs and Home Health Aides (HHAs; SOC 31-1011). While HHAs
are trained to provide more medicalized care (e.g., wound care) than
PCAs, they may also provide personal care services and assistance with
ADLs.\58\ The Seventh Circuit Court of Appeals has found home health
aides to qualify for the companionship services exemption. Cox v. Acme
Health Servs, Inc., 55 F.3d 1304 (7th Cir. 1995). Therefore, the
Department selected these two occupations to represent the universe of
potentially affected direct care workers.
---------------------------------------------------------------------------
\58\ See http://www.bls.gov/oes/current/oes399021.htm and http://www.bls.gov/oes/current/oes311011.htm; most recently accessed May
18, 2013.
---------------------------------------------------------------------------
For the purposes of this analysis, the Department further assumed
that all HHAs and PCAs included in the analysis currently are treated
as exempt under the companionship services exemption, but that none of
them will qualify for the companionship services exemption under this
Final Rule. Making these assumptions is likely to result in an
overestimate of the projected costs and other impacts of the rule.
First, although the Department is able to make some adjustments to the
data to better identify the potentially affected worker population
(e.g., including only HHAs and PCAs employed in states with no minimum
wage and overtime compensation laws applicable to workers who provide
companionship services to individuals in their homes rather than
facilities and including only the percentage of HHAs and PCAs who
likely work in private homes), it has insufficient data to determine
how many direct care workers who are treated as exempt under the
current companionship services exemption will qualify for exemption
under the revised definition of companionship services. Because of this
data limitation, and by assuming that 100 percent of HHAs and PCAs
included in the analysis will no longer qualify for the exemption, the
Department has overestimated the number of direct care workers who are
currently not protected by the Act's minimum wage and overtime
compensation provisions but who will receive these protections as a
result of this rule.
An additional limitation of this set of data sources stems from the
fact that the Department's best estimate of agency-employed direct care
workers is based on the 2011 BLS Occupational Employment Statistics,
and its best estimate of independent providers directly employed by
families is based on the 2010 BLS National Employment Matrix. The
Occupational Employment Statistics (OES) is employer based, and does
not collect data from the self-employed. The National Employment Matrix
(NEM) obtains estimates on the self-employed from the Current
Population Survey. However, it is not possible to match the OES
estimates by subtracting the estimated number of self-employed workers
from the NEM. Because these two estimates cannot be completely
reconciled, the Department uses each source as the best estimate for
one segment of the labor market and acknowledges there is some
inconsistency between the two. In practice, the effect of that
inconsistency on the analysis is likely to be quite small. In addition,
the Congressional Research Service performed an analysis of the
potential number of workers affected by the NPRM solely using data from
the Current Population Survey Annual Social and Economic Supplement
that resulted in comparable estimates of the numbers of workers
affected by the minimum wage and overtime provisions.\59\
---------------------------------------------------------------------------
\59\ Congressional Research Service. Memorandum dated March 2,
2012, titled ``The Fair Labor Standards Act: Proposed Changes to the
Exemptions for Employees Who Provide Companionship Services and
Live-In Domestic Workers,'' pgs. 11 and 13.WHD-2011-0003-7820.
---------------------------------------------------------------------------
D. Consumers and Demand for Services
Demand for home care services is anticipated to continue to grow in
the next few decades with the aging of the ``baby boomer generation.''
According to PHI:
Nearly one out of four U.S. households provides care to a
relative or friend aged 50 or older and about 15 percent of adults
care for a seriously ill or disabled family member. Over the next
two decades the population
[[Page 60513]]
over age 65 will grow to more than 70 million people [the U.S.
population 65 years and older was estimated at 40 million in 2009
\60\]. Additionally, with significant increases in life expectancy
and medical advances that allow individuals with chronic conditions
to live longer, the demand for caregiving is expected to grow
exponentially. The growth in the demand for in-home services is
further amplified by an increasing preference for receiving supports
and services in the home as opposed to institutional settings. This
emphasis has been supported by the increased availability of
publicly funded in-home services under Medicaid and Medicare as an
alternative to traditional and increasingly costly institutional
care.\61\
\60\ 2011 Statistical Abstract, U.S. Census Bureau.
\61\ National Alliance for Caregiving and the American
Association of Retired Persons. (1997). Family Caregiving in the
U.S.: Findings from a National Study. Available at: http://assets.aarp.org/rgcenter/il/caregiving_97.pdf. See also Center for
Health Care Strategies, Inc. Medcaid-funded Long-term Care: Toward
more Home- and Community-based Options. May 2010. Available at:
http://www.chcs.org/usr_doc/LTSS_Policy_Brief_.pdf.
---------------------------------------------------------------------------
While many consumers of home care services are elderly, about two-
fifths of those in need of these services are under 65 and include
those with varying degrees of mental, physical, or developmental
disabilities. This group of consumers is also anticipated to grow
rapidly as more individuals opt for home-based care over institutional
care.\62\ It is estimated that the demand for direct care workers will
grow to approximately 5.7 to 6.6 million workers in 2050, an increase
in the current demand for workers of between 3.8 and 4.6 million (200
percent and 242 percent respectively).\63\ The home care industry has
grown significantly over the past decade and is projected to continue
growing rapidly; for example:
---------------------------------------------------------------------------
\62\ PHI, 2003. The Personal Assistance Services and Direct-
Support Workforce: A Literature Review. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/CMS_Lit_Rev_FINAL_6.12.03.pdf.
\63\ United States Department of Health and Human Services
(2003). The Future Supply of Long-Term Care Workers in Relation to
the Aging Baby Boom Generation: Report to Congress, p. v. Available
at: http://aspe.hhs.gov/daltcp/reports/ltcwork.pdf.
The number of establishments in Home Health Care Services (HHCS)
grew by 101 percent between 2001 and 2011; during that same period,
the number of establishments in Services for the Elderly and Persons
with Disabilities (SEPD) grew by 466 percent.\64\
---------------------------------------------------------------------------
\64\ Bureau of Labor Statistics, U.S. Department of Labor,
Quarterly Census of Employment and Wages (QCEW). NAICS 6216 and
62412. Available at http://www.bls.gov/cew/.
---------------------------------------------------------------------------
Between 2010 and 2020 the number of home health aides is
projected to increase by 69 percent and the number of personal care
aides by 70 percent.\65\
---------------------------------------------------------------------------
\65\ Bureau of Labor Statistics, U.S. Department of Labor,
Occupational Outlook Handbook, 2012-13 Edition, Home Health and
Personal Care Aides. Available at: http://www.bls.gov/ooh/healthcare/home-health-and-personal-care-aides.htm (visited February
15, 2013).
Employers
This section focuses on the employers of workers who are currently
classified as exempt under the companionship services exemption and
common sources of funding for the services they provide; the next
section describes the workers and the work they do. Services in the
home care industry are provided through two general delivery models:
Agencies and consumer-directed (which often use independent providers
and family caregivers).
Figure 2 provides a visual overview of the home care industry and
the two primary models for service provision, which are discussed in
more detail in the sections that follow.
[GRAPHIC] [TIFF OMITTED] TR01OC13.000
Agency Model
Under the agency model a third party provider of home care services
(usually a home health care company) employs the direct care workers
and is responsible for ensuring that services authorized by a public
program or contracted for by a private party are in
[[Page 60514]]
fact delivered.\66\ There are currently about 89,400 establishments
providing these services. These establishments also provide a variety
of other health-related services, in addition to or concurrently with
companionship services. In the following paragraphs we describe the
industry as a whole since detailed information by the service provided
is not available.
---------------------------------------------------------------------------
\66\ Seavey and Marquand, 2011, p. 26. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------
Agencies providing home care services are covered by two primary
industries: Home Health Care Services (HHCS, NAICS 6216), and Services
for the Elderly and Persons with Disabilities (SEPD, NAICS 62412).\67\
HHCS is dominated by for-profit agencies that are Medicare-certified
and depend on public programs for three-quarters of its revenue.\68\
SEPD is a rapidly growing industry that is dominated by small
enterprises. Table 4 provides an overview of these two industries in
terms of number of establishments and estimated revenues.
---------------------------------------------------------------------------
\67\ These two industries are the primary employers of workers
who currently perform companionship services; however, based on data
reported by BLS in the National Employment Matrix there are
approximately 33 other industries that also employ these workers.
Since these other industries employ so few of the workers under
consideration here, they will be minimally affected by this Final
Rule.
\68\ Seavey and Marquand, 2011, pgs 20-22. WHD-2011-0003-3514.
Also available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------
The services provided by HHCS and SEPD are paid for through either
public programs such as Medicaid, Medicare, or state programs, or
through private sources such as private health insurance or out-of-
pocket payments. In 2009, public programs (Medicare, Medicaid, and
other government spending) accounted for about 75 percent of the annual
revenue dispersed to the home health care services
industry.69 70 A review of funding sources by the CRS
confirmed this finding but attributed a higher percentage of spending,
89 percent ($96.3 billion), to public payers (including Medicare,
Medicaid, and other public programs such as the Veterans Health
Administration and other state and local programs).\71\ Due to data
limitations we cannot identify funding sources for individual services
provided (e.g., companionship services only) and therefore the
Department analyzes funding for the establishments as a whole.
---------------------------------------------------------------------------
\69\ Seavey and Marquand, 2011, pgs 22, 23. WHD-2011-0003-3514.
Also available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
\70\ Data is not available for the Services for the Elderly and
Persons with Disabilities industry.
\71\ The figures are based on CRS analysis of CMS National
Health Expenditure Account data for 2009. Congressional Research
Service. Memorandum dated February 21, 2012, titled ``Extending
Federal Minimum Wage and Overtime Protections to Home Care Workers
under the Fair Labor Standards Act: Impact on Medicare and
Medicaid,'' p. 4. WHD-2011-0003-5683.
Table 4--Summary of HHCS and SEPD, 2011
------------------------------------------------------------------------
Estimated revenue
Industry Establishments ($ mil.)
------------------------------------------------------------------------
SEPD + HHCS....................... 89,400 90,800
SEPD.............................. 61,100 32,600
HHCS.............................. 28,300 58,000
------------------------------------------------------------------------
Sources: BLS QCEW 2011; BLS NEM, 2010.
These two industries primarily employ workers as home health aides
(HHAs) and personal care aides (PCAs) in addition to other occupations
(e.g., nursing aides, orderlies, administrative personnel). However,
not all of the HHAs and PCAs employed by these agencies perform
companionship services as defined under the current exemption; these
agencies provide a variety of health-related services that may be
delivered in private homes (potentially companionship services) or in
public or private facilities (not domestic service employment and
therefore not companionship services). Additionally, the job duties of
some HHAs and PCAs make them ineligible for the current companionship
services exemption. Simply put, only a fraction of the workers employed
by these establishments are currently performing companionship services
and therefore may see changes in their wages and/or work schedules as a
result of this Final Rule.
Within these two industries there are two broad employer types:
Home health care companies and private pay home care companies. Home
health care companies provide medically-oriented home health care
services and non-medical home care or personal assistance services.
Some of these agencies are Medicare-certified; those that avoid
obtaining certification do so because they do not provide the skilled
nursing care required by Medicare. These companies also derive a
significant portion of their revenue from the provision of medical
devices to customers.\72\
---------------------------------------------------------------------------
\72\ Seavey and Marquand, 2011, p. 15. WHD-2011-0003-3514. Also
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------
Private pay agencies are smaller, emerging employers that primarily
provide non-medical care for consumers and typically earn a large
percentage of their revenues from private sources (e.g. out-of-pocket,
long-term health insurance).\73\ Although some agencies characterized
as private pay are Medicare-certified, many do not provide substantial
skilled health care services but instead focus on paramedical services
as well as support services such as personal care, homemaker services,
and companionship services (as defined by the current regulations).\74\
As of 2009, 28 states required private pay agencies to be licensed, but
due to the variation in license requirements at least some of those
agencies are likely to be Medicare-certified, or provide services to
Medicaid beneficiaries, causing double-counting when identifying
private pay agencies.\75\ Based on a very limited sample, perhaps one-
third of private pay agencies are not-for-profit.\76\
---------------------------------------------------------------------------
\73\ Seavey and Marquand, 2011, p. 18, WHD-2011-0003-3514. Also
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
\74\ Seavey and Marquand, 2011, page 18. BLS data also support
this: 2011, Employment and Wages from Occupational Employment
Statistics (OES) survey, Multiple occupations for one industry: Home
Health Care Services (NAICS code 621600) and Services for the
Elderly and Persons with Disabilities (NAICS code 624120). Available
at: http://data.bls.gov/oes/. Accessed April 20, 2012.
\75\ Leading Home Care. 2010. 2010 Private Pay in Home Health
Care Benchmarking and State of the Industry Report, p. 17.
\76\ Leading Home Care. 2010. 2010 Private Pay in Home Health
Care Benchmarking and State of the Industry Report, p. 22.
---------------------------------------------------------------------------
Private pay agencies comprise a small fraction of the total market.
Some industry sources suggest the number of private pay agencies might
range from 15,000 to 17,000, but admit it is difficult
[[Page 60515]]
to determine the overlap with other types of home care agencies.\77\
Since in some states private pay agencies do not need to be licensed,
it is difficult to determine the exact size of this market. Of these
private pay agencies, 4,100 to 4,700 are franchises; however, this
segment of the market is growing quickly, and perhaps fewer than 150
started operating before 2000.\78\ Therefore, the importance of this
segment of the industry may grow over time.
---------------------------------------------------------------------------
\77\ Home Care Pulse. 2011. 2011 Annual Private Duty Home Care
Benchmarking Study. Highlights Edition, p. 5; Leading Home Care.
2010. 2010 Private Pay in Home Health Care Benchmarking and State of
the Industry Report, p. 17. In addition, the industry benchmark
reports appear to double-count licensed agencies; thus the number
might be significantly smaller.
\78\ Home Care Pulse. 2011. 2011 Annual Private Duty Home Care
Benchmarking Study. Highlights Edition, pp. 5 and 21.
---------------------------------------------------------------------------
Comments on the NPRM indicated many private pay agencies do not
provide the types of skilled services that Medicare reimburses and rely
on private pay for the majority of their revenues.\79\ BLS data
supports this contention that private pay agencies provide fewer
skilled care services; however, it is difficult to determine the degree
of specialization in non-skilled support care because data are
unavailable to determine how many of these agencies are Medicare-
certified or are associated with Medicare-certified agencies.\80\ In
addition, the Companionship Services Exemption Survey (CSES) showed
that private pay agencies rely on private pay and in addition the
survey showed over 50 percent of respondents provided services covered
by public payers such as Medicare, Medicaid, and the Department of
Veterans Affairs (VA). With a focus on less skilled home care services,
agencies in the private pay sector generally appear to be more reliant
on private payers than home health care companies are, but the degree
of reliance is unclear.\81\
---------------------------------------------------------------------------
\79\ Private Duty Homecare Association. (2012). Companionship
Services Exemption Survey (CSES), January 23. WHD-2011-0003-9175.
\80\ Bureau of Labor Statistics. May 2011. Employment and Wages
from Occupational Employment Statistics (OES) survey, Multiple
occupations for one industry: Home Health Care Services (NAICS code
621600) and Services for the Elderly and Persons with Disabilities
(NAICS code 624120). Available at: http://data.bls.gov/oes/.
Accessed April 20, 2012. Leading Home Care. (2010). 2010 Private Pay
in Home Health Care Benchmarking and State of the Industry Report.
\81\ Comments on the NPRM indicated many private pay agencies do
not provide the types of skilled services that are Medicare
reimbursable and rely on private pay for the majority of their
revenues (e.g., Private Duty Homecare Association. (2012).
Companionship Services Exemption Survey (CSES), January 23, WHD-
2011-0003-9175). BLS data supports this contention that fewer
skilled care services are provided (id.). However, it is difficult
to determine the degree of specialization in non-skilled support
care because data are unavailable to determine how many of these
agencies are Medicare-certified or are associated with Medicare-
certified agencies (Leading Home Care. 2010. 2010 Private Pay in
Home Health Care Benchmarking and State of the Industry Report). In
addition, the same survey that showed these agencies rely on private
pay also showed over 50 percent of respondents provided services
covered by public payers such as Medicare, Medicaid, and the
Veterans Administration (CSES).
---------------------------------------------------------------------------
Consumer-Directed Models
Under the consumer-directed models, the consumer or his/her
representative has more control than in the agency-directed model over
the services received, as well as when, how, and by whom the services
are provided. Some consumer-directed services are purchased privately--
that is, out-of-pocket or with private long-term care insurance;
however, most consumer-directed services are paid with public funds,
primarily Medicaid waiver and state plan programs.\82\ The following
discussion provides an overview of Medicaid-funded consumer-directed
programs.
---------------------------------------------------------------------------
\82\ ``Growth and Prevalence of Participant-Direction: Findings
from the National Survey of Publicly-Funded Participant-Directed
Services Programs, by Mark Sciegaj and Isaac Selkow, available at
http://web.bc.edu/libtools/details.php?entryid=340.
---------------------------------------------------------------------------
There are two distinct types of Medicaid-funded ``consumer-directed
services'' programs: ``employer authority'' and ``budget authority''.
The ``employer authority'' model gives consumers and their
representatives choice and control only with respect to the employment
of ``independent providers'' of direct care in the consumer's home. The
``budget authority'' model gives consumers a ``budget'' (usually a
monthly allowance, but unspent funds may be carried month-to-month
within the year) that may be used to purchase a range of goods and
services of the consumer's choosing that include, but are not limited
to, human assistance from directly hired workers, and other goods and
services that may include, for example, assistive devices, home
modifications, home-delivered meals, and transportation.\83\
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\83\ Doty, P., Mahoney, K.J. & Sciegaj, M. 2010 (January). New
State Strategies to Meeting Long-term Care Needs. Health Affairs, 29
(1) 49-56.
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Both models permit self-directing consumers and/or their
representatives (usually family caregivers) to hire/fire, schedule, and
supervise individual independent providers (direct care workers) to
provide home care. The direct care workers are often recruited from
among existing networks of the consumer's family, friends, and
neighbors. In addition, consumers train or participate in training the
direct care workers they employ. They also participate in paying their
direct care workers, most typically by co-signing their direct care
workers' timesheets before they are submitted to the public program for
payment, certifying that the work was performed in accordance with the
information on the timesheet, which serves as the direct care worker's
bill or claim for reimbursement. The budget authority model differs
from the employer authority model primarily in giving consumers more
flexibility to determine how many hours of direct care service they
wish to obtain and to make agreements directly with their direct care
workers regarding hourly wages and benefits, so long as the cost of
consumer-directed home care services does not exceed the amount of
funds available in the consumer's budget.
The budget authority model of consumer direction is often referred
to colloquially as ``cash and counseling'', based on the name of
former, special, time-limited Medicaid research and demonstration
(``1115'') waiver programs. These and subsequent programs based on the
cash and counseling model are now fully integrated into the Medicaid
programs in their respective states and operate under ongoing state
plan or HCBS waiver authority, and some states have incorporated
elements of budget authority consumer direction in programs funded by
CMS' Money Follows the Person grants to states. Other HCBS programs
that rely exclusively or primarily on public funding sources other than
Medicaid have also incorporated consumer-directed options patterned
after original cash and counseling programs.
Although consumer-direction of HCBS is not new,\84\ a number of
developments greatly spurred growth in consumer-directed services
programs in the 2000s. Medicaid-funded budget authority consumer-
directed programs did not exist until the first three Cash & Counseling
demonstration programs (in Arkansas, Florida, and New Jersey) began in
the late 1990s. Favorable evaluation findings from these early
demonstration programs led to changes to Medicaid law, regulation, and
policy specifically designed to facilitate and encourage states to
offer budget authority consumer-directed services
[[Page 60516]]
options.\85\ In addition, Older Americans Act funding for the National
Family Caregiver Support program provided an impetus to consumer-
directed services that allow family caregivers more choice and control
in accessing respite services.\86\
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\84\ California's In-Home Supportive Services program, which
currently has 440,000 participants, began in 1973, and other sizable
programs in Washington, Oregon, Michigan, and Massachusetts began in
the late 1970s or early 1980s.
\85\ Doty, Mahoney and Sciegaj, Health Affairs, January 2010.
\86\ Feinberg, L. & Newman, S. (2005). Consumer Direction and
Family Caregiving: Results from a National Survey, State Policy in
Practice. Available at: http://www.hcbs.org/files/79/3926/ConsumerDirection&FamilyCaregivingNWEB.pdf. Feinberg, L. et al.
(2004). The State of the States in Family Caregiver Support: A 50-
State Study. San Francisco, CA: Family Caregiver Alliance. Available
at: http://www.caregiver.org/caregiver/jsp/content_node.jsp?nodeid=1276.
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A major characteristic of consumer-directed services programs is
that they permit public program participants to hire direct care
workers who are family members, friends, and neighbors and research has
found that most consumers choose to recruit direct care workers who are
relatives or individuals with whom they were previously acquainted. A
minority of consumers in consumer-directed programs locate individuals
known to them who are seeking work as providers of home care services
via referrals from worker registries, through newspaper ads, or through
internet social media and advertising sites.
According to the comment from the California State Association of
Counties (CSAC), County Welfare Directors Association of California
(CWDA), California Association of Public Authorities for In-Home
Supporting Services (CAPA) and California IHSS Consumers Alliance
(CICA) on the NPRM, approximately 70 percent of all IHSS providers in
California are family members of the consumer.\87\ Research projects
conducted by HHS also show that consumers often hire their family
members as direct care workers. For example, in the original Cash &
Counseling Demonstration programs, 58 percent of directly hired workers
in Florida, 71 percent in New Jersey, and 78 percent in Arkansas were
related to the consumer. About 80 percent of those directly hired
workers had provided unpaid care to the consumer before the
demonstration began and continued to provide additional unpaid care
after becoming paid workers.\88\ In addition, since the passage of the
National Family Caregiver Support Program enacted under the Older
Americans Act Amendments of 2000, Medicaid and other state-funded
programs have provided the bulk of public financing to support family
caregiving.\89\ A survey of state consumer-directed and family
caregiving programs found that:
---------------------------------------------------------------------------
\87\ WHD-2011-0003-9420
\88\ U.S. Department of Health and Human Services. (2005).
Experiences of Workers Hired Under Cash and Counseling: Findings
from Arkansas, Florida and New Jersey. Available at: http://aspe.hhs.gov.daltcp/reports/workerexp.pdf.; Foster, Leslie, Dale,
Stacy B.& Brown, Randall S. 2007 (February). How Caregivers and
Workers Fared in Cash and Counseling. Health Services Research 42(1)
Part II: 510-532.
\89\ Feinberg, L. & Newman, S. (2005). Consumer Direction and
Family Caregiving: Results from a National Survey, State Policy in
Practice. Available at: http://www.hcbs.org/files/79/3926/ConsumerDirection&FamilyCaregivingNWEB.pdf. Feinberg, L. et al.
(2004). The State of the States in Family Caregiver Support: A 50-
State Study. San Francisco, CA: Family Caregiver Alliance. Available
at: http://www.caregiver.org/caregiver/jsp/content_node.jsp?nodeid=1276.
---------------------------------------------------------------------------
Over one-half (86 out of 150, or 57 percent) of the
programs in 44 states and the District of Columbia allow family members
to be paid to provide care. Only six states (Alaska, Delaware,
Mississippi, Nevada, Pennsylvania, and Tennessee) did not allow
payments to family members in any of their programs at the time of the
study.\90\
---------------------------------------------------------------------------
\90\ Feinberg & Newman, 2005. p. 8.
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Of the 86 programs that allow relatives to be paid
providers, 73 percent allow family members to provide personal care, 70
percent allow family members to provide respite care, 20 percent allow
family members to act as homemakers or do chores, and 6 percent allowed
family members to provide any service needed.\91\
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\91\ Feinberg & Newman, 2005. p. 8.
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Some programs place restrictions on what type of family
members are allowed to be paid providers. Among these 86 programs, 61
percent do not permit spouses to be paid providers, while others do not
permit parents/guardians (37 percent), primary caregivers (18 percent),
legal guardians (8 percent), children 18 and under (6 percent), or
other relatives (4 percent).\92\
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\92\ Feinberg & Newman, 2005. p. 9.
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As noted in the research, while many consumer-directed programs
allow paid family caregivers, some consumer-directed programs place
restrictions on the employment of relatives. Such restrictions are
usually limited to prohibiting paid caregivers who are ``legally
responsible'' relatives--that is, those who may have financial
obligations to public program participants (consumers) under state
laws, such as spouses, parents of minor children, and guardians,
especially when their income could be counted in determining the
program participant's future eligibility for means-tested public
benefits.
Of those states that offer Medicaid-funded consumer-directed
services, some have implemented a ``public authority'' design. The
public authority design applies to both the employer authority and
budget authority models of consumer-directed programs. Under the public
authority design, the public authority or some other governmental or
quasi-governmental entity (often termed a ``home care quality
commission'' or ``workforce council'') plays a role in setting
compensation and providing other benefits of employment for the direct
care worker, who is compensated by public funds. In an effort to
connect participants in consumer-directed programs with direct care
workers, some states and public authorities have created matching
registries. While use of these registries is voluntary on the part of
consumers and direct care workers, these systems provide some insight
into how consumers identify care providers to meet their needs.
Depending on the registry, consumers can either search the worker
database online, or speak to trained staff who conduct the search and
report the results to the consumer. Some registries may also offer
worker screening and orientation, access to consumer and worker
training, and recruitment and outreach to potential workers.\93\ Others
stipulate that providers in the database have not been pre-screened in
any way and such responsibilities lie with the consumer. The Department
also identified private sector registries that operate under a number
of models. For example, one not-for-profit registry \94\ recruits,
screens, and checks the references of local care providers, but the
care workers are self-employed and work as independent providers. Other
private sector entities refer to themselves as
registries,95 96 97 98 but appear to be operated under an
agency or quasi-agency model, with the consumer paying the company a
weekly or bi-weekly registry fee in addition to paying the direct care
worker, or with the company receiving some portion of the direct care
worker's hourly rate.
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\93\ PHI, 2011a. The PHI Matching Services Project. Available
at: http://phinational.org/policy/the-phi-matching-services-project/.
\94\ Meals on Wheels and Senior Outreach Services. (2011). Home
Care Registry. Available at: http://www.mowsos.org/about-us/.
\95\ Experienced Home Care Registry. (2011). About Us. Available
at: http://www.experiencedhomecare/about-experienced-home-care/.
\96\ Angelic Nursing & Home Care Registry, Inc. (2011). Home
Care Services for Seniors in Tolland and Hartford Counties in
Connecticut. Available at: http://www.linkedin.com/company/angelic-nursing-&-home-health-care-services-registry-inc-.
\97\ Golden Care Co. Inc. 2011. Billing Policy. Available at:
http://www.goldencareco.com/.
\98\ American HealthCare Capital. (2011). $1.5 Million Oregon
Private Pay Homecare Registry for Sale. Available at: http://www.americanhealthcarecapital.com/listings/completed-listings/.
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The public authority or other governmental or quasi-governmental
[[Page 60517]]
entity acts as the ``employer-of-record'' of consumer-directed workers
for the purpose of engaging in collective bargaining with a union
representing consumer-directed workers. Direct care workers in this
system have the option to select representatives for collective
bargaining with the state. Direct care workers providing services to
consumers through consumer-directed programs in states such as
California, Washington, Oregon, Illinois, and Massachusetts have
collective bargaining rights. In those states, unions may engage in
collective bargaining with the state over wages and benefits for
workers whose wages and benefits are paid for with Medicaid funding. In
other states, unionization of consumer-directed home care workers has
been authorized by the legislature and the process is underway but
collective bargaining over Medicaid provider rates has not yet been
implemented.\99\ In some states with consumer-directed programs,
consumer-directed home care workers do not have collective bargaining
rights.
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\99\ Seavey and Marquand, 2011, p. 28. WHD-2011-0003-3514.
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
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Funding Sources
There are a variety of different funding sources for provision of
home care services of all types. Table 5 provides an overview of these
funding sources, consumer eligibility requirements, and types of home
care services covered. Public funding sources such as Medicare and
Medicaid provide a majority of the reimbursement for services.\100\ In
2009, Medicare and Medicaid accounted for 73 percent of home care
services revenue, followed by 14 percent from private insurance
coverage, 4 percent from consumers paying out-of-pocket, and the
remaining 8 percent contributed by a mix of other sources.\101\
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\100\ Congressional Research Service. Memorandum dated February
21, 2012, titled ``Extending Federal Minimum Wage and Overtime
Protections to Home Care Workers under the Fair Labor Standards Act:
Impact on Medicare and Medicaid,'' p. 4. WHD-2011-0003-5683.
\101\ Seavey and Marquand, 2011, p. 23. WHD-2011-0003-3514. Also
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
Table 5--Summary of Home Care Service Payers and Service Coverage
----------------------------------------------------------------------------------------------------------------
Home care service
Payer Description Eligibility coverage
----------------------------------------------------------------------------------------------------------------
Public
----------------------------------------------------------------------------------------------------------------
Medicare............................. Federal government Individual is under the Intermittent skilled
program to provide care of a doctor and nursing care, physical
health insurance receiving services therapy, speech-
coverage, including under plan of care; language pathology
home health care, to has a certified need services, continued
eligible individuals for intermittent occupational therapy.
who are disabled or skilled nursing care,
over age 65. physical therapy,
speech-language
pathology services,
continued occupational
therapy; and must be
homebound.
The program pays a HHA providing services Does not cover 24 hr/
certified home health is Medicare-certified; day care at home;
agency for a 60 day services needed are meals delivered to
episode of care during part-time or home; homemaker
which the agency intermittent, and are services when it is
provides services to required <7 days per only service needed or
the beneficiary based week or <8 hours per when not related to
on the physician day over 21 day period. plan of care; personal
approved plan of care. care given by home
health aides when it
is only care needed.
Medicaid............................. A joint federal-state Eligibility and Coverage of home health
medical assistance benefits vary by services must include
program administered state. In general, part-time nursing,
by each state to states provide health home care aide
provide coverage for care coverage to low services, medical
low income income families with supplies and
individuals.. dependent children; equipment. Optional
pregnant women; state coverage may
children; and aged, include audiology;
blind and disabled physical,
individuals. Beginning occupational, and
in 2014, states have speech therapies; and
the option to extend medical social
coverage to additional services.
non-elderly low-income
individuals.
The program pays home States also have the Coverage is provided
health agencies and option to provide home under: Medicaid Home
certified independent and community-based Health, State Plan
providers. services to Personal Care Services
individuals who meet benefit, and Home and
eligibility for Community-Based state
institutional care or plan services and
meet state-defined waivers.
criteria based on need.
Older Americans Act.................. Provides federal Must be 60 yrs of age Home care aides,
funding for state and or older. personal care, chore,
local social service escort, meal delivery,
programs that provide and shopping services.
services so that
frail, disabled, older
individuals may remain
independent in their
communities.
Department of Veterans Affairs....... Home health care All enrolled Veterans Interdisciplinary Home
services provided by and Veterans who can Based Primary Care,
VA employees and receive outpatient Skilled home health
contractors. care without care services, home
enrollment. hospice and palliative
care, home respite,
and homemaker and home
health aide services.
Social Services Block Grant.......... Federal block grants to Varies by state........ Often includes program
states for state- providing home care
identified service aide, homemaker, or
needs. chore worker services.
[[Page 60518]]
Community organizations.............. Some community Varies by program...... Covers all or a portion
organizations provide of needed services.
funds for home health Vary by program.
and supportive care.
----------------------------------------------------------------------------------------------------------------
Private
----------------------------------------------------------------------------------------------------------------
Commercial Health Insurance Companies Many policies cover Varies by policy....... Varies by insurance
home care services for policy.
acute, and less often,
long-term needs.
Supplemental Insurance............... May cover some personal Varies by policy; not
care services when a required for standard
Medicare beneficiary Medigap insurance.
is receiving covered
home health services.
Private pay.......................... The individual Individuals who are not Services that do not
receiving the services eligible for covered meet the eligibility
pays ``out of services under third criteria of other
pocket.'' party public or payers.
private payers.
----------------------------------------------------------------------------------------------------------------
Sources: National Association for Home Care. 1996. Who Pays for Home Care Services? Available at: www.nahc.org/consumer/wpfhcs.html; Centers for Medicare and Medicaid Services (CMS). Medicare and Home Health Care.
Available at: http://www.medicare.gov/publications/pubs/pdf/10969.pdf.
Industry commenters (NPDA, IFA) suggest that Medicare covers little
provision of companionship services. However, the Department believes
the key to understanding Medicare reimbursement of these types of
services lies not in the ``does not cover'' statements in the Table 5
summaries, but rather in the qualifying clauses that clarify that
Medicare does not reimburse: ``homemaker services when it is only
service needed or when not related to plan of care; personal care given
by home health aides when it is only care needed'' [emphasis added].
Analysis of the 2009 Medical Expenditure Panel Survey (MEPS) showed
that of 14.4 million home care episodes paid for by Medicare (and no
Medicaid), the consumer received care from an HHA, PCA, Companion or
Homemaker in 6.1 million episodes (42.5 percent).\102\ As noted above,
the workers performing this work may be classified as exempt from the
FLSA's minimum wage and overtime compensation requirements under the
current companionship services exemption. Although the percent of care
provided by these workers during each episode cannot be determined from
MEPS, the Department believes these data are sufficient to show that
services frequently provided by direct care workers commonly classified
as ``Companions'' (who may meet the current companionship exemption)
may be included in a Medicare-covered episode of care in certain
circumstances though provision of such services is not separately
billed or paid by Medicare.
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\102\ For Medicaid with no Medicare, MEPS shows 5.04 of 8.71
million episodes (57.9 percent) of home care utilized an HHA, PCA,
Companion or Homemaker; for consumers paying any out-of-pocket for
home care, 1.05 of 4.19 million episodes (25 percent) used at least
one of those categories of workers.
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In 2012, HHS outlays for Medicare programs were projected to total
$591 billion and HHS and state outlays in support of Medicaid totaled
$459 billion. Under Medicare, an estimated $34.1 billion went to home
health programs.\103\ Medicaid expenditures on home care programs are
concentrated in three types of programs: State Home Health, State
Personal Care Services (PCS), and Home and Community-Based Services
(HCBS) 1915(c) waiver programs. In 2009, Medicaid spent approximately
$50.0 billion of $374 billion in total expenditures on these programs,
including $5.3 billion on Home Health, $11 billion on PCS, and $33.7
billion on HCBS waiver programs.104 105 Thus, payments for
home care programs composed approximately 6 percent of Medicare
spending, and about 13 percent of Medicaid spending.
---------------------------------------------------------------------------
\103\ Centers for Medicare and Medicaid Studies, Office of the
Actuary, National Health Expenditure Projections, 2011-2021.
Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
\104\ Detailed Medicaid data by type of home care are not yet
available past 2009.
\105\ Kaiser commission on Medicaid and the Uninsured. 2012
Medicaid Home and Community-Based Services Programs: 2009 Data
Update.
Note, not all of the HCBS goes to personal care services; a more
detailed breakdown of this spending is not available. For additional
data, see Kaiser Family Foundation, State Health Facts, p. 2: http://kaiserfamilyfoundation.files.wordpress.com/2013/01/7720-06.pdf.
Centers for Medicare and Medicaid Studies, Office of the Actuary,
National Health Expenditure Projections, 2011-2021.
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Both Medicare and Medicaid pay the service provider directly. The
Medicare program uses a prospective payment system (PPS) to reimburse
home health agencies a pre-determined base payment for an episode of
care; this base payment is adjusted for the condition and needs of the
beneficiary as well as geographic variation in wages.\106\ Under
Medicaid, the state agency implementing the program pays the service
provider directly except under certain consumer-directed programs.
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\106\ For additional detail see Center for Medicare & Medicaid
Services (CMS). 2011a. Home Health PPS. Available at: http://www.cms.gov/HomeHealthPPS/.
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The Medicare and Medicaid programs also work together to provide
services for a group of consumers referred to as ``dual eligibles,''
that is, consumers that are eligible for both Medicare and Medicaid
coverage. Studies have found that individuals covered by both Medicare
and Medicaid are among the most expensive groups to cover and are more
likely to use more Medicare-covered home care services than Medicare
home care consumers not also covered by Medicaid. Also, states with low
Medicaid spending appear to shift costs to the Medicare home care
program spending.\107\ Most of the public matching registries are
funded by the state, with a few receiving federal dollars through
reimbursement for Medicaid administrative costs or receiving initial
funding through federal Medicaid Systems Transformation grants.\108\
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\107\ Center for Medicare & Medicaid Services (CMS). 2011b. Home
Health Study Report: Literature Review, pg.16. Available at: http://www.cms.gov/HomeHealthPPS/Downloads/HHPPS_LiteratureReview.pdf.
\108\ Seavey & Marquard, 2011.
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Just focusing on raw percentages of services paid through public
funding, however, obscures an important characteristic of private pay
account
[[Page 60519]]
home care, i.e., that any single episode of home care service
utilization appears to be paid almost completely by a single payer. The
Department found that data from MEPS provided insight into this issue.
MEPS is a set of large-scale surveys of families and individuals, their
medical providers, and employers across the United States published by
AHRQ. MEPS collects data on the specific health services that Americans
use, how frequently they use them, the cost of these services, and how
they are paid for, as well as data on the cost, scope, and breadth of
health insurance held by and available to consumers. The Home Health
section of the survey asks whether: (1) The care was medical or non-
medical; (2) the direct care worker was from an agency, an independent
provider, or an informal direct care worker; (3) the care resulted from
specific or general health problem (including ``old age''); (4) the
consumer received care associated with activities of daily living or
personal care; and (5) the direct care worker provided companionship.
The Department therefore believes that private pay home care services
provided by private pay agencies are captured by this survey.
In MEPS the Department found that of 9.8 million episodes of care
for which Medicaid paid any amount, Medicaid paid for almost 94 percent
and Medicare paid for almost 6 percent of all expenditures; less than 1
percent of expenditures were paid for by other sources. Similarly, of
the 14.4 million episodes of care for which Medicare paid some amount
(after excluding those episodes for which Medicaid was paid), Medicare
paid for over 97 percent of expenditures. Although only 3.2 million
episodes of home care were paid for primarily out-of-pocket (after
excluding episodes in which any part of expenditures were paid by
Medicare or Medicaid), almost 99 percent of expenditures on those
services were paid out-of-pocket.\109\
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\109\ ERG analysis of MEPS data. Agency for Healthcare Research
and Quality (AHRQ). Medical Expenditures Panel Survey. 2009.
Available at: http://meps.ahrq.gov/mepsweb/data_stats/download_data_files.jsp. Accessed March, 2012.
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This pattern of payments affects the impact of increased costs
resulting from this rule on the providers (e.g., agencies and
independent providers) and consumers of home care services. To the
extent that providers' costs increase, but Medicare and Medicaid
reimbursement rates do not increase, part of the impact may be incurred
by the providers in the form of a smaller profit margin for these
services. Consumers paying out-of-pocket, however, might be more
sensitive to a rate increase because the individual pays the entire
amount, and the provider risks inducing a reduction in demand for its
services. The majority of the direct care workers documented in the
MEPS data are agency-employed, and the agency would not be able to
claim the exemption under the Final Rule; however, in the event that
the consumer has selected an independent provider as the direct care
worker, the worker would continue to be considered exempt, provided the
direct care worker meets the duties requirements for the exemption, and
therefore the consumer may not experience an increase in costs.
E. Direct Care Workers
This section provides an estimate of the total number of direct
care workers who may be impacted by the Final Rule as well as the
characteristics of these workers, the services they provide, and the
wages they receive for their work.
Number of Affected Workers
The workers who will be directly affected by the change to the
companionship exemption are concentrated in two occupations: Home
Health Aides (SOC 31-1011) and Personal Care Aides (39-9021). These
workers are concentrated in two industries: Home Health Care Services
(NAICS 6216) and Services for the Elderly and Persons with Disabilities
(NAICS 62412).
These workers are predominantly women in their mid-forties or
older, minorities, with a high school diploma or less education but
this varies highly by region. A similar percentage of PCAs are Black
and Hispanic (22 percent and 18 percent, respectively), but a much
higher percentage of HHAs are Black (35 percent) than Hispanic (8
percent). One in four (23 percent) PCAs are foreign-born, with higher
percentages (over 45 percent) in certain regions of the country, e.g.,
California and New York. California also has a high percentage of
direct care workers who are paid family members.\110\
---------------------------------------------------------------------------
\110\ Seavey and Marquand, 2011, pgs. 11 and 29. WHD-2011-0003-
3514. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
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Direct care workers are called by a variety of titles, including:
Home health aides, home care aides, personal care aides, personal
assistants, home attendants, homemakers, companions, personal care
staff, resident care aides, and direct support professionals. They are
tracked by the following occupational titles.\111\
---------------------------------------------------------------------------
\111\ BLS. 2011. Standard Occupational Classification, available
at: http://www.bls.gov/soc/home.htm.
---------------------------------------------------------------------------
Personal Care Aides (SOC 39-9021): ``Assist the elderly,
convalescents, or persons with disabilities with daily living
activities at the person's home or in a care facility. Duties performed
at a place of residence may include keeping house (making beds, doing
laundry, washing dishes) and preparing meals. May provide assistance at
non-residential care facilities. May advise families, the elderly,
convalescents, and persons with disabilities regarding such things as
nutrition, cleanliness, and household activities.'' The BLS does not
have a separate SOC for ``Companions, elderly''; they are classified as
PCAs.
Home Health Aides (SOC 31-1011): ``Provide routine individualized
healthcare such as changing bandages and dressing wounds, and applying
topical medications to the elderly, convalescents, or persons with
disabilities at the patient's home or in a care facility. Monitor or
report changes in health status. May also provide personal care such as
bathing, dressing, and grooming of patient.''
Companionship services as defined in this Final Rule are separate
from the services provided by home health and personal care aides as
defined by BLS above and outlined in detail below. For the reasons
described in the summary of public comments, throughout this analysis
the Department refers to HHAs and PCAs when referring to the workers
that fit the occupational definitions above, and uses the more general
term ``direct care workers'' to refer to the broader group of workers
(e.g., HHAs, PCAs, and companions) providing the types of services
described above.
The Department uses BLS' employer-based OES estimates of the number
of workers in the HHA and PCA occupational categories as its best
estimate of the number of direct care workers employed by agencies that
might be affected by the Final Rule. There were approximately 1.75
million direct care workers employed by agencies in 2011, composed of
924,700 HHAs, and
820,600 PCAs.\112\
---------------------------------------------------------------------------
\112\ 2011 BLS Occupational Employment Survey, employment and
wages for SOC codes 39-9021 and 31-1011.
These data do not include workers providing these services as
independent providers who may be affected by the Final Rule. As
---------------------------------------------------------------------------
described above, the Department determined that an estimated additional
24,000 HHAs, and
158,700 PCAs \113\
---------------------------------------------------------------------------
\113\ BLS, NEM 2010, adjusted to reflect 2011 values.
[[Page 60520]]
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can be considered independent providers directly employed by families.
Thus, we estimate
948,600 HHAs, and
979,300 PCAs
for a total of 1.93 million direct care workers who might be affected
by the Final Rule.
However, not all 1.93 million of these HHAs and PCAs are employed
as FLSA-exempt companions, and some of these workers are already
covered by minimum wage and overtime provisions at the state level.
Many of these workers are employed at agencies that provide a variety
of health-related services that may or may not be provided in the home;
HHAs and PCAs employed in facilities, such as nursing homes and
hospitals, are not engaged in domestic service employment and cannot be
classified as providing companionship services. Furthermore, HHAs and
PCAs who work in the home might be employed to perform services that
fall outside the definition of companionship services, and therefore,
do not qualify for the companionship services exemption. As will be
discussed in further detail below, direct care workers in these
occupational classifications provide a similar range of services, but
the services provided by any specific direct care worker vary in
emphasis and intensity depending on the specific job or consumer. Thus,
this category of direct care worker might best be thought of as
providing a mix of services along a continuum ranging from one end of
the spectrum that focuses more on medicalized care, to the opposite end
that might consist primarily of providing fellowship and protection.
Those direct care workers at the more medicalized end of the spectrum
may not be performing services considered to be companionship services
and might not currently be employed under the companionship services
exemption (although the case law interpreting the current exemption
allows for the performance of significant medical duties). Thus, the
Department considers the category of direct care workers used as the
basis for this analysis, composed of HHAs and PCAs employed in the
home, as an upper-bound estimate of the number of direct care workers
employed as companions. An unknown, but potentially significant,
percentage of these workers are not currently employed under the
existing companionship exemption and will not be affected by this
rulemaking. The Department will estimate the number of workers directly
affected by both the minimum wage and overtime compensation provisions
of the Final Rule.
While many agency-employed direct care workers might work in
various facilities that make them ineligible for the FLSA companionship
services exemption, there is little information available concerning
independent providers, particularly independent providers who provide
services to consumers in consumer-directed programs. Because these
sometimes informal arrangements are made directly between the consumer
and the direct care worker/independent provider, there are limited data
on the total number of consumers and limited information on the total
number of providers. The Department estimated the number of independent
providers in 2011 using BLS National Employment Matrix (NEM) data for
2010 and inflating the values to reflect 2011 (the base year in the
model). Approximately 92,200 PCAs (10.3 percent) are employed in
private households and 66,500 (7.4 percent) are self-employed, for a
total of 158,700 workers (17.7 percent) who may provide services as
independent providers.\114\ Fewer HHAs are employed in this manner,
with 3,600 (less than one percent) working for private households and
20,300 (about two percent) who are self-employed for a total of
approximately 23,900 (2.2 percent) workers who may provide services as
independent providers. Combining the data for HHAs and PCAs suggests
that 182,600 of these workers (9.5 percent) may be either self-employed
or employed in private households. The Department believes that these
workers can reasonably be described as independent providers who
provide direct care worker services to individuals or families.
---------------------------------------------------------------------------
\114\ BLS, 2010, projected to reflect 2011 employment.
---------------------------------------------------------------------------
However, it is likely that not all independent providers of home
care are captured in the NEM. For example, in its comment on the
proposed rule, the National Resource Center for Participant-Directed
Services (NRCPDS) cited a study of 298 publicly funded participant-
directed programs serving approximately 810,000 people.\115\ The study
found that California accounted for 59 percent of enrollments in
participant-directed programs. The study did not provide information on
the number of direct care workers, including independent providers, of
publicly-funded home care employed by these program participants;
however, this number is undoubtedly larger than the BLS estimate of
independent providers of home care employed in private homes, which was
not restricted to those whose services were purchased with public
funds. As discussed in detail below, to the extent that data on direct
care workers, other than that included in the OES or NEM was made
available to the Department, we have revised the analysis of the number
of direct care workers in an attempt to better reflect direct care
workers providing services through consumer-directed programs. The
Department assumes that all HHAs and PCAs classified in the NEM as
self-employed or employed by households are independent providers
directly employed by the family, meet the requirements for exemption,
and are thus by assumption currently exempt from the FLSA's minimum
wage and overtime compensation requirements.
---------------------------------------------------------------------------
\115\ WHD-2011-0003-9474; ``Growth and Prevalence of
Participant-Direction: Findings from the National Survey of
Publicly-Funded Participant-Directed Services Programs, by Mark
Sciegaj and Isaac Selkow, available at http://web.bc.edu/libtools/details.php?entryid=340.
---------------------------------------------------------------------------
Tasks, Wages, Hours
The Final Rule defines companionship services to include
fellowship, protection, and care, defined as a limited amount of
assistance with activities of daily living and instrumental activities
of daily living.
Fellowship means ``to engage the person in social,
physical, and mental activities, such as conversation, reading, games,
crafts, or accompanying the person on walks, on errands, to
appointments, or to social events.'' Fellowship services are typically
not covered by public programs.
Protection means ``being present with the person in their
home or to accompany the person when outside of the home to monitor the
person's safety and well-being.'' Some states reimburse specific types
of consumers (i.e., those living with mental disabilities) for
protection services.
Care means to assist the person with activities of daily
living (such as dressing, grooming, feeding, bathing, toileting, and
transferring) and instrumental activities of daily living, which are
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).
Since enactment of the companionship services exemption, the
spectrum of tasks performed by workers for whom the exemption is
claimed has expanded to include: Activities of daily living (ADLs),
instrumental activities of daily living (IADLs), and paramedical
[[Page 60521]]
(``medicalized'') tasks.\116\ Paramedical tasks may include tasks such
as changing of aseptic dressings, administration of non-injectable
medications (e.g., blood pressure medication in tablet form); \117\ and
ostomy, catheter and bowel hygiene.
---------------------------------------------------------------------------
\116\ Seavey and Marquand, 2011, pg. 7. WHD-2011-0003-3514,
http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
\117\ Administration of an injectable medication is a medical
task generally performed by workers with additional training in
medical tasks, such as Certified Nurse Assistants (CNAs).
---------------------------------------------------------------------------
As mentioned above, the Department believes the services provided
by these direct care workers can best be thought of as existing along a
continuum; the Department found data in MEPS which supports this view
of the tasks currently classified as companionship services. MEPS shows
that of the estimated 6.3 million individuals receiving home care
services in 2009, 92 percent (5.8 million) received care from agency-
provided direct care workers. Of these consumers, 37 percent received
care from HHAs, 9.7 percent from PCAs, and 3.8 percent from
``Companions'' (MEPS uses job titles rather than SOCs for the survey).
In describing the services provided by these direct care workers, it
was difficult to distinguish major differences between types of
workers. For example:
100 percent of those receiving care from Companions
received ``companionship services,'' about 53 percent of those
receiving care from HHAs and PCAs also received such services from
their HHA or PCA.
90 percent of those receiving care from PCAs received help
with daily activities from their PCA; 71 percent receiving care from
Companions also received help with daily activities from their
Companion.
45 percent of those receiving care from HHAs received
medical treatment from their HHA, 20 percent receiving care from
Companions also received medical treatment from their Companion.
22 percent of those receiving care from a Companion
received services such as homemaking from their Companion; 7 percent of
those receiving care from a PCA also received such services from their
PCA.
Therefore, the Department believes those employed under the job
titles of HHA, PCA, and Companion (hereafter described as direct care
workers for consistency with the remainder of the document) are best
considered as providing a mix of services along a continuum ranging
from more medicalized care at one end of the spectrum, to the opposite
end that might consist primarily of providing fellowship and
protection.
While HHAs and PCAs overlap in the type of services they provide,
it is primarily HHAs who are employed by Medicare-certified agencies
who may be asked to perform paramedical tasks. Those workers are
required by Medicare to be trained and certified to perform these types
of tasks.
Generally speaking, a home health aide or agency is authorized to
provide a specific number of hours of service to consumers depending on
their needs in the case of public funding, or agrees to provide a
specific number of hours of service in the case of private pay.
Agencies work to schedule direct care workers to cover the number of
hours needed for the portfolio of cases they have, often taking into
account continuity of service to each recipient, total number of hours
each worker is scheduled per week, frequency of weekend services
needed, and the distance between the direct care worker's home
residence and the consumer's residence.
In the home care industry, agencies may offer to provide services
seven days a week and 24 hours a day. One survey indicated private pay
agencies provide 24-hour or live-in care to 10 percent of their
consumers.\118\ This type of schedule is frequently staffed using 12-
hour shifts, 24-hour shifts, or by having the direct care worker live
in the consumer's home. These cases are of particular concern with
respect to overtime. A 12-hour case is a consumer who requires services
to be provided by a direct care worker for a 12-hour block of time; a
24-hour case is a consumer who requires a direct care worker to be
present to provide services around the clock. The key scheduling
concerns that agencies contend exist with these cases are that:
---------------------------------------------------------------------------
\118\ See, for example, IHS Global Insight (IHSGI). 2012.
Economic Impact of Eliminating the FLSA Exemption for Companionship
Services. WHD-2011-0003-8952. However, this analysis is based on a
survey administered by IHSGI on behalf of the International
Franchise Association in response to the NPRM; the survey was
received by those private pay franchisees belonging to the 9
franchise chains that facilitated the survey, and response was
voluntary. Therefore it is impossible to determine whether the
responses are representative of the industry as a whole, or the
degree of response bias. The survey represents the work patterns for
at least one group of agencies in this industry; it simply cannot be
determined how representative the responses are for the entire
industry.
---------------------------------------------------------------------------
It is difficult to redistribute overtime hours to workers
with fewer hours because workers are scheduled to work in lengthy
shifts (up to 24 hours);
Direct care workers are typically paid an hourly rate, and
the employer would be required to pay an hourly overtime premium when
applicable; however, Medicaid and other payers often reimburse agencies
for these cases on a flat rate that does not account for overtime
premiums or other costs;
24-hour shifts usually include a five- to eight-hour
period to allow the worker to sleep while on site; however, the aide is
not necessarily off-duty because s/he would be expected to assist the
consumer if an urgent need arose. If the agency is required to count
sleep hours toward the total number of hours worked per week then it
may become costly to provide 24-hour care.
Because of the intimate nature of providing such services
in the consumer's home, consumers prefer having a single or a small
number of direct care workers. This limits the ability of agencies to
avoid paying overtime premiums by having more staff work fewer hours.
In addition, having too many direct care workers can reduce continuity
of care for the consumer; on the other hand, having too few direct care
workers may also result in reduced continuity of care if one of those
direct care workers becomes unavailable.
Private pay agencies have developed a two-tier pricing structure to
make 24-hour private pay care cost competitive with nursing home care.
Consumers may choose between paying for service on an hourly basis or
pay a single flat rate for 24-hour care. According to the IHSGI survey,
direct care workers are paid on average $9.87 per hour or $133 for 24
hours under the flat rate. The Department estimates that agencies
charge consumers about $18.30 per hour for hourly service, and about
$250 under the 24-hour flat rate.\119\ According to the MetLife Market
Survey of Long-Term Care Costs, the average private room nursing home
rate in 2011 was about $240 per day.\120\ Although it is reasonable to
assume that consumers are willing to pay a premium to be able to stay
in their homes, these results indicate that private pay agencies face
constraints concerning how much they can increase their rates without
having consumers choose to switch to a nursing home.\121\ This affects
a small minority of
[[Page 60522]]
consumers. Based on the IHSGI survey, less than 10 percent of consumers
cared for by survey respondents receive 24-hour home care. Indeed, 65
percent require less than 40 hours of care per week.
---------------------------------------------------------------------------
\119\ The Department multiplied the reported pay rates by the
ratio of revenues to wages from Home Care Pulse, 2011. We were able
to confirm that the hourly rates were approximately the right
magnitude from the MetLife Market Survey of Long-Term Care Costs
(MetLife Mature Market Institute. October 2011).
\120\ MetLife, 2011.
\121\ Conversely, this does raise the question as to what
percent of consumers need 24-hour care to remain in their homes.
With the two-tier pricing structure, there is a discontinuity in the
demand curve: for 13 hours of care or less, it is cheaper to use the
hourly rate; for more than 13 hours of care it is cheaper to opt for
24-hour care under the flat rate.
---------------------------------------------------------------------------
To add to the complexity of concerns about the size of potential
overtime premiums when the consumer needs 24-hour care 7 days a week,
industry publications and comments on the NPRM appear to use the terms
``24-hour'' and ``live-in'' synonymously. However, these terms have
precise and separate meanings under the FLSA, and very different
implications for overtime compensation. Under the general FLSA
requirements:
Employees on duty for periods of 24 hours or more may have
bona fide scheduled sleeping periods of not more than 8 hours excluded
from hours worked (with certain additional criteria concerning
conditions, including that the employee must be able to get at least 5
hours of sleep). Thus, an employee on a shift of 24 hours or more might
be eligible to be paid for 16 to 19 of the 24 hours, although
additional uninterrupted meal time can reduce that. Since overtime is
not incurred until after 40 hours of work in the workweek are accrued,
a worker scheduled for 24-hour shifts (with sleep time) might start
accruing the overtime compensation premium on their third shift in a
week, or sooner if unable to get the minimum amount of sleep.
To be considered ``live-in,'' an employee must reside on
the employer's premises permanently or for extended periods of time.
The Department has allowed an employee who lives at the place of
employment at least 5 consecutive days per week to be considered as
residing on the employer's premises for extended periods of time. Live-
in workers need only be paid for compensable hours worked. The
Department's long-standing existing regulations recognize that an
employee who resides on his or her employer's premises is not working
all the time he or she is on the premises. Ordinarily, live-in workers
may engage in normal private pursuits and thus have enough time for
eating, sleeping, entertaining, and other periods of complete freedom
from all duties when they may leave the premises for their own
purposes. Live-in domestic service workers must be paid at least
minimum wage for all hours worked, but are not required to be paid for
overtime when more than 40 hours of work are performed per week (unless
employed by a third party employer). Thus, determining the potential
impact of the revised rule on ``24-hour live-in'' care depends very
much on whether the worker is ``24-hour'' or ``live-in.''
Similarly, the Department received comments on the application of
overtime provisions to direct care workers who are essentially
roommates of persons with disabilities. These direct care workers live
with the consumer, assist the consumer in the morning and evening, but
otherwise are free during the day to go to their own job or school.
Thus, these direct care workers are likely ``live-in'' as described
above, and are not entitled to overtime compensation under this Final
Rule unless employed by a third party employer.
Some agencies take a proactive approach to scheduling these cases
in order to manage the total number of hours on duty required from each
worker. For example, an agency may split a 24-hour, seven days per week
case between two direct care workers by having one aide provide
services Sunday through half of the Wednesday shift (three 24-hour
shifts and one 12-hour shift) when the second aide would take over and
work through Saturday.\122\ This reduces the total number of hours each
aide must work, limits the work to one weekend day, and avoids
overwhelming the consumer with too many different care providers.\123\
---------------------------------------------------------------------------
\122\ Elsas, M. & Powell, A. 2011. Interview of Michael Elsas,
President, and Adria Powell, Executive Vice President of Cooperative
Health Care Associates by Calvin Franz and Lauren Jankovic of ERG.
April, 2011.
\123\ Elsas, M. & Powell, A. 2011. Some agencies have
experimented with breaking a 24-hour case into two 12-hour cases
that are staffed by four direct care workers; this reduces total
number of hours worked and eliminates the need for the 8-hour rest
period but also increases the number of direct care workers that the
consumer must become comfortable with.
---------------------------------------------------------------------------
The direct care workers themselves report working an average of 31
to 34 hours per week and available data suggest that very few work
overtime.\124\ Based on an analysis of the 2007 National Home Health
Aide Survey (NHHAS) and the 2009 Annual Social and Economic Supplement
(ASEC) of the Current Population Survey, PHI reports that 92 percent of
HHAs and 88 percent of PCAs work 40 hours or less per week for an
average of 31 hours and 34 hours per week, respectively. By extension,
only 8 percent of HHAs and 12 percent of PCAs reported working more
than 40 hours per week.
---------------------------------------------------------------------------
\124\ Seavey and Marquand, 2011, pgs. 61-64. Available at:
http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf; HHS, 2011, p. 26.
---------------------------------------------------------------------------
However, this information may not fully capture the total number of
hours worked by these individuals because some direct care workers work
for multiple employers, many direct care workers work part-time jobs,
and some employers do not compensate workers for travel time between
consumers (because they are not reimbursed for this time). Furthermore,
there is very limited information on hours worked by independent
providers or those workers employed as live-in, on-call, or night shift
workers. The Department assumes that in general independent providers
directly employed by individuals, families, or households work similar
hours as direct care workers employed by agencies.
The wages for these workers vary widely by occupation and
geographic location. Based on detailed wage data from the BLS
Occupational Employment Statistics Survey, the hourly wages of HHAs and
PCAs range from about $7.55 to $19.84 (less than 10 percent earn below
$7.55 and less than 10 percent earn more than $19.84) with the median
wage for HHAs being approximately $9.94 and for PCAs $9.67 per
hour.\125\ As discussed above, wages for PCAs tend to be slightly lower
on average than those for HHAs. The Department assumes that in general
independent providers directly employed by families receive similar
hourly wages as direct care workers employed by agencies. In
approximately 90 percent of states (46 states), average hourly wages
for PCAs were below 200 percent of the federal poverty level wage
($11.25) for individuals in one-person households working full-
time.\126\ Current research suggests that these workers find it
difficult to support their households on these wages; approximately 50
percent of PCAs have to rely on public benefits (e.g., Medicaid, food
and nutrition assistance, cash welfare, or assistance with housing,
energy or transportation) and 37 percent of direct care workers
employed by agencies in HHCS lack health insurance.\127\
---------------------------------------------------------------------------
\125\ BLS, OES, 2011.
\126\ Hourly federal poverty level calculated assuming full-time
(40 hours per week) and full-year (52 weeks per year) employment.
2011 federal poverty levels provided by the U.S. Census Bureau.
Available at: http://www.census.gov/hhes/www/poverty/data/threshld/index.html.
\127\ Seavey and Marquand, 2011, pgs. 55-58. WHD-2011-0003-3514.
Also available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf
---------------------------------------------------------------------------
F. Costs and Transfers
This section describes the costs and transfers associated with the
Final Rule
[[Page 60523]]
and the Department's approach to estimating their magnitude. The
Department estimates the first-year regulatory familiarization and
hiring costs of the rule will vary between $18.6 and $20.6 million. In
following years, costs are projected to increase from around $4 million
in Year 2, to about $5 million in Year 10 as new firms enter the market
and new individuals, families and households hire direct care workers.
Transfers result from the wage increases to comply with minimum
wage and overtime compensation requirements. Total estimated transfers
depend in part on the response of employers to the regulatory changes;
in other words, will employers respond by paying overtime to current
workers, changing scheduling practices to avoid paying overtime, hiring
additional workers, or some combination of these approaches. Based on
the methods described below, the Department estimates that first-year
transfers from the rule will range from $103.7 to $281.3 million. In
Years 2 through 10, total transfers using OT Scenario 1 are projected
to increase from $322.3 million to $626.5 million while total transfers
using OT Scenario 3 are projected to increase from $118.8 million to
$230.9 million.
Regulatory Familiarization
When a new rule is promulgated, all the establishments affected by
the rule will need to invest time to read and understand the components
of the new rule; this is commonly referred to as regulatory
familiarization. Each establishment will spend resources to familiarize
itself with the requirements of the rule and ensure it is in
compliance.
Each home care establishment will require about two hours of an HR
staff person's time to read and review the new regulation, update
employee handbooks and make any needed changes to the payroll systems.
Based on our analysis of the industry and occupational data, the
Department judges that each employer in HHCS and SEPD likely employs
workers who will be affected by the Final Rule, and will therefore need
to review the Final Rule. There are about 89,400 establishments in HHCS
and SEPD; \128\ assuming a mid-level HR loaded wage of $38.44 per hour
over two hours equals about $6.9 million for regulatory familiarization
in the first year following promulgation of the rule.\129\
---------------------------------------------------------------------------
\128\ This includes the 58 counties in California to account for
costs to the IHSS program at the county level to become familiar
with the requirements. For the purposes of the analysis (and to
capture potential transfers), the Department is assuming that the
IHSS could be considered the employer and therefore become
responsible for ensuring payment of minimum wage and overtime to the
workers (in particular, the 50,000 workers who regularly report more
than 40 hours of worker per week). In practice, this determination
would need to be made on a case by case basis based on the
employment relationship between consumer, direct care worker, and
IHSS.
\129\ BLS, 2011, National Compensation Survey (Occupation 13-
1078), Median Hourly Wage.
---------------------------------------------------------------------------
The Department received comments from industry groups such as NPDA
and the U.S. Chamber of Commerce, arguing that the unit time estimates
for regulatory familiarization are too small. However, the commenters
provided no data to form a more appropriate estimate. After further
consideration, the Department maintains its original estimate of two
hours per establishment for regulatory familiarization. This rulemaking
is a revision to an FLSA regulation that applies to a component of the
home care industry workforce. The Department believes that most, if not
all, affected firms are already covered by the FLSA, and employ other
workers who are not exempt from its overtime and minimum wage
provisions. For example, the BLS NEM data report that Home Health Care
Services (6216) in 2010 includes over 200 occupations including nursing
aides, therapists, and health practitioners that are not exempt from
overtime and minimum wage provisions.\130\ Therefore the Department
believes that firms are already familiar with the relevant provisions
of the FLSA and merely have to apply those provisions to one additional
group of workers. The Final Rule is limited in scope and length,
limiting the time required for familiarization. Furthermore, we believe
that most firms will make use of guidance and educational materials
from the Department, industry trade groups, franchisers and other
organizations to help them review the regulations more efficiently.
Finally, the Department believes that most, if not all, affected firms
already use payroll systems with the capability of handling overtime
calculations, and already employ workers for whom overtime might have
to be calculated. Based on interviews with payroll and human resources
professionals, the Department estimates that, in general, the vast
majority of employers use payroll systems to distribute wage statements
to their employees.\131\ Thus, it is once again a matter of extending
activities they already perform for one group of their employees to
another group of employees. Therefore, the additional time necessary to
perform the types of tasks listed in this section should be relatively
minimal.
---------------------------------------------------------------------------
\130\ BLS National Employment Matrix, Home Health Care Services
(62-1600) 2010. Available at: http://www.bls.gov/emp/ep_table_109.htm.
\131\ Lucy Key Price, 2010. Interview with Lucy Key Price of
L.K. Price Associates, Calvin Franz and Lauren Jankovic, both of
ERG. Polly Wright, 2010. Interview with Polly Wright of HR
Consultants, Inc., Calvin Franz and Lauren Jankovic, both of ERG.
Jennifer Wise, 2010. Interview with Jennifer Wise of Wise
Consulting, Calvin Franz and Lauren Jankovic, both of ERG.
---------------------------------------------------------------------------
For independent providers, the employer is considered to be the
individual, family, or household that hires them. Therefore, families
who directly employ these direct care workers will also have to review
the regulatory revisions. Some commenters, including the Chamber of
Commerce, stated that this estimate was too low because of the length
of the preamble. Because the employer-employee relationship is less
complex than for an agency that employs multiple workers caring for
multiple consumers, the Department expects the burden of regulatory
familiarization will be smaller. In addition, the regulatory text is
quite short and the preamble discussion is intended simply as an aide
to employers regarding a variety of FLSA issues. We believe that most
individuals, families, and households will rely on guidance and
educational materials from the Department and advocacy organizations.
The Department therefore assumes that each individual, family, or
household who directly hires a direct care worker will spend one hour
on regulatory familiarization. The Department uses the national average
hourly wage of $29.60 (loaded) to represent the opportunity cost of
reviewing the regulatory revisions.\132\
---------------------------------------------------------------------------
\132\ BLS, 2011, National Compensation Survey, Hourly mean wage
for full-time Civilian Worker is $22.77; the Department estimates
the fully loaded wage at the hourly wage x 1.3. Available at http://www.bls.gov/eci/.
---------------------------------------------------------------------------
The Department has found no data to support an estimate of the
number of individuals, families, and households that directly hire
independent providers. The Department assumes each independent provider
is hired by a single individual, family, or household, and therefore,
because it estimates there are 182,600 independent providers
nationally, 182,600 individuals, families, and households will incur
one hour of time at an opportunity cost of $29.60 per hour for a total
of about $5.4 million for regulatory familiarization in the first year
following promulgation of the rule.
[[Page 60524]]
Wages and Overtime \133\
---------------------------------------------------------------------------
\133\ These costs to employers are also transfer payments that
will benefit employees. See Benefits, below.
---------------------------------------------------------------------------
Many direct care workers are already protected by minimum wage and
overtime provisions at the state level and will not drive additional
costs related to the Final Rule. Fifteen states require minimum wage
for all hours worked for most direct care workers and guarantee some
type of overtime compensation for some direct care workers who would
otherwise be excluded under the FLSA.\134\ Six states and the District
of Columbia require minimum wage for all hours worked but do not
guarantee overtime to most direct care workers.\135\ Twenty-nine states
do not require minimum wage or overtime. Table 6 summarizes the wages
for HHA and PCA occupations based on state level minimum wage and
overtime coverage.
---------------------------------------------------------------------------
\134\ Colorado, Hawaii, Illinois, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New
York, Pennsylvania, Washington, and Wisconsin. NELP, 2012, WHD-2011-
0003-9452.
\135\ Arizona, California, Nebraska, North Dakota, Ohio, and
South Dakota. NELP, 2012, WHD-2011-0003-9452.
Table 6--Summary of Wages by State Minimum Wage and Overtime Requirements for HHAs and PCAs
----------------------------------------------------------------------------------------------------------------
Hourly wages
Minimum 10th weighted Maximum 90th
Area name Employment percentile average percentile
wage median wage wage
----------------------------------------------------------------------------------------------------------------
All States:
Total....................................... 1,745,290 .............. .............. ..............
PCA..................................... 820,630 $7.55 $9.67 $19.84
HHA..................................... 924,660 7.60 9.94 18.23
----------------------------------------------------------------------------------------------------------------
States with Minimum Wage and Overtime
Requirements:
Total....................................... 765,220 .............. .............. ..............
PCA..................................... 343,280 .............. 10.35 ..............
HHA..................................... 421,940 .............. 10.32 ..............
----------------------------------------------------------------------------------------------------------------
States with Minimum Wage but not Overtime
Requirements:
Total....................................... 240,630 .............. .............. ..............
PCA..................................... 82,250 .............. 10.15 ..............
HHA..................................... 158,380 .............. 9.97 ..............
----------------------------------------------------------------------------------------------------------------
States without Minimum Wage or Overtime
Requirements:
Total....................................... 739,440 .............. .............. ..............
PCA..................................... 395,100 .............. 8.98 ..............
HHA..................................... 344,340 .............. 9.47 ..............
----------------------------------------------------------------------------------------------------------------
Source: BLS OES, 2011.
In order to estimate the number of workers from the table that will
be directly affected by the minimum wage and overtime components of the
Final Rule, the Department made three primary calculations: (1) Removed
from the data set those workers not currently employed in private homes
(those providing services in facilities); (2) added employees of tax
exempt organizations in states with overtime requirements to the set of
workers without state-level overtime requirements (as they are
sometimes exempt from the state overtime laws); and (3) identified the
number of workers currently receiving less than the federal minimum
wage ($7.25 per hour).
The data presented in Table 6 do not differentiate the workers who
provide services in the homes of consumers (engaged in domestic service
employment) and those who provide services primarily in facility
settings (not engaged in domestic service employment). To identify
agency-employed HHAs and PCAs likely to be providing services in
facilities and exclude them from the estimation of costs, the
Department examined the BLS NEM of industries for each occupation and
identified 32 industries that employ HHAs and PCAs. Based on the
description of the industry employing the HHA or PCA, the Department
made a judgment of whether the actual services were being provided in a
facility or in a private home. This is then used to estimate the number
of workers likely to be providing services in the home and the percent
of that occupation providing services in the home. Table 7 summarizes
the data as well as the determination of whether the industry would be
home- or facility-based. This percentage, approximately 50 percent of
HHAs and 76 percent of PCAs, is used in the detailed calculations
described below. By definition, the Department assumes that 100 percent
of the HHAs and PCAs working as independent providers are working in
private homes.
Table 7--Summary of Industries Employing HHAs and PCAs in 2010 and Likelihood of the Aide Working in a Home or
Facility
----------------------------------------------------------------------------------------------------------------
HHA PCA
-----------------------------------------------------------------------------
Industry Percent of Percent of
agency Home or facility agency Home or facility
employment employment
----------------------------------------------------------------------------------------------------------------
Total, All workers \a\............ 100.0 100.0
Home.......................... 50 76
[[Page 60525]]
Facility...................... 50 24
By Industry
Accounting, tax preparation, 0.0 Facility............. 0.3 Facility.
bookkeeping, and payroll.
Activities related to real NA NA................... 0.0 Facility.
estate.
Child day care services....... 0.1 Facility............. 0.1 Facility.
Civic and social organizations NA NA................... 0.1 Facility.
Community food and housing, 0.0 Facility............. 0.3 Facility.
and emergency and other
relief services.
Educational services, public 0.1 Facility............. 0.1 Facility.
and private.
Employment services........... 3.1 Facility............. 3.1 Facility.
Government, excluding 2.9 Facility............. 2.3 Facility.
education and hospitals.
Grantmaking and giving NA NA................... 0.4 Facility.
services.
HHCS.......................... 35.5 Home................. 33.1 Home.
Hospitals, public and private. 0.9 Facility............. 0.5 Facility.
Lessors of real estate........ NA NA................... 0.1 Facility.
Management of companies and 0.0 Facility............. 0.5 Facility.
enterprises.
Management, scientific, and NA NA................... 0.1 Facility.
technical consulting.
Nursing and community care 19.1 Facility............. 2.8 Facility.
facilities.
Offices of all other health 0.1 Facility............. 0.1 Facility.
practitioners.
Offices of mental health 0.0 Facility............. 0.1 Facility.
practitioners (except
physicians).
Offices of physical, 0.1 Facility............. 0.1 Facility.
occupational, and speech
therapists, and audiologists.
Offices of physicians......... 0.1 Facility............. 0.3 Facility.
Other ambulatory health care 0.0 Home................. 0.0 Home.
services.
Other financial investment NA NA................... 0.1 Facility.
activities.
Other investment pools and NA NA................... 0.0 Facility.
funds.
Other miscellaneous........... 0.0 Facility............. 0.0 Facility.
Other personal services....... NA NA................... 0.3 Home.
Other residential care 1.9 Facility............. 0.6 Facility.
facilities.
Outpatient mental health and 0.3 Facility............. 0.3 Facility.
substance abuse centers.
Residential mental health and 2.2 Facility............. 0.3 Facility.
substance abuse facilities.
Residential mental retardation 17.3 Facility............. 3.5 Facility.
facilities.
SEPD.......................... 14.3 Home................. 42.5 Home.
Social advocacy organizations. 0.0 Facility............. 1.2 Facility.
Unpaid family workers......... NA NA................... 0.3 Home.
Vocational rehabilitation..... 1.8 Facility............. 6.4 Facility.
----------------------------------------------------------------------------------------------------------------
Source: BLS 2010 NEM; note that the percent of the occupation employed in the home versus a facility is
calculated based on the actual sum of the number appearing in the table. Values are rounded to the nearest
10th of a percent and columns may not sum to totals due to rounding.
\a\ This excludes self-employed workers and those employed in private households because they are considered
independent providers and will be added to the population of affected workers separately.
It is important to note that the determination of whether the
industry is home- or facility-based is an estimate; some industries
that appear to provide services primarily in a nursing facility, for
example, may employ a few direct care workers who provide services in
the private homes of consumers to assist with transitioning of the
consumers from the facility back to their homes. Some industries that
appear to provide services primarily in the private home, HHCS for
example, may also employ direct care workers who work primarily in
facilities.
Next, the workers in the states with minimum wage and overtime
compensation are, in general, already receiving at least the minimum
wage and some form of overtime premium for hours worked beyond 40
hours. These workers do not need to be included when calculating the
costs and transfers associated with additional wages resulting from the
application of the federal minimum wage or payment of an overtime
premium. The exception is for workers employed by public agencies, non-
profit organizations, and other tax exempt entities who are exempt from
many of the applicable state laws (such as the employees of the
Illinois Department of Human Services' Home Services Program). To
account for these workers, the Department used the 2007 Economic Census
to estimate the proportion of workers in those states who are employed
in establishments exempt from Federal income tax. The proportion varies
by state but is 42 percent on average. The proportion in each relevant
state was multiplied by the number of HHA and PCA workers in each state
to estimate the number of workers likely to be employed by an employer
not covered by the state level laws related to minimum wage and
overtime.\136\ These workers, about 302,500, were added to the total
number of workers without overtime coverage in order to estimate the
costs of providing overtime compensation to workers under the Final
Rule. States vary widely in terms of exemptions from minimum wage and
overtime rules and not all states have these types of exemptions; as a
result, this approach results in an overestimate of the number of
workers who will receive additional overtime wages as a result of the
rule. The Department judges that this is the best
[[Page 60526]]
available method to estimate these additional workers given available
data.
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\136\ The Department used a proportion of 100 percent for
workers in New York to account for the fact that New York law
establishes an overtime premium of one and one-half the FLSA minimum
wage (rather than the workers' regular rate) for workers employed by
a third party employer in a private. This produces an overestimate
of the number of workers who will receive additional overtime
compensation as a result of the rule.
---------------------------------------------------------------------------
For the NPRM, the Department analyzed the 2009 BLS OES data on HHA
and PCA wages by percentile to identify those workers receiving less
than the federal minimum wage (usually those in the 10th and 25th
percentiles in states without minimum wage coverage). For example, in
North Dakota, the 10th percentile wage was $7.20 in 2009, roughly equal
to the federal minimum wage of $7.25; the Department therefore assumed
10 percent of HHAs and PCAs in North Dakota would be impacted by the
extension of the FLSA's minimum wage provision. When newer data became
available, the Department updated this analysis using 2011 BLS OES data
on HHA and PCA wages. Using the 2011 data, the Department found no
states in which workers in the 10th or 25th percentile received less
than the Federal minimum wage, and therefore now assumes that a
negligible number of workers will be affected by the minimum wage
provision.
Due to lack of data, the Department selected the assumptions it
would use to analyze independent providers directly employed by
individuals, families, and households. The Department assumes that
independent providers: (1) Generally will not be entitled to overtime
wage premiums, and (2) earn less than the current federal minimum wage
in the same proportion as agency-employed direct care workers. This
rulemaking does not eliminate the companionship services exemption for
direct care workers directly hired by individuals, families, and
households. Therefore, since independent providers by definition do not
work for a third party, we assume they will be directly hired by the
individual, family, or household and will not be entitled to overtime
compensation when they work more than 40 hours per week (provided, of
course, that the direct care worker performs companionship services as
defined in Sec. 552.6 or is a live-in domestic service worker). The
Department was unable to find data on the average number of hours
worked per week by independent providers, but assumes that independent
providers provide home care to multiple consumers and it is unlikely
that an independent provider will work more than 40 hours per week for
any single family. This assumption is based on available data which
suggests that the majority of consumers receive less than 40 hours per
week of services.
By assuming that the proportion of independent providers earning
less than the federal minimum wage is identical to that for agency-
employed direct care workers, the Department implicitly assumes
independent providers work in similar patterns as agency-employed
direct care workers. That is, independent providers are distributed
across states in the same proportion as agency-employed direct care
workers, and are as likely to earn less than minimum wage as those
employed by agencies.
Finally, the Department must account for those who work in
Illinois' Department of Human Services (DHS) and in California's IHSS
program. These workers were excluded from the estimate of potentially
affected workers in the NPRM because review of state law suggested that
they were already eligible for minimum wage and overtime. Comments
submitted by Illinois and California clarified the employment
arrangement, their status with respect to minimum wage and overtime,
and the number of workers affected.137 138
---------------------------------------------------------------------------
\137\ CSAC, CWDA, CAPA, and CICA, WHD-2011-0003-9420; State of
Illinois DHS, Comments, WHD-2011-0003-7904.
\138\ The Department received no other data suggesting that
affected workers were not accurately represented in the OES or NEM,
or appropriately considered in the Preliminary Regulatory Impact
Analysis. Therefore, the Department had no basis for additional
review of other states.
---------------------------------------------------------------------------
For the NPRM, the Department erroneously determined that all direct
care workers in Illinois are currently eligible for overtime and
removed all such workers from the analysis to estimate transfer
payments. In its comment on the NPRM, the Illinois DHS clarified that
30,000 direct care workers are jointly employed by the state and the
consumer and, although they receive employment benefits such as
subsidized health insurance, are not eligible for overtime pay under
state statute. Based on this comment, the Department returned 30,000
workers to the OES data for Illinois, and assumes these workers will
incur overtime hours at the same rate as other agency-employed workers.
California's IHSS workers share some attributes with independent
providers but are considered employees of the county level public
authority for some purposes. Under the IHSS program, county level
public authorities provide home care services to qualifying residents.
The services are paid for by a mix of federal, state and county
funding. The county authority screens and refers direct care workers to
consumers with the selection of the direct care worker as well as
scheduling and supervision determined by the consumer. The county
authority also acts as the employer of record for direct care workers.
In addition, in California's system the county authority is responsible
for collective bargaining with the union representing direct care
workers to determine wage rates and benefits.\139\
---------------------------------------------------------------------------
\139\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420.
---------------------------------------------------------------------------
There are approximately 380,000 direct care workers employed
through IHSS caring for about 440,000 consumers. All IHSS direct care
workers' pay exceeds the minimum wage, while about 50,000 direct care
workers routinely work more than 40 hours per week.\140\ In Bonnette v.
California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983), the
Ninth Circuit held that IHSS direct care workers were employees of the
state and counties. For purposes of this analysis, the Department
initially assumed that direct care workers for IHSS were considered
employees of the county authority and were included in OES data.
However, review of OES found a total of 105,000 PCAs and HHAs in
California, including those that work in facilities. The Department
concluded that the 380,000 direct care workers for IHSS were not
included in the OES for California, and therefore added those workers
to the pool of workers without overtime coverage. Furthermore, the
comment concerning California's IHSS program indicates that 50,000 of
the 380,000 IHSS direct care workers (13.2 percent) routinely work
overtime, which is a somewhat higher proportion than the national
average of 12 percent. Therefore the Department included 50,000 IHSS
workers in projections of overtime compensation rather than apply the
standard percentage used for other affected workers.141 142
---------------------------------------------------------------------------
\140\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420.
\141\ Ibid.
\142\ For the purposes of regulatory familiarization, we assumed
that the 58 counties in California would incur familiarization
costs.
---------------------------------------------------------------------------
Table 8 summarizes the number of workers estimated to be directly
impacted by the minimum wage and overtime provisions of this Final
Rule. As explained in more detail above, to estimate the total number
of workers potentially affected by the overtime provisions of this
rule, the Department:
Used OES data to identify agency employed workers in
occupations that may provide companionship services under the current
definition (i.e., 1,745,300 PCAs and HHAs). The OES is based on a
nationally representative sample of private employers as well as state
and local governments, and is a better measure of agency employment
than the NEM.
[[Page 60527]]
Estimated the percentage of agency-employed workers who
are employed in homes rather than facilities from the NEM and applied
those percentages to the workers identified in the OES to estimate
1,086,600 agency-employed PCAs and HHAs work in homes. Because the NEM
is based on the Current Population Survey, it permits us to identify
the industry in which the worker is employed.
Subtracted 472,100 direct care workers from states that
already require overtime pay using state-level OES data leaving 614,500
workers in states that do not currently require overtime coverage.
Added 302,500 direct care workers back into the OES. These
workers are employed in states that require overtime pay, but are not
eligible for overtime for various reasons: They work for tax-exempt
organizations; they work for the IL DHS; or they work in the state of
New York.\143\ This results in an estimated 917,000 agency-employed
direct care workers who are not currently eligible for overtime pay.
---------------------------------------------------------------------------
\143\ Because conflicting information was available concerning
overtime provisions for direct care workers in New York state, the
Department included all New York direct care workers in the analysis
to be conservative.
---------------------------------------------------------------------------
To this the Department added 380,000 IHSS workers not
currently eligible for overtime to estimate a total of 1,297,000 direct
care workers are without overtime coverage.
Due to a lack of data concerning the prevalence of use of
the companionship exemption, the Department assumes that all 1,297,000
direct care workers in states without overtime protection are currently
paid as exempt companions, and are thus potentially eligible for
overtime pay after the rule is promulgated. This assumption clearly
leads to an overestimate of the magnitude of transfer payments
resulting from the rule; this overestimate may be significant.
Finally, the Department identified those PCAs and HHAs in
the NEM who reported themselves as self-employed or employed by private
households; this results in an estimated 182,600 independent providers.
Since the data suggest that none of the agency-employed PCAs earn
less than minimum wage, the Department also assumes that none of the
158,700 PCA independent providers earn less than minimum wage.
Similarly, because no agency-employed HHAs earn less than minimum wage,
the Department assumes that none of the 24,000 HHA independent
providers earn less than minimum wage.
Table 8--Summary of Workers That Are Directly Impacted by Final Rule
------------------------------------------------------------------------
Number of
Affected workers workers Source
------------------------------------------------------------------------
Agency-employed PCA and HHA........ 1,745,290 2011 OES; State-level
PCA............................... 820,630 occupational
HHA............................... 924,660 employment and wages
for SOC 39-9021 and
31-1011 (see Table
6).
Agency-employees working in the
home:
Percent PCA and HHA in homes: ........... 2010 NEM for SOC 39-
PCA 76.2% 9021 and 31-1011 (see
HHA 49.9% Table 7).
Number of PCA and HHA in homes: ........... Total Workers
PCA 625,323 multiplied by percent
HHA 461,236 working in homes;
2011 OES and 2010
NEM.
-------------
Total.................. 1,086,559
------------------------------------------------------------------------
Workers without OT Coverage:
Number of PCA and HHA in States 614,508 Sum of employees
without OT Coverage. working in homes in
selected states; 2011
OES.
Number of PCA and HHA in public 302,531 Total workers in
agencies and nonprofits in ........... states with OT laws
states with OT but who are \a\ 917,039 multiplied by
ineligible; and NY, and IL DHS. proportion of workers
Total number of PCAs and HHAs in state employed by
not currently entitled to OT tax-exempt
coverage. organizations, plus
workers in NY, and
the 30,000 workers in
the IL DHS Home
Services Program;
plus workers of CA
IHSS; 2011 OES and
2007 Economic Census.
Number of California IHSS \b\ 380,000
workers.
-------------
Total workers without 1,297,039
OT coverage.
------------------------------------------------------------------------
Workers below Minimum Wage......... 0 Number of workers with
wage below $7.25;
2011 OES.
------------------------------------------------------------------------
Family-employed Independent 182,604 Projections for 2011
Providers. 158,651 based on the 2010 NEM
PCA............................... 23,953 for SOC 39-9021 and
HHA............................... 31-1011.
Independent Providers below MW..... 0 Number of workers paid
below minimum wage;
2011 OES.
------------------------------------------------------------------------
\a\ Of the 917,039 total direct care workers not currently covered by
overtime laws; 531,924 are PCAs and 385,115 HHAs. Estimated from state-
level OES data with adjustments for tax-exempt employers, employees of
IL DHS, and workers in NY state.
\b\ Based on public comment, the Department assumes 50,000 of the
380,000 IHSS direct care workers (13.2 percent) work overtime; for the
917,039 agency-employed workers estimated from the OES, the Department
assumes 12 percent work overtime based on an analysis of NHHAS data.
[[Page 60528]]
Minimum Wage
In the NPRM, the Department estimated the number of workers earning
less than the minimum wage based on 2009 data. Using the 2009 BLS data
on the wages of HHAs and PCAs by percentile, the Department estimated
that approximately 14,200 HHAs and 30,700 PCAs in 13 states earned less
than the federal minimum wage of $7.25. However, for this Final Rule
the Department reviewed the 2011 BLS data, which suggests that no HHAs
or PCAs are currently earning less than the minimum
wage.144 145 Therefore the Department estimates no increase
in wages will result from application of the minimum wage provision of
the FLSA to direct care workers employed by agencies. With no evidence
to the contrary, we maintain our working assumption that wages for
independent providers track those of agency-employed direct care
workers, and therefore the same result is obtained for independent
providers.
---------------------------------------------------------------------------
\144\ BLS, OES, by state, 2000-2010. Available at: http://stats/
bls/gov/oes/.
\145\ Because the Department finds no evidence of HHAs and PCAs
currently earning less than the FLSA minimum wage, estimates of
costs and transfers from this point forward will not include mention
of the minimum wage.
---------------------------------------------------------------------------
The Department will not attempt to estimate impacts of future
increases in the minimum wage. Since Congress extended FLSA protections
to domestic workers in 1974, it has acted four times to increase the
Federal minimum wage. Congress passed amendments to the FLSA increasing
the minimum wage in 1977 (Pub. L 95-151), 1989 (Pub. L 101-157), 1996
(Pub. L 104-188) and 2007 (Pub. L 110-28). In each case, the minimum
wage was gradually increased over a series of steps. Given that the
minimum wage has reached the maximum rate contained in the most recent
amendments (Pub. L 110-28), any estimate of the cost of this rule
accounting for increases in the minimum wage would be purely
speculative.
Overtime
Limited data exist on the amount of overtime worked by this
population. A PHI analysis of the 2007 NHHAS and U.S. Census Bureau's
Current Population Survey, ASEC on direct care workers found 8 to 12
percent of HHAs and PCAs may work overtime. Among HHAs, 8 percent
worked more than 40 hours per week, and 2 percent worked more than 50
hours per week; 12 percent of PCAs appeared to work more than 40 hours
per week; however, PHI believes this may be an overestimate based on
the 2010 ASEC supplement which suggests approximately 42 percent of
direct care workers in HHCS work full-time year round.\146\
---------------------------------------------------------------------------
\146\ Seavey and Marquand, 2011, pgs. 61-64. WHD-2011-0003-3514.
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------
A significant overtime compensation issue in this industry is
associated with 24-hour care. Attending staff may be entitled to pay up
to 16 of every 24 hours or even more (if the staff is not provided a
bona fide sleep period). The City of New York and New York State
Association of Counties filed an amicus brief with the U.S. Supreme
Court in Long Island Care at Home, Inc. v. Coke on this issue.\147\ The
brief asserted that changing the FLSA companionship services exemption
would significantly increase the cost to the City and State for
providing home health services and included an estimate of the
increased costs. The additional costs for direct care workers in New
York City attending consumers requiring 24-hour care is by far the
largest component of these costs, exceeding the Department's estimate
of nationwide overtime for all workers in all states not currently
covered by overtime.
---------------------------------------------------------------------------
\147\ 551 U.S. 158 (2007). Brief of Amici Curiae City of New
York and New York State Association of Counties in Support of
Petitioners.
---------------------------------------------------------------------------
Unfortunately, the brief does not adequately describe how it
arrived at the cost estimates, nor does it provide estimates of the
number of consumers requiring 24-hour care or the workers caring for
them. The numbers presented in the brief suggest over 33.6 million
hours of annual overtime are worked just to care for consumers
requiring 24-hour care plus an additional 14.6 million hours of
overtime hours are worked to care for other consumers.\148\ This
comprises 45.7 percent of the total amount of overtime the Department
estimated for the 35 states and Washington, DC that do not currently
require overtime compensation (73.5 million hours).\149\ Furthermore,
this sample, from the Current Population Survey ASEC, should reflect
all hours worked, including that of direct care workers providing
services to consumers requiring 24-hour care. In addition, the need to
provide a consumer with 24-hour care does not necessarily result in 72
hours of overtime per week. Maintaining continuity of care does not
require a single direct care worker in attendance for the entire week;
service can be provided with adequate continuity of care by two to four
workers.\150\ Therefore, because the brief does not explain the basis
for the numbers, nor were the estimates in the brief clarified or
explained in comments on the NPRM, the Department has not relied upon
those estimates.
---------------------------------------------------------------------------
\148\ The incremental cost of requiring overtime compensation
under this regulation is the difference between the current hourly
rate paid for direct care workers, and the rate that would be paid
if this regulation is promulgated (i.e., the overtime differential)
applied to hours worked in excess of 40 hours per week. If straight
time pay is currently about $10 per hour, the incremental cost will
be $5 per hour. New York City projects the rule will cost $168
million per year for care of patients requiring 24-hour care; $168
million divided by $5 suggests that roughly 33.6 million overtime
hours per year are worked in New York City alone to care for these
consumers.
\149\ See discussion later in this section for the methodology
used to estimate the 73.5 million hours.
\150\ Elsas & Powell, 2011.
---------------------------------------------------------------------------
In addition, although industry commenters (IFA, NAHC, NPDA, PCA)
stated that direct care workers work considerably more overtime than
the impact analysis suggested, it was impossible to derive a reliable
estimate of patterns of overtime from the provided data. While
responses characterized the percent of direct care workers who might
work more than 40 hours per week, or consumers who receive ``live-in''
or 24-hour service, not enough information was presented that would
permit estimation of the number of direct care workers who have such
schedules or their typical hours worked.\151\ Furthermore, much of
their claim that overtime hours were underestimated was based on the
prevalence of ``24-hour care'' and ``live-in care.'' Although
commenters used these terms synonymously, these terms are not identical
and have very significant implications for how hours worked are
calculated, and it was highly problematic to interpret reported survey
results in a meaningful way (see discussion of public comments on
overtime scenarios for further explanation of this issue). Finally, the
reported data were gathered in two industry surveys, as described
above, that suffered from flawed sampling approaches and cannot be
considered representative of the industry as a whole. Thus, the
Department also could not estimate overtime hours based on industry
data. Therefore, the Department has generally relied upon nation-wide
data from BLS and the nationally representative NHHAS in developing the
overtime analysis.
---------------------------------------------------------------------------
\151\ IHSS Global Insight 2012,. WHD-2011-0003-8952.
---------------------------------------------------------------------------
BLS data show there are about 614,500 total direct care workers in
private homes in states without state-mandated overtime coverage, plus
302,500 workers employed in New York or by tax-exempt organizations in
states
[[Page 60529]]
with overtime requirements who are not entitled to overtime
compensation (including the 30,000 workers in the Illinois Department
of Human Services Home Services Program) and 380,000 workers in the
California IHSS program who are not entitled to overtime. In total, the
Department estimates that there are 1.30 million agency-employed
workers without overtime compensation protection who will be entitled
to it as a result of the Final Rule (See Table 8).
For the NPRM, the Department calculated that 10 percent of affected
direct care workers are employed 45 hours per week (5 hours of
overtime), and an additional 2 percent are employed 52.5 hours per week
(12.5 hours of overtime) based on the PHI analysis of NHHAS and ASEC
data on overtime worked in this industry. As a result of public comment
on these overtime estimates, the Department reviewed hours worked by
direct care workers as reported in the 2007 NHHAS. When calculating
overtime directly instead of using estimates based on the summary
provided by PHI, the Department found that those direct care workers
who work more than 40 hours, but no more than 50 hours per week,
average 6.4 hours of overtime; those who work more than 50 hours per
week average 21.0 hours of overtime per week. The Department calculates
overtime hours worked assuming that 10 percent of these 917,000 direct
care workers (excluding California's IHSS workers) are employed 46.4
hours per week (6.4 hours of overtime), and an additional 2 percent are
employed 61.0 hours per week (21.0 hours of overtime). The joint
comment from potentially affected groups in California \152\ stated
that 50,000 IHSS workers work more than 40 hours per week, but did not
indicate how many additional hours they worked. Therefore, the
Department assigned the same overtime work pattern to them: 83.3
percent of these workers (10 out of every 12) work 46.4 hours per week,
and 16.7 percent (2 out of every 12) work 61 hours per week. In total,
73.5 million hours of overtime are worked per year. Using the weighted
median HHA wage of $9.84 and the weighted median PCA wage of $9.54 per
hour, these workers would earn an overtime premium of $4.92 and $4.77
per hour, respectively. Under these assumptions the additional cost of
overtime compensation would be approximately $355.3 million per year,
absent changes to employment practices that could reduce or even
eliminate overtime for these employees.
---------------------------------------------------------------------------
\152\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420, p. 2.
---------------------------------------------------------------------------
Industry Adjustments to Overtime Requirement
It is reasonable to anticipate that agencies will evaluate and
potentially change operating and staffing policies in response to
overtime. Commenters universally agreed, with many home care agencies
suggesting that they would limit employees' hours rather than pay
overtime. See e.g., IFA, NPDA, Martin Hayes, Henri Chazaud, and Melina
Cowan. Currently, agencies have little incentive to manage overtime
because hours worked in excess of 40 per week are paid at the same rate
as hours less than 40 per week. Because overtime hours will now cost
agencies more, they will have an incentive to manage those hours so as
to reduce costs.
The Department identified at least three possible agency responses
to overtime compensation requirements. First, the agency might manage
existing staff to reduce overtime hours while maintaining the same
caseload and staffing levels. For example, two direct care employees--
one previously scheduled to work 50 hours per week and another
previously scheduled to work 30 hours per week--may be rescheduled so
that they both work 40 hours every week, thus leaving caseload and
number of employees unchanged while eliminating the need for overtime
compensation. Henri Chazaud notes that ``work schedules will be based
on reduction and elimination of overtime.'' This sentiment is echoed by
Martin Hayes who states that ``[i]f our agency is required to pay
overtime for these caregivers--their hours will be reduced. Our agency
will not pay overtime because our clients cannot afford it and it would
cost us more than we make to foot the bill our self.'' However, there
is little evidence on which to predict how agencies might reorganize
staff time to support the same caseload. It seems doubtful that many
agencies can support their caseload without paying at least some
overtime compensation, but it is unclear how much overtime could be
reduced. In addition, the time spent reorganizing staffing plans is not
costless. In this scenario agencies will also incur opportunity costs
for managerial time even if management pay is unchanged. In addition,
employees will experience adjustment costs as they adapt to new work
schedules.
Second, as suggested in the City of New York's amicus brief,
agencies might choose to hire new employees to avoid having current
staff exceed 40 work hours per week.\153\ After the Court of Appeals
for the Second Circuit concluded in Coke that direct care workers were
entitled to overtime compensation, the experience of New York City
indicates this might be a common response in some regions. Such an
approach will require increased staffing to cover the existing
caseload. The New York City experience suggests it became common for
staff who worked more than 40 hours per week at a single agency to
continue to work more than 40 hours per week, but for multiple
agencies.\154\ For example, a direct care worker might work 25 hours
per week for each of two different agencies, and not be entitled to
overtime compensation despite working 50 hours per week. Once again,
agencies will incur additional managerial costs as they hire and manage
additional staff. Employees who begin to work for more than one agency
will also incur opportunity costs as they coordinate their schedules
with multiple agencies. Finally, agencies might increase staffing by
hiring workers who are new to the industry; depending on the tightness
of the labor market, this might necessitate increasing hourly wages to
attract new workers.
---------------------------------------------------------------------------
\153\ Brief of Amici Curiae City of New York. 2007.
\154\ Elsas & Powell, 2011.
---------------------------------------------------------------------------
The third scenario comprises a mix of the first and second
approaches. Neither of those approaches is costless to agencies. Under
the FLSA, agencies will be required to pay their employees an
additional 50 percent premium for each hour worked in excess of 40 per
week. Conversely, managing workers to reduce or avoid working employees
overtime hours will require additional time spent managing schedules.
If agencies must hire additional workers to absorb the potential
overtime hours, managerial time will be spent screening candidates and
processing and training new hires. In addition to balancing overtime
and managerial costs, agencies will have to consider potential impacts
on consumer satisfaction; scheduling multiple workers for each consumer
to avoid paying overtime might affect the agency's ability to retain
existing consumers or attract new consumers. Therefore, the Department
expects that agencies will weigh the cost of hiring additional workers
with the cost of paying overtime to existing workers to determine the
optimal mix of overtime and new hires appropriate to their
circumstances. Agency caseload, consumer preferences, current staffing
patterns, the cost of hiring new workers, and managerial preferences
for staffing mix will affect the final decision.
[[Page 60530]]
Because the potential magnitude of managerial time to handle more
complex scheduling is unknown, the Department requested comments on
this cost to agencies. Unfortunately, no estimates of this time were
provided. The Department will discuss the cost of hiring new workers in
detail below.
One factor that may help determine how many employees currently
exceeding 40 hours of work per week would receive overtime compensation
rather than have their hours reduced below 40 per week is the potential
for existing workers to absorb additional hours without exceeding 40
hours per week. Available data suggest many employees are working
significantly less than 40 hours per week and at least some of those
workers are interested in working additional hours. As has been
mentioned, studies show that direct care workers work, on average,
approximately 34 hours per week, and many work part-time.\155\ Seavey
and Marquand, citing the 2010 CPS ASEC found that about 45.4 percent of
workers report working part-time, and asked those part-time workers why
they did not work full-time; 22 percent indicated they could only find
part-time work and 18 percent stated they worked part-time due to
business conditions. Thus, potentially 40 percent of part-time direct
care workers might be interested in increasing their hours worked if
more hours were available.
---------------------------------------------------------------------------
\155\ Seavey and Marquand, 2011, p. 62-63. WHD-2011-0003-3514.
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf. HHS, 2011. p.26.
---------------------------------------------------------------------------
This suggests that of 917,000 agency-employed HHAs and PCAs not
currently entitled to overtime protections, approximately 416,300 (45.4
percent) are part-time, and 166,500 (40 percent of part-time workers)
might be interested in increasing their hours worked.\156\ Employees in
this industry currently average about 35 hours worked per week, and
those who do not typically work overtime average about 28 hours per
week.\157\ If each of the 166,500 agency employed part-timers who might
like to work additional hours increased their average hours worked by
approximately seven hours per week, they could absorb the estimated
57.4 million hours of overtime currently worked per year by agency
employed workers and non-family IHSS workers without exceeding 40 hours
per week themselves.\158\ Not all employers will be able to
redistribute hours to interested part-time workers in this way, and it
may be difficult for agencies to adjust worker schedules to come close
to, but not exceed, 40 hours due to the nature of the work; the types
of services they provide do not necessarily fit into one-hour
increments.
---------------------------------------------------------------------------
\156\ The analysis of the availability of part-time workers to
absorb additional work hours does not include IHSS workers because
they differ from agency workers. In particular, many IHSS workers
provide services to only one client, often a family member, and
therefore seem unlikely to be interested in adding additional work
hours to their schedule by adding an additional client.
\157\ This hours estimate, 28 hours, was estimated by the
Department based on the 2007 NHHAS data.
\158\ Note: The total number of overtime hours available to the
166,500 agency employed part-time workers (57.4 million per year)
differs from the total number of overtime hours worked by all
workers without overtime coverage (73.5 million per year) used
elsewhere in the analysis. The total number of overtime hours
available to agency employed part-time workers is based on the
number of overtime hours worked by agency employed workers plus the
subset of IHSS workers who both work overtime and are not likely to
be employed by a family member.
---------------------------------------------------------------------------
However, those employers who can adjust schedules and redistribute
hours can be expected to decrease overtime costs significantly.
Hiring Costs
When agencies reduce the number of overtime hours worked, they must
hire new workers or reallocate hours to under-employed workers to cover
the hours that would have been overtime prior to the rule. The
Department estimates cost per hire based on Seavey (2004), who
concludes that $3,000 (inflated to 2011 dollars) is a conservative
estimate of the direct cost of replacing a worker who quits (a
turnover). About 75 percent of this cost is attributable to hiring the
replacement worker (about $2,230), while the remainder is attributable
to the costs of separation and vacancy.\159\ The additional hiring
costs agencies incur will depend on their allocation of the remaining
overtime hours over new hires and current part-time workers.
---------------------------------------------------------------------------
\159\ Seavey, D. 2004. The Cost of Frontline Turnover in Long-
Term Care. Washington, DC: IFAS/AAHSa. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/TOCostReport.pdf. The Department attributes 75 percent of the cost
to hiring replacement workers based on the compilation of findings
reported by Seavey.
---------------------------------------------------------------------------
As described in more detail below, the Department considers three
scenarios for the reduction in overtime hours. OT Scenario 1 involves
agencies paying for 60 percent of current overtime hours and allocating
the remainder between current part-time employees and new hires. In OT
Scenario 2, we assume agencies will pay for 40 percent of current
overtime hours and allocate the remainder between current part-time
employees and new hires. Under OT Scenario 3, agencies pay for 10
percent of current overtime and allocate 90 percent to part-timers and
new hires. Based on a review of relevant literature, the Department
believes that, at the upper bound, employers will adjust so that 60
percent of the current overtime worked is paid at time and one-half the
employee's regular rate of pay and that the remaining 40 percent of
current overtime worked will be worked by new hires and current part-
time workers. However, based on employer comments and the industry
surveys, the Department believes that the actual response will most
likely be OT Scenario 2.
Within each of the three overtime scenarios, the Department
considers a range of potential allocations of the remaining overtime
hours to new hires: 30 percent, 20 percent, and 10 percent. The
Department chose 30 percent as the maximum hours allocated to new hires
since hiring is costly, and converting less than 40 percent of the
current part-time workers to full-time workers would be sufficient to
cover the total estimated overtime hours. We expect most agencies would
hire a smaller percent of new workers as it would result in unnecessary
hiring costs if reallocation of hours to part-timers is feasible.
Table 9 lists the estimates of hiring costs in each of the overtime
scenarios and the inputs used to calculate these estimates. In OT
Scenario 1, agencies reallocate hours to the specified combinations of
new and current part-time workers to cover the 40 percent of overtime
hours they wish to avoid. This corresponds to converting from 43,700 to
56,200 part-time workers to full-time, hiring between 1,200 and 3,700
full-time workers, and incurring additional hiring costs of $2.8 to
$8.4 million. In OT Scenario 2, agencies convert from 65,500 to 84,300
part-time workers to full-time, hire between 1,900 and 5,600 full-time
workers, and incur additional hiring costs of $4.2 to $12.5
million.\160\
[[Page 60531]]
OT Scenario 3 involves converting 98,300 to 126,400 part-time workers
to full-time, hiring 2,800 to 8,400 new full-time workers, and
incurring additional hiring costs of $6.3 to $18.8 million. These are
direct costs incurred by agencies, not a transfer of income from
agencies or payers to employees (like overtime compensation).
---------------------------------------------------------------------------
\160\ Hiring costs are identical under OT Scenario 1 with 30
percent of reallocated overtime hours used for new hires and OT
Scenario 2 with 20 percent of reallocated overtime hours used for
new hires because both result in 12 percent of overtime hours going
to new hires. Under OT Scenario 1, 60 percent of current overtime
hours are paid to current employees and 40 percent are reallocated
to new hires and current part-timers; 30 percent of the reallocated
hours are used for new hires, resulting in 12 percent of overtime
hours going to new hires (i.e., 40 percent of hours reallocated
multiplied by the 30 percent of reallocated hours going to new
hires). Under OT Scenario 2, 40 percent of current overtime hours
are paid to current employees and 60 percent are reallocated to new
hires and current part-timers; 20 percent of the reallocated hours
are used for new hires, resulting in 12 percent of overtime hours
going to new hires (i.e., 60 percent of hours reallocated multiplied
by the 20 percent of reallocated hours going to new hires). This
only occurs in Year 1.
Table 9--Year 1 Impact on Hiring Costs
------------------------------------------------------------------------
Additional
New hires Part-time hiring
\a\ workers to costs ($
full-time mil.)
------------------------------------------------------------------------
OT Scenario 1 (60 Percent of Overtime Paid)
------------------------------------------------------------------------
Hiring full-time workers to
cover:
30% of remaining OT hours.... 3,746 43,699 8.4
20% of remaining OT hours.... 2,497 49,941 5.6
10% of remaining OT hours.... 1,249 56,184 2.8
------------------------------------------------------------------------
OT Scenario 2 (40 Percent of Overtime Paid)
------------------------------------------------------------------------
Hiring full-time workers to
cover:
30% of remaining OT hours.... 5,618 65,548 12.5
20% of remaining OT hours.... 3,746 74,912 8.4
10% of remaining OT hours.... 1,873 84,276 4.2
------------------------------------------------------------------------
OT Scenario 3 (10 Percent of Overtime Paid)
------------------------------------------------------------------------
Hiring full-time workers to
cover:
30% of remaining OT hours.... 8,428 98,322 18.8
20% of remaining OT hours.... 5,618 112,368 12.5
10% of remaining OT hours.... 2,809 126,414 6.3
------------------------------------------------------------------------
\a\ The number of new hires is the number of full-time (35 hours per
week) workers needed to cover the specified proportion of the total
estimated 1.1 million overtime hours per week currently available to
part-time workers (i.e., overtime hours worked by agency-employed
workers and non-family IHSS workers). The number of part-time workers
converted to full-time is calculated as the number of workers whose
hours are increased from 28 to 35 per week needed to cover the
specified proportion of current overtime hours per week. The hiring
costs are based on an estimated cost of $2,230 per hire.
Travel Time
The FLSA requires that employees who, in the normal course of work,
travel to more than one worksite during the workday be paid for travel
time between each worksite. If the direct care worker travels to the
first consumer directly from home, and returns directly home from the
final consumer, travel time for the first trip and last trip generally
are not considered to be compensable hours worked. It is clear that at
least some direct care workers travel between consumers for the same
employer and are thus entitled to be paid for that time. However, the
Department has been unable to find evidence concerning how many workers
routinely travel as part of the job, the number of hours spent on
travel, or what percentage of that travel time currently is
compensated.
New York City's amicus brief does suggest, however, that projected
travel time pay would be about 19.2 percent of the size of overtime
costs.\161\ As discussed in the summary of public comments, the
Department received no comments providing additional data or
alternative methods to revise this calculation; an alternative method
using data on travel time in the NHHAS suffered from too many
limitations to produce a suitable estimate. With no other data
available, the 19.2 percent figure seems reasonable to estimate
potential travel time pay. A number of qualifications apply to the use
of this ratio. First, there is anecdotal evidence that agencies that
operate in the city make little effort to minimize travel on the part
of their workers; since travel is ``free'' to the agency, there is
little incentive to manage travel time. Second, because there is no
explanation of how either overtime or travel time estimates were
generated, a closer examination of the data might change either or both
estimates.\162\ Third, it is unclear how work and travel patterns in
New York City apply to the rest of the country. For example, anecdotal
evidence suggests that direct care workers in rural areas might have to
travel further between consumers, but their typical caseload patterns
and total travel time are unknown. A survey of 261 direct care workers
in Maine found workers traveled between 0 and 438 miles per week for an
average unreimbursed mileage of 45 miles per week. One survey
participant's comment was compelling: ``I had to give up my other
clients because the price of gas and low wages I wasn't making ends
meet.'' \163\ However, it is not possible to estimate whether travel
would involve longer or shorter periods of time than travel in New York
City, which presumably often involves travel by public transportation
or by car in heavily congested road conditions.
---------------------------------------------------------------------------
\161\ Brief of Amici Curiae City of New York. 2007.
\162\ Thus, it is plausible that a modification in the
assumptions used to generate one estimate might also affect the
second estimate. The ratio of travel time to overtime might remain
relatively stable even if the absolute values of the estimates
change.
\163\ Ashley, A., Butler, S., Fishwick, N. (2010). Home Care
Aide's Voices from the Field: Job Experiences of Personal Support
Specialists. The Maine Home Care Worker Retention Study. Home
Healthcare Nurse, 28(7), 399-405. Available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2946202/.
---------------------------------------------------------------------------
The Department expects few independent providers will be affected
by the travel time provision. Although the FLSA requires that employees
who travel to more than one worksite during the workday for one
employer be paid for travel time between each worksite, in the case of
independent providers, any travel between work sites most likely
represents travel from one employer to another, not travel between
sites for the same employer. Therefore the Department anticipates that
few independent providers will be entitled to travel time pay, and
included no independent providers in the cost model (because they would
be traveling between separate employers and thus the time is not
considered work time).
[[Page 60532]]
Subject to the qualifications described above, applying New York
City's 19.2 percent figure to the total overtime cost with no
adjustments to direct care worker schedules and pay for 100 percent of
current overtime hours, the Department estimates that the requirement
to pay travel time under the FLSA might add approximately $104.3
million per year to employer costs (7 percent annualization rate).\164\
In estimating travel time pay, the Department assumes that agencies
will make no scheduling adjustments to overtime hours (thereby paying
100 percent of overtime costs) and that travel time pay will maintain a
constant proportion to overtime hours.
---------------------------------------------------------------------------
\164\ It is unknown whether travel hours will be paid at
straight time or overtime rates; this will vary according to the
circumstances of the individual worker. If we assume all travel
hours are overtime hours, and are paid at approximately $14.50 per
hour, then the $68.1 million in incremental travel time pay in Year
1 suggests about 4.7 million hours per year are spent in travel. If
we assume all travel hours are straight time hours, and are paid at
approximately $9.67 per hour, then the $68.1 million in incremental
travel time pay suggests about 7.0 million hours per year are spent
in travel.
---------------------------------------------------------------------------
Industry groups suggest that a significant portion of agencies
already pay for overtime, including agencies that voluntarily pay for
travel and overtime in states that do not require overtime
compensation. The IHS Global Insight comment reports that 50 percent of
its survey respondents pay travel time, including 39 percent of those
in states that do not require it. Because this survey is not a random
sample it is unknown how representative the results are of the industry
in general. However, given the uncertainty concerning the travel
estimate, the Department did not adjust it downwards to reflect these
comments. Furthermore, because the Department's estimate of travel time
pay assumes agencies pay 100 percent of overtime costs, the travel time
pay figures presented in this analysis overestimate travel time pay
costs resulting from the Final Rule.
Industry Adjustments Response to Travel Time Requirement
As a result of this provision, agencies should have significant
incentive to reduce travel between consumers for their employees, and
therefore reduce costs. It is difficult, however, to predict the
potential magnitude of the cost reduction. It might be difficult to
reduce travel due to consumer preferences for specific direct care
workers, or the geographical dispersion of consumers (especially in
rural areas).
Therefore, although the Department anticipates travel will be
reduced as a result of the Final Rule, it cannot predict the magnitude
of this reduction. First, there may be some minimum level of necessary
travel that is irreducible. Second, although agencies have incentive to
more carefully manage costs associated with employee travel, they might
be able to do so in such a way that agencies avoid increased costs, but
results in little reduction in travel by their employees. For example,
employees currently working overtime may have their hours reduced and
obtain a second job in order to work more hours. This would likely
increase the uncompensated travel time of such workers.
Live-in Domestic Service Employees
The Final Rule limits the application of the overtime exemption
contained in Sec. 13(b)(21) of the Act to the individual, family or
household employing the live-in domestic worker. Third party employers
would no longer be entitled to claim the exemption. In addition, the
rule requires employers of live-in domestic workers to maintain an
accurate record of hours worked, rather than simply keeping a copy of
the agreement made by the employer and employee covering hours of work.
The cost to employers of the recordkeeping requirement, discussed more
fully in the Paperwork Reduction Act (PRA) section of this preamble, is
estimated to be $29.7 million (which reflects the amount for the entire
information collection-approximately $8.95 million of which stems from
this Final Rule). These figures reflect year 1 only. Following year 1,
the regulatory familiarization burden associated with this Final Rule
will drop substantially. The Department utilized a 1979 study of
Domestic Service Employees which incorporated 1974 data on the number
of live-in domestic service workers and assumed for purposes of the PRA
that a similar percentage of the current domestic service worker
population is employed in live-in domestic service work today. The
Department has been unable, however, to identify current data to
estimate the number of live-in domestic service workers employed by
third party agencies, but based on the 1979 data, we do not expect the
impact of the change concerning third party employment to be
substantial. Although the Department has estimated the number of live-
in domestic service workers for purposes of the PRA, we have not
included the 1979 data in the economic analysis because the data does
not provide information to estimate the number of hours worked by live-
in domestic service workers per week (and whether the hours exceed 40),
or information to estimate the percentage of live-in domestic service
workers employed by third party entities. The Department also received
no relevant comments providing such information.
G. Total Transfers
Due to the continuum of different responses to the regulation, the
Department analyzed three possible scenarios with respect to overtime.
As previously discussed, in view of the comments received, the
Department believes that paying for 100 percent or 0 percent of
overtime are highly unlikely scenarios. Therefore, in the Final Rule
the Department assumes 60 percent of current overtime will be paid in
OT Scenario 1, 40 percent of current overtime will be paid in OT
Scenario 2, and 10 percent will be paid in OT Scenario 3. Based on the
combination of two industry surveys, empirical research, and employer
comments, the Department believes that OT Scenario 2 reflects the most
likely impacts of the Final Rule. Scenario 1 assumes the agency pays
employees the overtime premium for over half of overtime hours worked.
Conversely, the employer might change scheduling practices to avoid the
majority of overtime costs to the extent practicable and hire
additional workers as necessary to work the extra hours. In addition,
it is assumed that additional staff can be hired at the current going
wage rate under all three of these scenarios. As described above,
additional managerial costs to agencies might occur as a result of
changes in staffing; the Department has no basis for estimating these
costs, but believes they are relatively small. Therefore, they are not
included in the three scenarios.
The three scenarios in rank order from highest to lowest amount of
overtime that will be paid by employers are:
OT Scenario 1: The Department assumes agencies pay 60
percent of the overtime currently worked. Agencies use a combination of
hiring additional direct care workers and increasing hours of current
part-time workers to cover the remaining 40 percent of current overtime
hours.
OT Scenario 2: The Department assumes agencies make a
partial adjustment to staffing; overtime compensation is reduced, but
not eliminated, by hiring some additional staff or increasing hours to
part-time workers. OT Scenario 2 assumes employers will pay the direct
care workers for 40 percent of the overtime currently worked and hire
additional direct care workers or increase hours for part-time workers
to cover the remaining hours.
OT Scenario 3: The Department assumes agencies ban
overtime to the
[[Page 60533]]
extent possible and increase staffing to ensure few employees work more
than 40 hours per week. The Department assumes that because of
rigidities in staff and consumer preferences and schedules it will not
be possible to reduce overtime to zero. Furthermore, some agencies
already pay overtime voluntarily. Thus, the Department believes 10
percent of the overtime currently worked is a reasonable expectation
for the level of overtime achieved under this scenario.
Table 10 presents an overview of the total estimated transfers of
this rule where the scenarios represent a range of potential outcomes;
actual transfers will depend on the response of employers to the Final
Rule.
Table 10--Summary of Year 1 Transfers
------------------------------------------------------------------------
Total
Transfer components transfers Comments
($ mil.)
------------------------------------------------------------------------
Travel Time Compensation......... $68.1
Overtime Scenarios:
OT 1 \a\..................... 213.2 60% of $355.3 million.
OT 2 \b\..................... 142.1 40% of $355.3 million.
OT 3 \c\..................... 35.5 10% of $355.3 million.
Total Transfers by Scenario...... Employers of workers not
currently entitled to
overtime protections:
Travel + OT Scenario 1....... 281.3 Allocate all but 60
percent of overtime
to non-overtime
workers.
Travel + OT Scenario 2....... 210.2 Allocate all but 40
percent of overtime
to non-overtime
workers.
Travel + OT Scenario 3....... 103.7 Allocate all but 10
percent of overtime
to non-overtime
workers.
------------------------------------------------------------------------
\a\ The Department estimates that 50,000 IHSS workers currently work
overtime and about 110,000 (12% of 917,000) non-IHSS workers currently
work overtime. Therefore, of the total estimated transfer, about 31
percent (e.g., $66.6 million in Year 1) is attributable to IHSS direct
care workers.
\b\ Of the total, about 31 percent (e.g., $44.4 million in Year 1) is
attributable to IHSS direct care workers.
\c\ Of the total, about 31 percent (e.g., $11.1 million in Year 1) is
attributable to IHSS direct care workers.
The Department examined three scenarios representing varying
agencies' potential responses to the overtime compensation requirement.
There is little hard evidence concerning which scenario is most likely
to occur based upon employer comments.\165\ However, agencies have
reasonable alternatives to paying the overtime premium: Spreading
existing overtime hours to other workers, either new employees or
current employees who want more hours. The Department expects that OT
Scenario 1 is the least likely to occur; there is no reason to believe
agencies will pay workers for significant amounts of overtime if they
can avoid it. OT Scenario 1 represents an upper estimate that projected
transfer effects will probably not exceed. OT Scenario 3 represents a
lower estimate below which projected transfers are unlikely to fall.
Based on the combination of two industry surveys, empirical research,
and employer comments, the Department believes that OT Scenario 2
reflects the most likely impacts of the Final Rule and thus, believes
that OT Scenario 2 best represents the true transfer effects resulting
from the overtime requirement.
---------------------------------------------------------------------------
\165\ National-level quantitative analyses have produced results
consistent with the Department's qualitative analysis for this labor
market:
Barkume, Anthony. (2010). The Structure of Labor Costs with
Overtime Work in U.S. Jobs, Industrial and Labor Relations Review,
64(1): 128-142.
Trejo, Stephen. (1991). The Effects of Overtime Pay Regulation
on Worker Compensation, American Economic Review, 81(4): 719-40.
Trejo, Stephen. (2003). Does the Statutory Overtime Premium
Discourage Long Workweeks? Industrial and Labor Relations Review,
56(3): 530-551.
---------------------------------------------------------------------------
There are multiple channels through which hours can be spread to
additional workers without significantly increasing non-overtime wages.
For example, the Department examined scheduling patterns for consumers
who require 24-hour care 7 days per week. With 2 direct care workers
overtime might range from 18 to 46 hours per week depending on
scheduling (assuming an average of 6.25 hours of sleep and 1.5 hours
for mealtime for each 24 hour shift). By adding one more direct care
worker, overtime can be reduced to perhaps 15 hours or less per week
with similar assumptions concerning sleep and meal time.
The extent to which current employees work more than 40 hours per
week provides little evidence of a potential labor shortage in this
industry; because most agencies are not required to comply with
overtime compensation requirements for these workers, they have had
little incentive to manage workers in a way to avoid overtime.
Furthermore, the existence of a significant pool of part-time workers
who would prefer to work more hours suggests that a general labor
shortage does not exist (although there might be some localized
shortages).
Projected Future Costs and Transfer Effects Due to Industry Growth
As documented above in this analysis, the demand for direct care
workers has grown significantly over the past decade and is projected
to continue growing rapidly. One researcher has projected at least a
200 percent increase in demand for direct care workers over the next 40
years.\166\ Therefore, the Department examined how the provisions in
the Final Rule might impact a rapidly growing industry.
---------------------------------------------------------------------------
\166\ HHS, 2001. pgs. 4, 5, and 7.
---------------------------------------------------------------------------
To project regulatory familiarization costs, the Department first
estimated both the number of agencies and the number of independent
providers likely to enter the market. The Department used U.S. Census'
Business Dynamics Statistics to estimate an average annual firm
``birth'' rate of 8.6 percent of existing firms.\167\ With 89,400
affected agencies in the baseline, this projects to 7,700 new agencies
per year that will incur incremental regulatory familiarization costs.
---------------------------------------------------------------------------
\167\ U.S. Census Bureau, Center for Economic Studies. Business
Dynamics Statistics: Firm Age by Firm Size. Available at: http://www.census.gov/ces/dataproducts/bds/data_firm.html. Accessed April
10, 2013.
---------------------------------------------------------------------------
The projected number of families expected to hire independent
providers was calculated using U.S. Census population projections by
age. Census projected that the number of individuals age 65 and older
will increase from 40.3 million in 2010 to 56.0 million in 2020 (39
percent), while those age 85 and older will increase from 5.5 million
to 6.7 million (22 percent) over the same time period.\168\ The
Department selected
[[Page 60534]]
the weighted midpoint of these two age groups to estimate the growth
rate of the population most likely requiring assistance. This growth
rate over 10 years (37 percent) was applied to the number of
independent home care providers in the baseline year (182,600) to
estimate that 250,000 independent providers would be supplying services
to 250,000 families by 2021, an average of 6,744 new workers per year
from 2012 to 2021.\169\
---------------------------------------------------------------------------
\168\ U.S. Census Bureau, Population Division. Table 1:
Intercensal Estimates of the Resident Population by Sex and Age for
the United State: April 1, 2000 to July 1, 2010. Available at:
http://www.census.gov/popest/data/intercensal/national/nat2010.html.
Accessed April 10, 2013; U.S. Census Bureau. 2012. National
Population Projections. Table 2: Projections of the Population by
Selected Age Groups and Sex for the United States: 2015 to 2060.
Available at: http://www.census.gov/population/projections/data/national/2012/summarytables.html. Accessed April 10, 2013.
\169\ These do not include families that are using the services
of IHSS direct care workers.
---------------------------------------------------------------------------
However, this estimate does not account for turnover among
individuals, families, and households hiring independent home care
providers; the Department accounted for this by assuming that 50
percent of the previous year's independent home care providers would
gain a new consumer, and that consumer or consumer's family would
require regulatory familiarization. Thus, on average, regulatory
familiarization costs among families hiring independent providers each
year was calculated at 50 percent of the previous year's providers plus
6,744.
Consistent with the baseline estimate, new agencies projected to
incur regulatory familiarization costs are assumed to require two
incremental hours at a rate $38.44 per hour. Families hiring
independent providers are assumed to require one hour of regulatory
familiarization at a rate of $29.60. Table 11 summarizes the estimation
of projected regulatory familiarization costs. The analytic baseline
for projecting the costs of this rule is 2011 due to data availability,
and therefore the projected first and second year costs of the rule
appear to be in the past. This approach is necessary because the
projections rely on and are later compared to year-specific estimates
from other sources (e.g., projected home health expenditures). For
Table 11, 2011 data should be interpreted as the pre-rule baseline,
with 2012 representing projected costs for Year 1 following
promulgation of the rule, 2013 representing Year 2, and so on. When
comparing numbers projected by other agencies (e.g., BLS Occupational
Outlook, CMS Office of the Actuary), the actual year label is
appropriate.
Table 11--Projected Regulatory Familiarization Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Agencies requiring Families requiring regulatory familiarization
regulatory --------------------------------------------------
familiarization Costs ($
Year ------------------------ Costs ($ mil.)
Costs ($ Total IPs New IPs Turnover mil.)
Number mil.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011............................................................... 89,446 6.88 182,604 ........... ........... 5.41 12.28
2012............................................................... 7,718 0.59 189,348 6,744 94,794 2.80 3.39
2013............................................................... 7,718 0.59 196,092 6,744 98,046 2.90 3.50
2014............................................................... 7,718 0.59 202,836 6,744 101,418 3.00 3.60
2015............................................................... 7,718 0.59 209,581 6,744 104,790 3.10 3.70
2016............................................................... 7,718 0.59 216,325 6,744 108,162 3.20 3.80
2017............................................................... 7,718 0.59 223,069 6,744 111,534 3.30 3.89
2018............................................................... 7,718 0.59 229,813 6,744 114,906 3.40 3.99
2019............................................................... 7,718 0.59 236,557 6,744 118,279 3.50 4.09
2020............................................................... 7,718 0.59 243,301 6,744 121,651 3.60 4.19
2021............................................................... 7,718 0.59 250,045 6,744 125,023 3.70 4.29
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected hiring costs under the three overtime scenarios are based
on the projected growth in overtime hours. Projections of employment
growth and projections of future overtime hours worked and overtime
compensation are explained and quantified below. Only those new hires
and their associated hiring costs that can be considered to be caused
by this rule are considered (see Table 12). That is, the vast majority
of new employees represented by job growth occur regardless of the rule
and therefore the costs of hiring those workers are not attributable to
the rule. It is only when an agency has to hire an additional worker as
a result of the rule (i.e., a worker the agency would not have
otherwise hired in the absence of the rule) that regulatory costs are
attributed to this Final Rule.
The number of new hires attributable to the rule is a small
fraction of the projected growth in employment in this industry. First,
since we assume future overtime work patterns resemble current
patterns, only 12 percent of each year's new employees are expected to
work overtime. Second, because on average they work 8.8 hours of
overtime per week, total overtime hours per 100 new hires is analogous
to 2.6 full-time equivalent (FTE) positions. Third, the Department
expects agencies will pay the overtime premium for some of those hours
(10 to 60 percent): Thus, of the potential 2.6 FTE overtime hours, only
1.0 to 2.3 FTE overtime hours are necessary to cover reallocated
overtime. Finally, the Department believes most (70 to 90 percent) of
those 1.0 to 2.3 FTE overtime hours are likely to be reallocated to
current part-time workers, and only 10 percent to 30 percent of those
hours are allocated to new hires. Thus, the projected number of new
hires that can be attributed to the rule is a very small percentage of
the total number of new workers the industry is expected to hire over
the next 10 years.
Table 12 shows the estimated number of new hires attributable to
this rule and their associated costs. The Department projects that the
average number of new hires caused by this rule ranges from 228 to
1,542, depending on the overtime and hiring scenario. Using a 7 percent
real rate, the average annualized costs associated with hiring these
workers range from $0.6 to $1.8 million in OT Scenario 1, $0.9 to $2.7
million in OT Scenario 2 and from $1.3 to $4.0 million in OT Scenario
3.
[[Page 60535]]
Table 12--Projected Hiring Costs \a\
----------------------------------------------------------------------------------------------------------------
Future years ($ Average annualized Number of hires
mil.) \b\ value ($ mil.) ---------------------
Hiring full-time workers to cover: Year 1 ($ --------------------------------------------
mil.) 3% Real 7% Real Year 1 Average
Year 2 Year 10 rate rate \c\
----------------------------------------------------------------------------------------------------------------
OT Scenario 1......................
30% of remaining OT hours...... 8.4 $0.8 $0.8 $1.6 $1.8 3,746 685
20% of remaining OT hours...... 5.6 0.5 0.5 1.1 1.2 2,497 457
10% of remaining OT hours...... 2.8 0.3 0.3 0.5 0.6 1,249 228
OT Scenario 2......................
30% of remaining OT hours...... 12.5 1.2 1.2 2.5 2.7 5,618 1,028
20% of remaining OT hours...... 8.4 0.8 0.8 1.6 1.8 3,746 685
10% of remaining OT hours...... 4.2 0.4 0.4 0.8 0.9 1,873 343
OT Scenario 3......................
30% of remaining OT hours...... 18.8 1.7 1.7 3.7 4.0 8,428 1,542
20% of remaining OT hours...... 12.5 1.2 1.2 2.5 2.7 5,618 1,028
10% of remaining OT hours...... 6.3 0.6 0.6 1.2 1.3 2,809 514
----------------------------------------------------------------------------------------------------------------
\a\ Projected number of hires and hiring costs are based on the projected growth in the number of overtime hours
in Table 16.
\b\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so
these two values are reported.
\c\ Simple average over 10 years.
To estimate the number of incremental direct care workers who might
earn overtime compensation or travel time compensation under the
revisions, the Department utilized BLS Occupational Outlook employment
projections for 2020.\170\ The Department interpolated employment data
for 2012 through 2019, and extrapolated the time series through 2021
using a constant rate of growth assumption. Wage data were directly
extrapolated through 2021 using the time trend from 2000 through 2011.
Based on these time series:
---------------------------------------------------------------------------
\170\ Bureau of Labor Statistics, U.S. Department of Labor,
Occupational Outlook Handbook, 2010-11 Edition, Home Health Aides
and Personal and Home Care Aides. Available at: http://www.bls.gov/oco/ocos326.htm. Accessed September 20, 2011.
---------------------------------------------------------------------------
Home Health Aide employment will increase by an average of
8.7 percent per year; \171\ their median nominal wage will increase by
an average of 2.72 percent per year while median real wage will
increase by an average of 1.53 percent per year.\172\
---------------------------------------------------------------------------
\171\ Total hours worked and overtime hours worked will increase
at the same rate in this model.
\172\ The Department adjusted nominal wages for inflation using
the average increase in the PPI for Home Health Services over the
last 10 years (1.2 percent).
---------------------------------------------------------------------------
Personal Care Aide employment will increase by an average
of 8.0 percent per year; their median nominal wage will increase by an
average of 3.88 percent per year, and the median real wage will
increase by an average of 2.70 percent per year.
Table 13 summarizes the projections of HHA and PCA employment and
wages developed for this analysis.
Table 13--Projected Employment and Hourly Wage, HHAs and PCAs, 2011-2021 \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Home health aides Personal care aides
-----------------------------------------------------------------------------------------------
Median wage Median wage
Year Total -------------------------------- Total -------------------------------
employment Inflation- employment Inflation-
(mil.) Nominal adjusted \b\ (mil.) Nominal adjusted \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011.................................................... 0.92 $9.91 $9.91 0.82 $9.49 $9.49
2012.................................................... 1.01 10.16 10.05 0.89 10.34 10.23
2013.................................................... 1.10 10.47 10.23 0.96 10.73 10.50
2014.................................................... 1.19 10.78 10.42 1.04 11.13 10.75
2015.................................................... 1.28 11.09 10.59 1.11 11.52 11.01
2016.................................................... 1.37 11.40 10.76 1.18 11.91 11.25
2017.................................................... 1.46 11.71 10.93 1.25 12.30 11.49
2018.................................................... 1.55 12.03 11.09 1.32 12.69 11.72
2019.................................................... 1.64 12.34 11.24 1.40 13.08 11.94
2020.................................................... 1.72 12.65 11.39 1.47 13.48 12.16
2021.................................................... 1.81 12.96 11.54 1.54 13.87 12.37
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Derived from BLS Occupational Outlook.
\b\ Estimates based on 10 year average change in PPI for Home Health Services.
The Department did not project future (Year 2 and beyond) transfer
effects associated with minimum wage provisions of the FLSA being
extended to these occupations. BLS Occupational Employment Statistics
on HHA and PCA wages for 2010 indicate that few, if any, workers are
currently paid below minimum wage. BLS found no state in which the
tenth percentile wage was below $7.25 per hour.\173\ As previously
discussed, Congress passed amendments to the FLSA increasing the
Federal minimum wage only four times since it extended FLSA protections
to
[[Page 60536]]
domestic workers in 1974. Given that the minimum wage has reached the
maximum rate contained in the most recent amendments, any estimate of
the cost of this rule accounting for increases in the minimum wage
would be purely speculative.
---------------------------------------------------------------------------
\173\ BLS Occupational Employment Statistics, 2010 state
estimates. Available at: http://stats.bls.gov/oes/.
---------------------------------------------------------------------------
Projected Cost Impacts
This section draws on the estimates of costs to determine the
anticipated impact of this Final Rule in terms of total cost across all
industries as well as estimated cost per firm and per employee.
Table 14 presents the impact of regulatory direct costs on existing
agencies and individuals, families, and households in the first year.
First year regulatory familiarization costs total $12.3 million; when
annualized at a 7 percent discount rate over 10 years, total annualized
costs are $4.9 million per year. Cost per agency is $77, while families
employing independent providers will incur costs of $30 per individual,
family, or household. Hiring costs annualized at a 7 percent real
discount rate over 10 years range from $0.6 to $1.8 million in OT
Scenario 1, from $0.9 million to $2.7 million in OT Scenario 2, and
from $1.3 million to $4.0 million in OT Scenario 3. These correspond to
Year 1 costs per establishment of $31 to $94 in OT Scenario 1, $47 to
$140 in OT Scenario 2, and $70 to $211 in OT Scenario 3.
Table 14--Impact of Regulatory Direct Costs
----------------------------------------------------------------------------------------------------------------
Total projected compliance costs ($mil.) \b\
---------------------------------------------------------------- Year 1 cost
Component Future years per
Year 1 -------------------------------- Annualized at establishment
Year 2 Year 10 7% component \a\
----------------------------------------------------------------------------------------------------------------
Regulatory familiarization costs
----------------------------------------------------------------------------------------------------------------
Home Healthcare Agencies........ $6.9 $0.6 $0.6 $1.4 $77
Families Employing IPs.......... 5.4 2.8 3.6 3.5 30
----------------------------------------------------------------------------------------------------------------
Hiring Costs
----------------------------------------------------------------------------------------------------------------
OT Scenario 1:
30% of OT hours............. $8.4 $0.8 $0.8 $1.8 $94
20% of OT hours............. 5.6 0.5 0.5 1.2 62
10% of OT hours............. 2.8 0.3 0.3 0.6 31
OT Scenario 2:
30% of OT hours............. 12.5 1.2 1.2 2.7 140
20% of OT hours............. 8.4 0.8 0.8 1.8 94
10% of OT hours............. 4.2 0.4 0.4 0.9 47
OT Scenario 3:
30% of OT hours............. 18.8 1.7 1.7 4.0 211
20% of OT hours............. 12.5 1.2 1.2 2.7 140
10% of OT hours............. 6.3 0.6 0.6 1.3 70
----------------------------------------------------------------------------------------------------------------
\a\ Regulatory familiarization applies to 89,446 establishments; independent provider regulatory familiarization
will impact 182,604 entities.
\b\ Excludes paperwork burden, estimated in Section V.
Market Impacts
There are almost no data, such as price elasticities of supply or
demand, that can directly be used to model the market for companionship
services. Furthermore, because approximately 75 percent of expenditures
on home care services are reimbursed by public payers, the effect of
the rule depends on how the public payers respond to the increase in
the cost of providing home care services. However, despite these
limitations, the Department used available data combined with best
professional judgment concerning appropriate parameter values, to
project deadweight loss and disemployment effects of the Final Rule.
The selection of specific values and the rationale for those decisions
are explained in further detail below.
In this section, the Department first presents estimated transfer
effects for each provision of the rule, along with qualitative
discussion of potential market adjustments and impacts of that
provision. The Department then presents the projected deadweight loss
and disemployment effects of the Final Rule using a market model
framework.
The Department estimates:
Projected travel time pay represents a transfer of $68.1
million per year from agencies to employees (Table 10, although this
might decline as agencies will now have incentive to more closely
manage travel time). If these payments are spread equally over all
agencies in this industry, they represent about a 0.15 percent increase
in wages to employees. It is more likely that these payments will be
distributed less uniformly; employees of some agencies might receive
significant travel transfer effects, while others receive less.
Transfer effects associated with overtime are most
difficult to project. In Scenario 2 the $142.1 million in additional
wages compose about 0.31 percent of annual wages if overtime is spread
over all workers, or about 0.16 percent of average industry annual
revenues if spread over all establishments. Again, it is likely that
overtime compensation will be distributed less uniformly in a way that
is difficult to predict.
However, changes in wages are not the only determinant of how the
market might tend to respond to the Final Rule; the demand for home
care services, and therefore the demand for workers in this industry,
also affects the market response. Conceptually, the demand for
companionship services has two distinct components: Consumers covered
by public payers, and out-of-pocket payers. Multiple sources estimate
that the percent of home care expenditures accounted for by Medicare
and Medicaid range from about 75 percent to 90
percent.174 175 176 177 178 The
[[Page 60537]]
remaining expenditures are accounted for by out-of-pocket payers,
private insurance, and a mix of other governmental sources.
---------------------------------------------------------------------------
\174\ Seavey and Marquand, 2011, pgs 22, 23. WHD-2011-0003-3514.
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
\175\ Congressional Research Service. Memorandum dated February
21, 2012, titled ``Extending Federal Minimum Wage and Overtime
Protections to Home Care Workers under the Fair Labor Standards Act:
Impact on Medicare and Medicaid,'' p. 4. WHD-2011-0003-5683.
\176\ U.S. Census Bureau: Health Care and Social Assistance,
Estimated Year-to-Year Change in Revenue for Employer Firms by
Source, Table 8.10. Available at: http://www.census.gov/services/sas_data.html.
\177\ Home Health Care Services Payment System. The Medicare
Payment Advisory Commission (MedPAC). October 2010. Available at:
http://www.medpac.gov/documents/MedPAC_Payment_Basics_08_HHA.pdf.
\178\ ERG analysis of MEPS data. Agency for Healthcare Research
and Quality (AHRQ). Medical Expenditures Panel Survey. 2009.
Available at: http://meps.ahrq.gov/mepsweb/data_stats/download_data_files.jsp. Accessed March, 2012.
---------------------------------------------------------------------------
Currently, Medicare will cover, without a copayment requirement,
all--or almost all--of the allowed payment for home health care
services for consumers eligible for Medicare payments. Thus, the demand
for services by these consumers is likely to be highly inelastic, and
the purchase of these services is dependent primarily on need and
eligibility rather than price.\179\ The increase in the payment rate
resulting from an increase in costs may vary depending on the type of
cost increase. Because an increase in the minimum wage is an
unavoidable cost of providing these services, it seems reasonable to
assume that it will eventually be reflected in payment rates. The
impact of overtime and travel on reimbursement rates is more uncertain.
---------------------------------------------------------------------------
\179\ Home Health Care Services Payment System. The Medicare
Payment Advisory Commission (MedPAC). October 2010. Available at:
http://www.medpac.gov/documents/MedPAC_Payment_Basics_08_HHA.pdf. Medicare, for example, does not require copayment for
eligible patients.
---------------------------------------------------------------------------
Several commenters stated that Medicare/Medicaid only pay for
services and not travel or overtime. For example, Daniel Berland of the
National Association of State Directors of Disabilities Services
observed that ``Medicaid doesn't pay for time that is spent not working
directly for the consumer.'' The CRS observed that ``payments by
Medicare or Medicaid to an agency to provide home health aide services
or Medicaid personal care services are not the same as the wage that
that the agency pays to the worker'' and stated that over time the
payments under both Medicare and Medicaid could be adjusted to reflect
additional costs to agencies providing these services.\180\
---------------------------------------------------------------------------
\180\ Congressional Research Service. Memorandum dated February
21, 2012, titled ``Extending Federal Minimum Wage and Overtime
Protections to Home Care Workers under the Fair Labor Standards Act:
Impact on Medicare and Medicaid.'' WHD-2011-0003-5683.
---------------------------------------------------------------------------
Consumers who pay all, or a significant share, of costs out-of-
pocket might have a significantly different price elasticity of demand
for home care services. Little information is known about this market
segment, including the percent of home care consumers actually pay out-
of-pocket, as opposed to having private insurance to cover costs.
Because public payers account for about 75 percent of total payments
for home care services, it is likely that the private pay market
segment is significantly smaller than the public pay market. To the
extent that these consumers are not covered by private insurance and
pay out-of-pocket, they are likely to have a more elastic demand for
services; if the prices for home care services increase, these
consumers are more likely to search for lower cost alternatives.
However, the size of such an effect is difficult to predict on the
basis of extant information.
The Department expects the impact of this Final Rule on the market
for home care services to be relatively small because incremental
transfers are projected to be small relative to industry wages and
revenues, and because the market for these services is dominated by
government payers. However, to the extent that some transfers are not
reimbursed by government payers, and that agencies might therefore
increase the price to consumers, they might result in some consumers
seeking alternatives to the organized market for home care services.
Deadweight Loss
Deadweight loss from a regulation results from a wedge driven
between the price consumers pay for a product or service, and the price
received by the suppliers of those services. In this case, the transfer
of income from agency owners to agency employees through overtime
provisions reduces agencies' willingness to provide home care services.
Because consumers and their families must now pay more to receive the
same hours of service, they may reduce the number of hours of services
they purchase; it is this potential reduction in services that causes
the allocative inefficiency (deadweight loss) of the rule.
To estimate deadweight loss, the Department must estimate the
reduction in services agencies are willing to provide at the current
market price, the resulting increase in market price paid by consumers
and families, and their reduced purchases of home care services. To do
this, the Department uses: (1) The current market wage and hours of
home care services; (2) the estimated income transfers resulting from
the rule; and (3) the price elasticity of demand for and supply of home
care services.
PCA criticized the deadweight loss analysis in the NPRM because it
used an incorrect price elasticity of demand for direct care
workers.\181\ Upon further investigation, the Department determined
that the comment was accurate, although the commenter's suggested
alternative value was also flawed. Issues associated with the
estimation of the price elasticity of demand and deadweight loss are
discussed in detail in the Summary of Public Comments on the
Preliminary Regulatory Impact Analysis Section.
---------------------------------------------------------------------------
\181\ William Dombi, WHD-2011-0003-9595.
---------------------------------------------------------------------------
In addition, the Department accepts the commenter's point that the
market for direct care workers contains a private pay sector and a
public-funds-reimbursed sector that might differ substantially in terms
of consumer response to price changes. Therefore, the Department now
evaluates deadweight loss projections by explicitly modeling the two
distinct market sectors; the larger public pay market segment (75
percent of the market) is characterized by a highly inelastic price
elasticity of demand (-0.17), while the smaller private pay segment (25
percent of the market) has more elastic demand (-1.0).
The Department has estimated approximately 385,000 HHAs and 532,000
PCAs currently work without overtime protection. An additional 50,000
of 380,000 IHSS direct care workers routinely work more than 40 hours
per week but do not receive overtime compensation. These direct care
workers are potentially affected by the overtime provisions of the
Final Rule. The median hourly wage in these states is $9.91 for HHAs
and $9.49 for PCAs. The Department used the number of employees
affected by overtime provisions in its calculation of deadweight loss
because: (1) The populations of affected workers in states without
minimum wage and overtime provisions are largely overlapping (i.e.,
states without minimum wage protection also do not have overtime
protection) because the same worker might be paid less than the minimum
wage and also be working overtime, including both counts creates a
double-counting problem; (2) minimum wage impacts of the Final Rule are
estimated to be zero; and (3) spreading transfers over a smaller worker
population results in a more conservative estimate of deadweight loss
(that is, the Department is more likely to overestimate, than
underestimate, deadweight loss).
[[Page 60538]]
The Department included 30 percent of California IHSS direct care
workers in the deadweight loss analysis. Comments from the California
State Association of Counties, et al., indicate that perhaps 70 percent
of IHSS direct care workers are family members. This suggests they are
different from other agency-employed direct care workers. For example,
IHSS workers may not consider direct care to be their vocation (outside
of caring for their family members), and thus might be more likely to
quit than care for a non-family member after their family member no
longer needs care.\182\ Therefore, the Department believes most IHSS
direct care workers are likely to respond to market forces in different
ways than agency-employed direct care workers, and should not be
included in the deadweight loss analysis. The Department assumed that
those IHSS workers who exceed 40 hours of work per week are evenly
distributed among family and nonfamily direct care workers, and
therefore also included 30 percent of overtime premiums for IHSS
workers in the deadweight loss analysis.
---------------------------------------------------------------------------
\182\ CSAC, CWDA, CAPA, and CICA, WHD-2011-0003-9420.
---------------------------------------------------------------------------
The Department estimated a range of income transfers depending on
the assumptions made concerning business response to the regulation.
The Department assumes a split of overtime costs between agencies, who
pay at least some limited amount of overtime, and direct care workers,
whose hours of work are reduced by that agency (although the direct
care workers might seek additional hours to work at other agencies).
Combining the $142.1 million estimated overtime compensation costs
under OT Scenario 2 (expected by the Department to be the most probable
of the three scenarios), with the amounts due based upon the travel
time compensation provisions, the Department estimated the deadweight
loss of the rule based on first year transfer costs of $210.2 million;
this excludes 70 percent of overtime payments to IHSS workers. Thus,
the rule might cost $159 per potentially affected worker, or
approximately $0.09 per hour assuming workers average 35 hours per
week, about 0.89 percent of the current hourly wage for HHAs and 0.92
percent for PCAs.
There are no econometric estimates of the price elasticity of
demand or supply for home care services. The Department reviewed
econometric literature to identify alternatives to use as proxies for a
direct estimate of the price elasticity of demand for home care
services. For the price elasticity of demand for home care services
that are largely reimbursed by third party payers (e.g., public payers,
private insurance), the Department chose the price elasticity of demand
for ``health care services'' to use as a proxy for this analysis. The
primary consideration in selecting this value is that the demand for
home care should be largely inelastic due to the high degree of
reimbursement; this characteristic is similar to the demand for health
care services. A literature review shows that the price elasticity of
demand for health care services is generally in the -0.10 to -0.20
range. As discussed earlier in the analysis, the Department will use a
value of -0.17 in the deadweight loss model.
The price elasticity of demand for private pay care is expected to
be more elastic because this type of demand is often for long-term
chronic care, and is typically not reimbursed by third party payers.
Therefore the Department selected the price elasticity of demand for
nursing home care to use as a proxy: nursing home care appears to be a
close substitute for long-term private pay home care because consumers
frequently must choose between living at home with assistance, or
entering a nursing home or assisted living facility if that assistance
is unavailable or too expensive. Literature shows price elasticities of
demand for nursing care in the -0.7 to about -4.0 range. For the
reasons previously discussed, the Department will use a value of -1.0
in the deadweight loss model.\183\
---------------------------------------------------------------------------
\183\ Rechovsky, J. (1998). The Roles of Medicaid and Economic
Factors in the Demand for Nursing Home Care, Health Services
Research, 33(4 Pt 1): 787-813.
---------------------------------------------------------------------------
For the purpose of estimating deadweight loss, the Department will
assume that the private pay sector composes perhaps 25 percent of the
home care services market; the private pay market segment will be
assumed to employ 25 percent of direct care workers and incur 25
percent of transfers in the form of overtime and travel time
compensation. This judgment is based primarily on the percentage of
home care services paid by public payers. Although private pay industry
commenters on the NPRM asserted the private pay market is large, they
provided little data to document this assertion. The only portion of
the private pay market that could be documented (e.g., private pay
franchisees) was a fraction of the number of agencies claimed to
operate in the private pay market.
In addition, the Department could find no corroboration to support
the claim of a large private pay segment in other databases. The
Department examined alternative data sources such as the nationally-
representative MEPS database, which captures the use of long-term non-
medical care (e.g., companionship and homemaker services) in addition
to short-term acute medical home care. The MEPS data offered little
support for the existence of a large private pay market for home care
services. Private pay appears to be more frequently used with
independent providers, whereas payment for agency services was
dominated by Medicare and Medicaid with a relatively small percentage
of consumers paying out-of-pocket for agency care.
The price elasticity of supply for hourly labor has been estimated
at 0.1 (a 1 percent increase in wages will cause a 0.1 percent increase
in hours supplied). However, among women, that price elasticity of
supply is estimated to be about 0.14; because hours worked in this
labor market are primarily supplied by women, the Department selected a
value of 0.14 to use as the price elasticity of supply of home care
services in this analysis.
Based on these price elasticities of supply and demand, the
estimated cost per direct care worker hour, and baseline employment and
wages, the Department projects that for:
HHAs, hourly wage will increase by $0.03 to $9.94, and
employment will decrease by about 332 (less than 0.1 percent of
affected HHAs), or about 604,900 hours of home care services annually;
deadweight loss will be $26,400 annually (less than 0.0001 percent of
industry revenues).
PCAs, hourly wage will increase by $0.03 to $9.52, and
employment will decrease by 479 (less than 0.1 percent of affected
PCAs), or about 872,500 hours of home care services annually;
deadweight loss will be $38,100 annually (less than 0.0001 percent of
industry revenues).
In addition, transfers to direct care workers will be borne by the
consumers and their families in the form of higher prices, and by
agencies and their owners in the form of reduced profit. The
determination of who pays these transfers is a function of the relative
price elasticities of supply and demand; the weighted average results
for the two market sectors shows that about 38 percent of transfers
will be borne by consumers, their families, and public payers, with the
remainder borne by agencies (about 62 percent). For:
HHAs, about $26.1 million is estimated to be paid by
consumers, their families, and public payers; while $42.8 million is
estimated to be paid by agencies and their owners in the form of
reduced income.
[[Page 60539]]
PCAs, consumers, their families, and public payers are
estimated to pay about $36.1 million, and $59.1 million is estimated to
be paid by agencies and their owners in the form of reduced income.
Table 15 summarizes both the values of the parameters used in the
deadweight loss analysis and the results of the analysis.
Table 15--Summary of Deadweight Loss Estimation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare/Medicaid reimbursed Private pay Total
--------------------------------------------------------------------------------------------------
HHA PCA Total HHA PCA Total HHA PCA Total
-----------------------------------------------------------------------------------------------------------------------------------------------
Values Used in Deadweight Loss Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Price Elasticity of Demand.................. -0.17 -0.17 ......... -1.00 -1.00 ......... N/A N/A .........
Price Elasticity of Supply.................. 0.14 0.14 ......... 0.14 0.14 ......... N/A N/A .........
Baseline Hourly Wage........................ $9.91 $9.49 ......... $9.91 $9.49 ......... $9.91 $9.49 .........
Baseline Employment \a\..................... 336,709 465,052 801,761 96,278 132,976 229,254 432,987 598,028 1,031,015
Compliance Costs ($ mil.) \b\............... ......... ......... $128.1 ......... ......... $36.1 ......... $164.3
Compliance Costs per Hour \c\............... ......... ......... $0.0878 ......... ......... $0.0866 ......... ......... $0.0875
--------------------------------------------------------------------------------------------------------------------------------------------------------
Results of Deadweight Loss Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Post-Rule Hourly Wage....................... $9.95 $9.53 ......... $9.92 $9.50 ......... $9.94 $9.52 .........
Change in Hourly Wage....................... $0.040 $0.040 ......... $0.011 $0.011 ......... $0.033 $0.033 .........
Post-Rule Total Employment.................. 336,480 464,722 801,202 96,174 132,827 229,001 432,654 597,549 1,030,203
Change in Employment........................ -229 -330 -559 -103 -149 -252 -332 -479 -812
Deadweight Loss............................. $18,300 $26,394 $44,694 $8,145 $11,748 $19,893 $26,445 $38,142 $64,587
% Paid by Purchasers \d\.................... 45.2% 45.2% 45.2% 12.3% 12.3% 12.3% 37.9% 37.9% 37.9%
Amount Paid by Purchasers ($ mil.).......... $24.3 $33.5 $57.8 $1.9 $2.6 $4.4 $26.1 $36.1 $62.3
% Paid by Employers \e\..................... 54.8% 54.8% 54.8% 87.7% 87.7% 87.7% 62.1% 62.1% 62.1%
Amount Paid by Employers ($ mil.)........... $29.5 $40.7 $70.2 $13.3 $18.4 $31.7 $42.8 $59.1 $101.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Agency employment in states without minimum wage and/or overtime laws and tax-exempt employers plus independent providers in states without minimum
wage laws.
\b\ Estimated sum of transfers and costs from overtime Scenario 2, travel, minimum wage, and regulatory familiarization costs. Values do not include
independent providers.
\c\ Assumes each direct care worker works 35 hours per week 52 weeks per year.
\d\ Costs and transfers paid by purchasers in the form of higher prices; includes direct purchase of home care services and services purchased through
public payers.
\e\ Costs and transfers paid by employers in the form of lower profits.
Impact to Medicare and Medicaid Budgets
In 2012, HHS outlays for Medicare programs totaled $591 billion,
and an estimated $34.1 billion went to home health programs.\184\ In
2009, HHS and state outlays in support of Medicaid totaled $374 billion
and approximately $50 billion went to home health
services.185 186 In 2009, Medicare and Medicaid accounted
for nearly 75 percent of home care services revenue; thus, the impact
of the Final Rule on home care will depend on how Medicare and Medicaid
respond to increased labor costs.
---------------------------------------------------------------------------
\184\ Center for Medicare and Medicaid Studies, Office of the
Actuary. National Health Expenditure Accounts 2011-2021. Available
at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
\185\ Detailed Medicaid data by type of home healthcare is not
yet available for 2012.
\186\ Kaiser Commission on Medicaid and the Uninsured. 2012
Medicaid Home and Community-Based Services Programs: 2009 Data
Update.
Note, not all of the HCBS goes to personal care services; a more
detailed breakdown of this spending is not available. For additional
data, see Kaiser Family Foundation, State Health Facts: http://statehealthfacts.org/comparetable.jsp?ind=242&cat=4.
---------------------------------------------------------------------------
Although increased compensation to workers under this Final Rule
associated with travel and overtime hours are considered transfer
effects from a societal perspective, the Department expects agencies
will try to pass these transfers through to Medicare and Medicaid to
the extent they are able. As described in the comment summary, several
commenters expressed concern that public funding does not pay for
travel and overtime; however, CRS notes that federal regulations do not
explicitly regulate direct care worker wage or benefit levels with
respect to service reimbursements. Agencies already pay workers only a
portion of the reimbursement as wages, and the remainder presumably
covers other costs of doing business. The CRS report also notes that
although initially the costs may be passed through to consumers, over
time Medicare and Medicaid reimbursements may be adjusted to reflect
the added costs to agencies.\187\
---------------------------------------------------------------------------
\187\ Congressional Research Service. Memorandum dated February
21, 2012, titled ``Extending Federal Minimum Wage and Overtime
Protections to Home Care Workers under the Fair Labor Standards Act:
Impact on Medicare and Medicaid.'' WHD-2011-0003-5683.
---------------------------------------------------------------------------
Under the three overtime scenarios examined, average first year
transfer payments range from $103.7 to $281.3 million depending on how
home care agencies respond to overtime requirements. Assuming transfer
payments are incurred proportionately to the percentage of baseline
home care costs, then services funded by public payers might account
for approximately 75 percent of these overtime and travel payments,
about $77.7 million to $211.0 million in the first year. These payments
compose 0.13 to 0.35 percent of total HHS and state outlays for home
care services ($60.4 billion in 2011).\188\
---------------------------------------------------------------------------
\188\ Center for Medicare and Medicaid Studies, Office of the
Actuary. National Health Expenditures by type of service and source
of funds, CY 1960-2011. Available at: http:www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.
---------------------------------------------------------------------------
Projected Future Transfer Effects Due to Industry Growth
This section projects transfer effects and other impacts over 10
years. The Department used several key assumptions to develop these
projections. First, the Department assumed that the number of home care
workers directly employed in the homes and employed in states without
current overtime premium requirements will remain a constant percentage
of total employment in those occupations between 2012 and 2021 (about
41.6 percent of HHAs and 64.8 percent of PCAs).\189\ We also assume
that IHSS
[[Page 60540]]
employment grows at the same rate as HHA and PCA employment, and that
70 percent of IHSS workers care for family members.
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\189\ These percentages are derived by dividing the number of
workers without overtime coverage (917,039 total; 385,115 HHAs plus
531,924 PCAs) by the total employment (1.75 million; 924,660 HHAs
plus 820,630 PCAs). Specifically, for HHAs, the source of the
percentage is 385,115/924,660 and for PCAs, it is 531,923/820,630
(see Table 8).
---------------------------------------------------------------------------
Second, the Department also maintained the assumptions that 12
percent of HHAs and PCAs exceed 40 hours worked per week and that 10
percent of these direct care workers work 6.4 hours of overtime per
week while 2 percent work 21.0 hours of overtime per week. We assume
IHSS workers exceeding 40 hours per week remain a constant percent of
total IHSS workers. These overtime assumptions are identical to those
used to estimate costs and transfers for the Year 1 baseline analysis.
Third, consistent with the baseline analysis, we project three
overtime scenarios. In these scenarios, employers adjust schedules as
follows:
OT Scenario 1: Employers adjust the hours worked and pay
workers an overtime premium for 60 percent of the overtime hours worked
prior to the rule.
OT Scenario 2: Employers adjust the hours worked and pay
workers an overtime premium for 40 percent of the overtime hours worked
prior to the rule.
OT Scenario 3: Employers adjust the hours worked and limit
overtime hours to 10 percent of the overtime hours worked prior to the
rule.
Finally, we continue to estimate travel time pay as 19.2 percent of
overtime evaluated at 100 percent of baseline overtime hours worked.
The Department excluded potential transfer effects associated with
the minimum wage provision from the projections because the number of
workers earning less than the minimum wage has declined steadily, to
the point of being at or near zero, as nominal wages have increased:
thus, the Department estimates that the minimum wage provisions of this
Final Rule will have negligible impact if the federal minimum wage
stays at its current level. As previously discussed, based on the
infrequency with which Congress historically has enacted updates to the
minimum wage, the Department did not assume any minimum wage increase
in the analysis. Although the Department expects that the parameters
used in this analysis will not remain constant through 2021, it has
insufficient information on which to base estimates of how these key
variables might change over time. Therefore, maintaining the
assumptions used in the Year 1 analysis provide the best basis for
projecting future costs and transfer effects.
Based on the data and assumptions described in this section, and
the employment and wage projections in Table 13, Table 16 presents the
Department's projections through 2021 of overtime and travel time
compensation attributable to the revisions to the companionship
regulations in this Final Rule.
Table 16--Projected HHA and PCA Overtime Hours, Overtime Compensation and Travel Time Compensation Attributable to Final Rule, 2012-2021 \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Overtime hours worked (millions) Overtime and travel time compensation (millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year Scenario 1 Scenario 2 Scenario 3 Scenario 1 Scenario 2 Scenario 3 Travel
--------------------------------------------------------------------------------------------------------------------------------------------------------
........... ........... ........... Nominal Dollars
---------------------------------------------------
2012......................................................... 48.1 32.1 8.0 $247.0 $164.6 $41.2 $78.9
2013......................................................... 52.1 34.8 8.7 276.9 184.6 46.1 88.5
2014......................................................... 56.2 37.4 9.4 308.3 205.5 51.4 98.5
2015......................................................... 60.2 40.1 10.0 341.1 227.4 56.8 109.0
2016......................................................... 64.2 42.8 10.7 375.3 250.2 62.6 120.0
2017......................................................... 68.2 45.5 11.4 411.0 274.0 68.5 131.4
2018......................................................... 72.2 48.2 12.0 448.1 298.7 74.7 143.2
2019......................................................... 76.3 50.8 12.7 486.6 324.4 81.1 155.5
2020......................................................... 80.3 53.5 13.4 526.6 351.0 87.8 168.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
2021......................................................... 84.3 56.2 14.0 568.0 378.6 94.7 181.5
---------------------------------------------------
........... ........... ........... Inflation-Adjusted Dollars \b\
---------------------------------------------------
2012......................................................... 48.1 32.1 8.0 $244.2 $162.8 $40.7 $78.1
2013......................................................... 52.1 34.8 8.7 270.7 180.5 45.1 86.5
2014......................................................... 56.2 37.4 9.4 297.9 198.6 49.7 95.2
2015......................................................... 60.2 40.1 10.0 325.8 217.2 54.3 104.1
2016......................................................... 64.2 42.8 10.7 354.4 236.3 59.1 113.3
2017......................................................... 68.2 45.5 11.4 383.6 255.8 63.9 122.6
2018......................................................... 72.2 48.2 12.0 413.5 275.6 68.9 132.2
2019......................................................... 76.3 50.8 12.7 443.9 295.9 74.0 141.9
2020......................................................... 80.3 53.5 13.4 474.8 316.5 79.1 151.8
2021......................................................... 84.3 56.2 14.0 506.2 337.5 84.4 161.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Calculations based on employment and wage data in Table 13 and specified assumptions.
\b\ Inflation estimates based on 10-year average change in PPI for Home Health Services.
The Department projects that paid overtime hours will increase from
48.1 million to 84.3 million between 2012 and 2021 with a consequent
increase in overtime compensation from $247.0 million to $568.0 million
(OT Scenario 1). This corresponds to a $244.2 to $506.2 million
increase in inflation-adjusted overtime compensation. In OT Scenario 2,
overtime compensation is projected to increase from $162.8 million to
$337.5 million in inflation-adjusted dollars. Assuming employers only
cover 10 percent of overtime, and the other 90 percent of overtime
hours
[[Page 60541]]
are eliminated through scheduling changes and/or hiring additional
workers (OT Scenario 3), the projected increase ranges from $40.7
million to $84.4 million in inflation-adjusted dollars. Travel time
compensation is projected to increase from $78.1 million to $161.8
million in inflation-adjusted dollars over that same period.
To place these projected future transfer effects resulting from the
Final Rule in context, the Department compared nominal transfer effects
to projected Medicare and Medicaid spending over the same period. The
Centers for Medicare & Medicaid Services report that in 2012 Medicare
expenditures totaled $590.8 billion, while Medicaid expenditures were
$458.9 billion; $34.1 billion of Medicare and $29.7 billion of Medicaid
expenditures were spent on the provision of home care services.\190\ By
2021, annual Medicare and Medicaid expenditures are projected to total
$1,964 billion of which annual home care expenditures under both
programs might increase to $126 billion .
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\190\ The 2009 Medicaid home care expenditures of $50 billion
cited earlier in the report is composed of three types of programs:
Home Health, Personal Care Services, and HCBS 1915 waiver programs.
These data are compiled retrospectively by the Kaiser Commission on
Medicaid and the Uninsured, and the Department believes that
spending in these three types of programs best characterizes
Medicaid home health expenditures. CMS Office of the Actuary
classifies home health care expenditures somewhat differently in its
National Health Expenditures Projections; in 2009 the NHE value for
home health care was about half the Kaiser value at $24.3 billion.
The Department chose to use the official CMS projections for home
health care for consistency in methodology with all other
expenditure projections used in this section and presented in Table
17. The Department believes these projections underestimate future
Medicaid home health expenditures; however, note that if larger
projected values were used in the analysis, the impacts presented in
Table 17 would be proportionately smaller.
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After adjusting projected overtime and travel transfer effects, the
Department expects that these incremental transfers will compose 0.40
percent of projected Medicare and Medicaid Home Health Care
expenditures under OT Scenario 1, 0.30 percent under Scenario 2, and
0.154 percent of those expenditures under OT Scenario 3. Table 17
summarizes the projected National Health Care budgets, incremental
payments attributable to the Final Rule, and those payments as a
percent of National Health Care expenditures from 2012 through 2021.
Projected overtime and travel payments resulting from the rule account
for a similar, but slightly larger, percentage of National Home Health
Care (i.e., all U.S. public and private home health care spending) than
they do for public spending programs on home care.
Table 17--Projected Overtime and Travel Time Compensation as Percent of Projected National Home Health Care Expenditures
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected Adjusted overtime & travel time OT & Travel as % projected
expenditures compensation in nominal dollars home health care
(billions) \a\ \b\ (millions) --------------------------------
Year -------------------------------------------------------
Home OT 1 + OT 2 + OT 3 +
Total health OT 1 + OT 2 + OT 3 + Travel Travel Travel
care Travel Travel Travel
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012............................................................ $2,809 $77.5 $326.5 $244.2 $120.7 0.42 0.31 0.16
2013............................................................ 2,915 81.9 366.0 273.7 135.3 0.45 0.33 0.17
2014............................................................ 3,130 88.3 407.4 304.7 150.5 0.46 0.34 0.17
2015............................................................ 3,308 94.5 450.7 337.0 166.5 0.48 0.36 0.18
2016............................................................ 3,514 101.2 495.9 370.8 183.1 0.49 0.37 0.18
2017............................................................ 3,723 108.4 543.0 406.0 200.5 0.50 0.37 0.19
2018............................................................ 3,952 117.1 591.9 442.6 218.5 0.51 0.38 0.19
2019............................................................ 4,207 126.6 642.8 480.6 237.3 0.51 0.38 0.19
2020............................................................ 4,487 137.0 695.5 520.0 256.7 0.51 0.38 0.19
2021............................................................ 4,781 148.3 750.2 560.8 276.9 0.51 0.38 0.19
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Centers for Medicare and Medicaid Studies, Office of the Actuary, National Health Expenditure Projections, 2011-2021. Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
\b\ ``National Health Care'' indicates all U.S. public and private health care spending, as tabulated by the CMS Office of the Actuary.
The Department also projected deadweight loss and employment
impacts over 10 years. These projections are calculated maintaining the
assumptions concerning the market shares and the price elasticities of
supply and demand discussed in the first year deadweight loss analysis
and projected overtime and travel time compensation presented in Table
16. The Department's calculated deadweight loss and employment impacts
over 10 years are summarized in Table 18.
Table 18--Projected Deadweight Loss and Employment Impacts
----------------------------------------------------------------------------------------------------------------
Other Years ($ mil.) \a\ Average Annualized Value ($
Year 1 ($ -------------------------------- mil.)
mil.) -------------------------------
Year 2 Year 10 3% Real Rate 7% Real Rate
----------------------------------------------------------------------------------------------------------------
Costs \h\
----------------------------------------------------------------------------------------------------------------
Regulatory Familiarization:
Agencies.................... $6.9 $0.6 $0.6 $1.3 $1.4
Families Hiring Self- $5.4 $2.8 $3.6 $3.4 $3.5
Employed Workers...........
Hiring Costs \b\:
30% OT remaining in OT 1.... $8.4 $0.8 $0.8 $1.6 $1.8
[[Page 60542]]
20% OT remaining in OT 2.... $8.4 $0.8 $0.8 $1.6 $1.8
10% OT remaining in OT 3.... $6.3 $0.6 $0.6 $1.2 $1.3
Total costs (30% of OT 1)....... $20.6 $4.2 $5.0 $6.4 $6.7
Total costs (20% of OT 2)....... $20.6 $4.2 $5.0 $6.4 $6.7
Total costs (10% of OT 3)....... $18.6 $4.0 $4.8 $6.0 $6.2
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Travel Wages.................... $68.1 $78.1 $151.8 $107.1 $104.3
Overtime Scenarios:
OT 1 \c\.................... $213.2 $244.2 $474.8 $335.2 $326.3
OT 2 \d\.................... $142.1 $162.8 $316.5 $223.5 $217.5
OT 3 \e\.................... $35.5 $40.7 $79.1 $55.9 $54.4
----------------------------------------------------------------------------------------------------------------
Total Transfers by Scenario
----------------------------------------------------------------------------------------------------------------
Travel + OT 1................... $281.3 $322.3 $626.5 $442.3 $430.5
Travel + OT 2................... $210.2 $240.9 $468.3 $330.6 $321.8
Travel + OT 3................... $103.7 $118.8 $230.9 $163.0 $158.7
----------------------------------------------------------------------------------------------------------------
Deadweight Loss ($ millions)
----------------------------------------------------------------------------------------------------------------
Travel + OT 1................... $0.116 $0.132 $0.257 $0.182 $0.177
Travel + OT 2................... $0.065 $0.074 $0.144 $0.101 $0.099
Travel + OT 3................... $0.016 $0.018 $0.035 $0.025 $0.024
----------------------------------------------------------------------------------------------------------------
Total Cost of Regulations \f\
----------------------------------------------------------------------------------------------------------------
RF + HC + DWL (OT 1)............ $20.8 $4.3 $5.2 $6.6 $6.8
RF + HC + DWL (OT 2)............ $20.7 $4.2 $5.1 $6.5 $6.8
RF + HC + DWL (OT 3)............ $18.6 $4.0 $4.8 $6.0 $6.2
----------------------------------------------------------------------------------------------------------------
Disemployment (number of workers)
----------------------------------------------------------------------------------------------------------------
Travel + OT 1................... 1,086 1,184 1,976 1,531 (\g\)
Travel + OT 2................... 812 885 1,477 1,144 (\g\)
Travel + OT 3................... 400 436 728 564 (\g\)
----------------------------------------------------------------------------------------------------------------
Benefits from Reduced Turnover \b\ \f\
----------------------------------------------------------------------------------------------------------------
OT 1............................ $40.3 $34.9 $30.9 $33.8 $34.1
OT 2............................ $30.2 $24.7 $20.7 $23.6 $23.9
OT 3............................ $14.9 $10.7 $7.7 $9.9 $10.1
----------------------------------------------------------------------------------------------------------------
Net Benefits \f\
----------------------------------------------------------------------------------------------------------------
OT 1............................ $19.6 $30.6 $25.7 $27.3 $27.3
OT 2............................ $9.4 $20.5 $15.5 $17.1 $17.1
OT 3............................ -$3.7 $6.7 $2.9 $3.9 $3.9
----------------------------------------------------------------------------------------------------------------
\a\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so
these two values are reported.
\b\ We use three scenarios under which agencies redistribute overtime hours to either current part-time workers
or new hires to manage overtime costs: 40 percent of overtime hours are redistributed under OT Scenario 1, 60
percent under OT Scenario 2, and 90 percent under OT Scenario 3. Of this redistributed overtime, various
percentages are redistributed to part-time workers and new hires: New hires constitute 30 percent of
redistributed hours under OT Scenario 1 (12 percent of total overtime), 20 percent under OT Scenario 2 (12
percent of total), and 10 percent under OT Scenario 3 (9 percent of total).
\c\ Of the total, about 31 percent (e.g., $66.6 million in Year 1) is attributable to IHSS direct care workers;
30 percent of IHSS costs (e.g., $20.0 million in Year 1) are included in the turnover and deadweight loss
analyses.
\d\ Of the total, about 31 percent (e.g., $44.4 million in Year 1) is attributable to IHSS direct care workers;
30 percent of IHSS costs (e.g., $13.3 million in Year 1) are included in the turnover and deadweight loss
analyses.
\e\ Of the total, about 31 percent (e.g., $11.1 million in Year 1) is attributable to IHSS direct care workers;
30 percent of IHSS costs (e.g., $3.3 million in Year 1) are included in the turnover and deadweight loss
analyses.
\f\ Results based on the combination of overtime scenario and hiring costs presented under Hiring Costs.
\g\ Simple average over 10 years.
\h\ Excludes paperwork burden, estimated in Section V.
Average annualized minimum wage, overtime premium, and travel time
compensation range from $158.7 million to $430.5 million per year based
on how employers adjust to the requirement to pay overtime wage
premiums using a 7 percent discount rate. These transfers are projected
to cause average annualized deadweight loss ranging
[[Page 60543]]
from $24,000 to $177,000 per year. These transfers are also projected
to cause disemployment impacts ranging from 564 to 1,531 workers per
year. In general, approximately 70 percent of deadweight loss and
disemployment occurs in the publicly funded market and 30 percent in
the private pay market.
Non-Monetized Projected Impacts
Two additional aspects of home care services might be affected by
the rule. The rule might result in increased purchases of home care
services through informal arrangements with independent providers and,
although the hours of care received by consumers might be unaffected by
the increased costs of care, additional caregivers may be required to
provide the same number of hours of services. These additional aspects
are discussed in turn below.
Independent Providers
An unknown number of consumers receive home care services through
more informal arrangements with care provided by independent providers.
Here, informal agreements are reached between the consumer (or
consumer's family) and the direct care worker regarding hours of care
and hourly pay rates. Services can be provided at lower cost than when
provided through agencies because the independent provider does not
incur administrative and overhead costs and may have more flexibility
to negotiate on prices and scheduling.
The Final Rule will increase costs to home care agencies that offer
services in states where they are not currently required to pay the
minimum wage and/or overtime compensation and an unknown percentage of
those costs might be reimbursed by public payers. If the costs are not
fully reimbursed, home care agencies might increase the rates they
charge consumers, have their profit margin squeezed, or both. If costs
are passed through to consumers and their families, they will have
incentive to look for lower cost alternatives, such as informal
arrangements with independent providers. In addition, workers who
desire to work more than 40 hours per week might have opportunities to
provide services as independent providers rather than work for multiple
agencies. Although the rule might increase incentives on both sides to
use informal arrangements with independent providers, there is no
information available to project potential changes to that market.
Continuity of Care
Continuity of care ``is commonly framed as being composed of
provider continuity (a relationship between a consumer and provider
over time), information continuity (availability and use of data from
prior events during current consumer encounters) and management
continuity (coherent delivery of care from different doctors).'' \191\
In the home care scenario, concerns have been raised that continuity of
care, specifically provider continuity, may suffer if employers opt not
to pay overtime for direct care workers who, for example, work more
than 40 hours per week for a single consumer and the employers instead
schedule other direct care workers to provide home care services to
that consumer in the same workweek. Some are concerned that a break in
the continuity of care may result in a reduction in the quality of
care.
---------------------------------------------------------------------------
\191\ Van Walraven, C., Oake, N., Jennings, A., et al. (2009).
The Association Between Continuity of Care and Outcomes: A
Systematic and Critical Review. Journal of Evaluation in Clinical
Practice, 16(5): 947-956.
---------------------------------------------------------------------------
The Department understands that home care involves more than the
provision of impersonal services; when a direct care worker spends
significant time with a consumer in the consumer's home, the personal
relationship between direct care worker and consumer can be very
important. Certain consumers may prefer to have the same direct care
worker(s), rather than a sequence of different direct care workers. The
extent to which home care agencies choose to spread employment (hire
more direct care workers) rather than pay overtime may cause an
increase in the number of direct care workers for a consumer; the
consumer may be less satisfied with that care, and communication
between direct care workers might suffer, affecting the quality of care
for the consumer.\192\ Alternatively, having additional direct care
workers may improve continuity of care by minimizing disruption of care
when the primary direct care worker is unavailable due to vacation or
being sick.
---------------------------------------------------------------------------
\192\ Brief of Amici Curiae City of New York. 2007.
---------------------------------------------------------------------------
Continuity of care may suffer from the provision of too few direct
care workers. This may occur currently because, as discussed below, an
agency can schedule direct care workers without regard for the number
of hours worked each week, which may cause increased turnover rates.
Although matching consumer and direct care worker in a long-term
personal relationship is the ideal for many consumers, it may not be
the norm. Low wages and long, irregular hours may contribute to the
high turnover rate in the industry, resulting in low continuity of
care. For instance, the turnover rate (those leaving and entering home
care work) for workers in the home care industry has been estimated to
range from 44 to 65 percent per year.\193\ Other studies have found
turnover rates to be much higher, up to 95 percent \194\ and, in some
cases, 100 percent annually.\195\ Thus, many consumers already
experience a sequence of different direct care workers, and it is not
apparent that the Final Rule will necessarily exacerbate that
experience.
---------------------------------------------------------------------------
\193\ Seavey and Marquand, 2011, p. 70. WHD-2011-0003-3514. Also
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
\194\ Zontek, T., Isernhagen, J., Ogle, B. (2009). Psychosocial
Factors Contributing to Occupational Injuries Among Direct Care
Workers. American Association of Occupational Health Nurses Journal,
338-347.
\195\ Ashley, A., Butler, S., Fishwick, N. (2010). Home Care
Aide's Voices from the Field: Job Experiences of Personal Support
Specialists. The Maine Home Care Worker Retention Study. Home
Healthcare Nurse, 28(7), 399-405.
---------------------------------------------------------------------------
Application of the FLSA's minimum wage and overtime compensation
protections may reduce turnover rates. Frequent turnover is costly for
employers in terms of recruitment costs and training of new direct care
workers and also in terms of the likelihood of a reduction of quality
care or not being able to provide care at all. The employee turnover
rate in this industry is high because of low wages, poor or nonexistent
benefits, and erratic and unpredictable hours. Job satisfaction, and
the desire to remain in a given position, is highly correlated with
wages, workload, and working conditions. Increased pay for the same
amount of work and overtime compensation likely would aid in employee
retention and attracting new hires. Those employers who choose not to
pay overtime would need to spread the hours among their employees,
resulting in more consistent work hours for many direct care workers.
As one study found, for this low-income workforce, ``higher wages, more
hours, and travel cost reimbursement are found to be significantly
associated with reduced turnover.'' \196\ Another report determined
that ``increases in the federal or state minimum wage can make home
care employment more
[[Page 60544]]
desirable.'' \197\ This finding was echoed in comments submitted by
Steven Edelstein of PHI and the Women's Employment Rights Clinic.
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\196\ Morris, L. (2009). Quits and Job Changes Among Home Care
Workers in Maine: The Role of Wages, Hours and Benefits. The
Gerontologist, 49(5), 635-650.
\197\ Burbridge, L. (1993). The Labor Market for Home Care
Workers: Demand, Supply, and Institutional Barriers. The
Gerontologist, 33(1), 41-46.
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For the estimated 8 to 12 percent of direct care workers who work
more than 40 hours per week, only a portion of that percentage likely
provides services for the same consumer. Many who work overtime accrue
long hours in the service of at least a few consumers, traveling
between consumer homes during the workweek. For example, the 2011
Private Duty Homecare Benchmarking Study found that firms with annual
revenue greater than $2 million attribute about 23 percent of weekly
billable hours to live-in care (which presumably exceeds 120 hours of
paid work per week per consumer), yet the average consumer only
receives 25 hours of service per week.\198\ Thus, if the average
consumer receives 25 hours of care per week, yet a disproportionate
number of service hours are accrued by the minority of patients
receiving 24-hour care, then most consumers must be receiving
substantially less than 25 hours of care per week and their direct care
workers must be responsible for multiple consumers. Such consumers
should probably not lose any continuity of care as a result of agencies
spreading some overtime hours to other workers. It is also conceivable
that, in a minority of cases, the direct care worker provides home care
services around the clock for a stretch of a few days.
---------------------------------------------------------------------------
\198\ Home Care Pulse. 2011. 2011 Annual Private Duty Home Care
Benchmarking Study. Highlights Edition, p. 24.
---------------------------------------------------------------------------
Analysis of the NHHAS shows that those direct care workers who
typically work overtime work 49 hours per week on average, not
including travel time between consumer homes. Provider continuity that
results in overtime work has drawbacks. From the aide's perspective,
the long work hours can be a burden. For instance, ``shifts beyond the
traditional 8 hours have been associated with increased risk of errors,
incidents, and accidents.'' \199\
---------------------------------------------------------------------------
\199\ Keller, S. (2009). Effects of extended work shifts and
shift work on patient safety, productivity, and employee health.
American Association of Occupational Health Nurses Journal, 57(12),
497-502.
---------------------------------------------------------------------------
Many regard having the same direct care worker for long hours as a
cornerstone of ``continuity of care'' and having more direct care
workers to cover the same number of direct care worker hours for a
consumer as negatively impacting quality of care. As discussed above,
however, the opposite may be true. Working extended hours may affect
the quality of care that the aide is able to provide and even the
aide's own health and well-being.
Furthermore, paying employees below minimum wages, not paying for
all hours worked or overtime, and providing no training or benefits is
not the only path to financial success for employers in the home care
industry. Another business model, in which employees receive training,
an overtime wage differential, and health care benefits, has been
successful. Cooperative Home Care Associates (CHCA), based in New York,
for example, has always paid workers overtime. Although overtime at
CHCA is carefully managed, it can still be substantial (e.g., 30
percent or more of employees exceed 40 work hours per week); allowing,
even expecting overtime, permits CHCA, however, to use a staffing plan
that maintains continuity of care. These policies have driven CHCA's
turnover rate far below the industry average, a major factor in its
financial success.\200\ In terms of employee coverage, CHCA cases
requiring weekday and weekend coverage are assigned permanent direct
care workers who work on alternate weekends. Also, cases requiring 24-
hour coverage, seven days per week, are shared among four direct care
workers, requiring only some overtime hours.\201\
---------------------------------------------------------------------------
\200\ Elsas & Powell, 2011.
\201\ NELP report, p. 26.
---------------------------------------------------------------------------
Other agencies such as Community Care Systems, Inc., in
Springfield, Illinois, have reduced overtime costs by distributing
extra hours more evenly among workers through better tracking of work
hours. Close monitoring of employee workloads and spreading of work
hours also curbed overtime use for Illinois-based Addus HealthCare, one
of the nation's largest home care employers. These employers pay
overtime even in those states that do not require it, demonstrating
that ``wage and hour protections are economically realistic for the
industry, and can be achieved without excessive use of costly overtime
hours.'' \202\ These examples suggest that requiring overtime
compensation in this industry does not inevitably cause disruption of
employer-employee relationships and direct care worker-consumer
relationships leading to higher turnover, discontinuity of consumer
care, and increased use of independent providers.
---------------------------------------------------------------------------
\202\ NELP report, pgs 25-26.
---------------------------------------------------------------------------
Transfer Effects
Perhaps the most visible effect of the Final Rule is the transfer
of income from businesses and their owners to workers, and potentially,
from one group of workers to another group of workers. In economics, a
transfer payment is broadly defined as a redistribution of income in
the market system that does not affect total output.
Transfer Effects Associated With Travel Provisions
The Final Rule leads to an unambiguous transfer from employers to
employees in those states that currently do not require compensation
for travel time--approximately $68.1 million in Year 1.
Two factors could change the dynamics of this transfer scenario.
First, increased wages for compensating travel time might be passed
through to consumers in the form of higher prices for home care
services. If those higher prices result in consumers finding
alternatives to home care services (e.g., accessing independent
providers for services), then the income transfer from travel
compensation is partially mitigated because the provision of home care
services is reduced, resulting in reduced revenues to agencies, and a
deadweight loss to the economy. This reduction in demand by households
will be less pronounced if the demand for home care services is
inelastic (i.e., the hours of home care services purchased does not
change significantly when price increases, as in the public pay
market). However, the Department's deadweight loss analysis did not
show significant reductions in the private pay market for which the
price elasticity of demand is much larger than the market for publicly
funded care.
Second, the Department expects that over time some of these costs
may be reimbursed. To the extent that public payers increase
reimbursement rates to cover these costs, the transfer is from the
federal and state agencies to workers.
Transfer Effects Associated With Overtime Provisions
The transfer of income associated with the payment of the overtime
differential is more ambiguous. Employers are likely to respond to
overtime compensation requirements along a spectrum ranging from (1)
reducing overtime work to the extent possible and spreading hours to
other workers or hiring new workers to fill the available hours, to (2)
maintaining current staffing patterns and paying overtime for all work
hours exceeding
[[Page 60545]]
40 per week. To the extent that employers choose to pay overtime, the
income transfer is from businesses and their owners to workers.
However, to the extent that employers eliminate overtime and spread the
now available hours to other employees or new hires, the transfer is
from worker to worker. Employees who used to exceed 40 hours of work
per week will work fewer hours, transferring income to fellow workers
who will absorb the extra hours. It is also possible that those
employees working more than forty hours per week may distribute those
hours among multiple employers.
Reduced Reliance on Public Assistance
An increase in wages might reduce direct care worker reliance on
public assistance programs to meet the needs of their own households.
Recent research finds that approximately 50 percent of personal care
aides rely on public assistance.\203\ Almost 90 percent of these
workers are women.\204\
---------------------------------------------------------------------------
\203\ Seavey and Marquand, 2011, p. 58. WHD-2011-0003-3514. Also
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringamerica-20111212.pdf.
\204\ Seavey and Marquand, 2011, p. 10. WHD-2011-0003-3514.
http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf
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Assuming these workers are in a family consisting of themselves and
two children, the average amount of public assistance for such families
is about $10,300.\205\ In addition, many minimum wage workers also
receive food stamps. The federally-assisted Supplemental Nutrition
Assistance Program (SNAP, previously referred to as the Food Stamp
Program) provided aid to 44.7 million participants in an average month
in 2011 with total annual expenditures of $71.8 billion, an average of
$1,600 in food stamps expenditures per participant.\206\ This would
entail $4,800 per family for an assumed family of three. In total, the
average direct care worker might receive $15,100 in public assistance
and food stamps to provide for her/his family.
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\205\ TANF Eighth Annual Report to Congress.
\206\ Characteristics of Supplemental Nutrition Assistance
Program Households: Fiscal Year 2011, U.S. Department of
Agriculture, Food and Nutrition Service, November 2012. Available
at: http://www.fns.usda.gov/ora/MENU/Published/snap?FILES/Participation/2011Characteristics.pdf.
---------------------------------------------------------------------------
Increased wages should reduce demand for public assistance services
resulting in a savings to these programs; however, the Department is
unable to quantify the savings due to the lack of data on how the
benefits of these programs vary with income. The savings associated
with the minimum wage provisions under the Final Rule might be
negligible since the Department estimates that no workers currently
earn less than the minimum wage. To the extent that the employees' work
requires significant travel time and overtime, or added hours of work
due to employer schedule adjustments, they will also receive additional
income (note that some workers may lose hours or pay as a result of
employer schedule adjustments, which may actually increase their
reliance on public assistance). The Department did not estimate this
portion of the potential economic impact due to uncertainty about the
number of workers who would receive compensation for travel time or
additional hours of work.
H. Benefits
This section describes the expected benefits of the changes to the
companionship services exemption made by this Final Rule. Potential
benefits of this revision to the ``companionship services exemption''
flow from the transfer of regular and overtime wages to workers from
their employers, and include: Reduced worker turnover and potentially
reduced worker injury rates.
Reduction in Employee Turnover Rates
Researchers have found that lower wages are associated with higher
turnover and lower quality of care, and that increases in wages for
direct care workers result in decreased turnover rates.\207\ Frequent
turnover is costly for employers in terms of recruitment costs and
training of new direct care workers and also in terms of the likelihood
of a reduction in the quality of care or not being able to provide care
at all. The employee turnover rate in this industry is high because of
low wages, poor or nonexistent benefits, and erratic and unpredictable
hours. Job satisfaction, and the desire to remain in a given position,
is highly correlated with wages, workload, and working conditions.
Increased pay for the same amount of work and overtime compensation
likely would aid in employee retention.
---------------------------------------------------------------------------
\207\ Powers, E., Powers, N. (2010). Causes of Caregiver
Turnover and the Potential Effectiveness of Wage Subsidies for
Solving the Long-Term Care Workforce `Crisis.' The B.E. Journal of
Economic Analysis & Policy 10(1): Article 5.
---------------------------------------------------------------------------
Studies estimating the relationship between wage rate and turnover
rate often express that relationship as an elasticity--the percentage
change in turnover rate associated with a one percent change in the
wage rate. Studies have found turnover rates in the home care industry
that range from 44 to 95 percent per year, and even approach 100
percent per year.\208\ Based on the study most relevant to our
analysis, the Department judges that the elasticity of the turnover
rate with respect to a change in the wage rate is -2.17.\209\ However,
the Department acknowledges that when many agencies are simultaneously
increasing wages, the overall impact on turnover might be smaller.
Therefore the Department also presents a sensitivity analysis using a
smaller turnover elasticity of -0.844. For the purpose of estimating
the impact of the rule on turnover costs, we assume the initial
turnover rate is 50 percent. The Department estimates the value of the
excess cost to the business of employee turnover as about $3,000 in
2011 dollars based on Seavey (2004). About 75 percent of this cost is
attributable to hiring the replacement worker, while the remainder is
attributable to the costs of separation and vacancy.\210\
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\208\ PHI 2010a; Zontek, T., Isernhagen, J., Ogle, B., (2009);
Ashley, A., Butler, S., Fishwick, N., (2010).
\209\ The study most comparable used data from the San Francisco
County home care workers (Howes, C. (2005). Living Wages and
Retention of Homecare Workers in San Francisco. Industrial
Relations: A Journal of Economy and Society. 44(1): 139-163).
\210\ Seavey, D. 2004. The Cost of Frontline Turnover in Long-
Term Care. Washington, DC: IFAS/AAHSa, p. 11. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/TOCostReport.pdf.
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The Department estimated the impact of applying the minimum wage
and overtime provisions of the FLSA on turnover costs. The Department
believes few, if any, direct care workers currently earn less than the
minimum wage. Therefore, we project no decline in turnover rates as a
result of the minimum wage requirement.
Table 19 also shows the estimated change in turnover costs due to
travel reimbursement and overtime compensation in the three overtime
scenarios. The Department estimates that the turnover rate will
decrease by 1.3 percentage points due to an average increase in
compensation of 1.21 percent in OT Scenario 1. This corresponds to a
$40.3 million decrease in turnover costs in Year 1. In OT Scenario 2,
the Department calculates that the turnover rate will decrease by 1.0
percentage point due to an average increase in the hourly wage of 0.91
percent, corresponding to a reduction in turnover costs of $30.2
million. When agencies pay only 10 percent of the current overtime
hours (OT Scenario 3), the turnover rate will decrease by 0.5
percentage points due to an average increase in the hourly wage of 0.45
percent; this corresponds to a $14.9 million reduction in Year 1
turnover costs.
[[Page 60546]]
Table 19--Year 1 Impact on Turnover Costs
------------------------------------------------------------------------
Initial values Resulting values
------------------------------------------------------------------------
Application of the minimum wage provision
------------------------------------------------------------------------
Turnover Rate................... 50.0% 45.6%
Workers Impacted................ 0 ..................
Annual Turnover Cost (in $0.0 $0.0
millions)......................
Change in Year 1 Turnover Cost .................. $0.0
(in millions) \a\..............
------------------------------------------------------------------------
Application of the overtime provision
------------------------------------------------------------------------
OT Scenario 1 \b\:
Turnover Rate............... 50.0% 48.7%
Workers Impacted............ 1,031,015 ..................
Annual Turnover Cost (in $1,534.6 $1,494.3
millions)..................
Change in Year 1 Turnover .................. -$40.3
Cost (in millions) \c\.....
OT Scenario 2 \b\:
Turnover Rate............... 50.0% 49.0%
Workers Impacted............ 1,031,015 ..................
Annual Turnover Cost (in $1,534.6 $1,504.5
millions)..................
Change in Year 1 Turnover .................. -$30.2
Cost (in millions) \d\.....
OT Scenario 3 \b\:
Turnover Rate............... 50.0% 49.5%
Workers Impacted............ 1,031,015 ..................
Annual Turnover Cost (in $1,534.6 $1,519.8
millions)..................
Change in Year 1 Turnover .................. -$14.9
Cost (in millions) \e\.....
------------------------------------------------------------------------
\a\ Because no workers are currently believed to be paid less than
minimum wage, no reduction in turnover costs is attributed to the
minimum wage provision.
\b\ This analysis is performed on the same basis as the deadweight loss
analysis (e.g., the same pool of workers, and overtime and travel time
compensation).
\c\ The change in annual turnover cost is the reduction in turnovers
(13,552) multiplied by the estimate of the cost per turnover.
\d\ The change in annual turnover cost is the reduction in turnovers
(10,129) multiplied by the estimate of the cost per turnover.
\e\ The change in annual turnover cost is the reduction in turnovers
(4,994) multiplied by the estimate of the cost per turnover.
The first column in Table 20 presents the estimated net impact on
turnover in Year 1 due to travel and overtime in each of the overtime
scenarios. For OT Scenario 1, combining the impacts on turnover costs
due to the application of overtime regulations shown in Table 19 above
yields an estimated reduction in turnover costs of $40.3 million. The
Department estimates that OT Scenario 2 corresponds to a $30.2 million
decrease in costs, while OT Scenario 3 corresponds to a $14.9 million
decrease in costs.
Table 20 also summarizes the total impact on turnover costs for
Years 1 and 10. Based on the Department's estimation of the growth in
overtime hours, agencies will need to continue to hire workers to cover
these additional hours in subsequent years. The annual turnover rate
will remain at the lower rate, while the total number of employees is
larger in each subsequent year due to the hiring of additional workers
to cover some of the overtime hours; these additional workers would not
have been hired in the absence of the overtime requirement. Thus, the
absolute number of turnovers per year is increasing because the lower
turnover rate is partly offset by the larger number of workers to whom
it is applied. This reduces the annual savings attributable to the
reduced turnover rate. Employers will continue to accrue cost savings
due to reduced turnover, but those savings will be diminishing over
time due to the increased employment. The Department calculates the net
impact on annual turnover costs by subtracting the turnover cost
associated with the initial 1.03 million positions and 50 percent
turnover rate from the turnover costs based on the increased number of
positions but decreased turnover rate as estimated in Year 1. The
growth in the number of workers depends on agencies' allocation of the
additional overtime hours among paying the overtime premium, hiring new
workers, and distributing the hours over existing workers. Within the
three overtime scenarios, the Department considers three proportions of
the remaining overtime hours covered by new hires as discussed in the
hiring costs section--30 percent, 20 percent, and 10 percent. Using a 7
percent real discount rate, the annualized decrease in turnover costs
will range from $34.1 to $38.3 million per year in OT Scenario 1. In OT
Scenario 2, the annualized decrease in turnover costs will range from
$20.7 to $27.0 million each year. In OT Scenario 3, the annualized
decrease in turnover costs will range from $0.6 to $10.1 million each
year.
Table 20--Summary of Impact of Changes to FLSA on Turnover Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Future years ($ mil.) \b\ Average annualized value ($ mil.)
Hiring full-time workers to cover Year 1 ($ mil.) -----------------------------------------------------------------------
\a\ Year 2 Year 10 3% Real rate 7% Real rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
OT Scenario 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
30% of remaining OT hours..................................... -$40.3 -$34.9 -$30.9 -$33.8 -$34.1
20% of remaining OT hours..................................... -40.3 -36.7 -34.1 -36.0 -36.2
[[Page 60547]]
10% of remaining OT hours..................................... -40.3 -38.5 -37.2 -38.2 -38.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
OT Scenario 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
30% of remaining OT hours..................................... -30.2 -22.0 -15.9 -20.3 -20.7
20% of remaining OT hours..................................... -30.2 -24.7 -20.7 -23.6 -23.9
10% of remaining OT hours..................................... -30.2 -27.4 -25.4 -26.9 -27.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
OT Scenario 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
30% of remaining OT hours..................................... -14.9 -2.4 .7 0.0 -0.6
20% of remaining OT hours..................................... -14.9 -6.6 -0.5 -5.0 -5.3
10% of remaining OT hours..................................... -14.9 -10.7 -7.7 -9.9 -10.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Year 1 estimates are the sum of the impacts on turnover costs due to the application of the overtime provision.
\b\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so these two values are reported.
The Department also performed a sensitivity analysis by repeating
the calculations using a turnover elasticity of -0.844.\211\ With a 7
percent real discount rate, the annualized decrease in turnover costs
ranges from $9.4 to $13.6 million per year in OT Scenario 1. In OT
Scenario 2, average annualized turnover costs are decreased by $2.2 to
$8.6 million. Under OT Scenario 3, average annualized turnover costs
range from a $1.0 million decrease to an increase of $8.6 million per
year.
---------------------------------------------------------------------------
\211\ Clabby II, Robert T. 2002. Report to the Joint
Appropriations Committee on the Impact of Funding for Direct Staff
Salary Increases in Adult Developmental Disabilities Community-Based
Programs. Wyoming Department of Health, Cheyenne, WY.
---------------------------------------------------------------------------
The Department notes that the estimates above do not reflect
possible offsetting effects related to employees who previously worked
overtime and who, as a result of the rule, experience a reduction in
their scheduled hours and thus in their compensation. To compensate for
their lower earnings, these workers may accept a second job, although
this would not affect the turnover rate in a meaningful way. However,
if some agencies continue to pay overtime, while a worker's current
employer does not, the employee with reduced hours may be more likely
to leave, thus resulting in increased turnover in the short-run,
although turnover may still decrease in the long run since the worker
may be more likely to remain longer with the employer that pays
overtime.
Reduction in Worker Injuries and Illnesses
Many studies have shown that extended work hours result in
increased fatigue, decreased alertness, and decreased productivity,
negatively affecting employee health and well-being. Long work hours in
the health care field ``have adverse effects on patient outcomes and
increase health care errors and patient injuries.'' \212\ For example,
nurses working more than 8 hours report more medication errors, falling
asleep at work, a decrease in productivity, and impaired critical
thinking abilities. The error rates double when nurses work 12.5 or
more consecutive hours. A 2004 National Institute for Occupational
Safety and Health report evaluated the literature and found studies
``examining 12-hour shifts combined with more than 40 hours of work per
week reported increases in health complaints, deterioration in
performance, or slower pace of work.'' \213\ One study that analyzed 13
years' worth of data and nearly 100,000 job records notes that ``long
working hours indirectly precipitate workplace accidents through a
causal process, for instance, by inducing fatigue or stress in affected
workers.'' \214\ It is therefore telling that ``[d]irect care workers
have the highest injury rate in the United States, primarily due to
work-related musculoskeletal disorders.'' \215\ The rate of days away
from work (work days missed due to on-the-job injuries) for nursing
aides, orderlies, and attendants was almost four times greater than the
all-worker rate, 449 per 10,000 compared to 113 per 10,000 for all
workers.\216\ One of the results of the FLSA's overtime compensation
requirement is that employers may hire more people to work fewer hours
each. Doing so in those circumstances where excessive overtime hours
are worked may therefore result in fewer injuries and illnesses
incurred. On the other hand, a possible effect of this rule is that
direct care employees currently working more than 40 hours per week for
one employer will spread those hours over multiple employers, which may
increase fatigue due to, for example, increased travel time as a result
of working for multiple employers; these conflicting theoretical
possibilities make the rule's likely impact on injuries and illnesses
an empirical question.
---------------------------------------------------------------------------
\212\ Keller, S. 2009. pg. 498. Available at: http://
www.healio.com/~/media/Journals/AAOHN/2009/12--December/
Effects%20of%20Extended%20Work%20Shifts%20and%20Shift%20Work%20on%20P
atient%20Safety%20Productivity%20and%20Employ%2059601/
Effects%20of%20Extended%20Work%20Shifts%20and%20Shift%20Work%20on%20P
atient%20Safety%20Productivity%20and%20Employ%2059601.ashx.
\213\ Caruso, C., Hitchcock, E., Dick, R., et al. (2004).
Overtime and Extended Work Shifts: Recent Findings on Illnesses,
Injuries, and Health Behaviors. National Institute for Occupational
Safety and Health, U.S. Department of Health and Human Services.
Available at: http://www.cdc.gov/niosh/docs/2004-143/pdfs/2004-143.pdf.
\214\ Dembe, A., Erickson J., Delbos, R., et al. 2005.
\215\ Zontek, Isernhagen, and Ogle, 2009.
\216\ NELP report (p. 27, FN45).
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The Department looked at total injury numbers and injury rates from
the Survey of Occupational Injuries and Illnesses (SOII) of the Bureau
of Labor Statistics. To the best of our knowledge, this is the only
available database providing data simultaneously on the state and
industry level for multiple years. The goal was to determine whether it
was possible to perform a ``difference-in-differences'' analysis of
injuries; this type of analysis can determine whether there is a
statistically significant difference in injuries before and after
minimum wage and overtime regulations were passed in some states.
Only four states had adopted direct care worker minimum wage and/or
overtime provisions during the period
[[Page 60548]]
for which industry-specific data are available (2003-2011): Arizona
(minimum wage, January 2007), Maine (minimum wage and overtime,
September 2007), Ohio (minimum wage, April 2007), and Colorado (minimum
wage and overtime, January 2010). Of these, only Arizona and Maine had
usable data (for a total of 6 observations), which was not sufficient
to perform conclusive analysis.
Improved Quality of Care
As has been stated previously, one of the main benefits of this
Final Rule is that the professionals who are entrusted to care for
consumers in their homes will have the same protections in the labor
market as almost all other employees. Guaranteed minimum wage and
overtime compensation for home care jobs, comparable to similar
occupations, will attract more workers to the home care industry. The
increased availability of direct care workers will allow employers to
meet the growing demand for home care services without requiring
workers to perform services for excessive hours. Additionally, this may
improve the quality of care since workers may be less fatigued and have
more energy to devote to the consumers to whom they provide home care
services. However, the Department understands that the continuity of
care for some individuals may be affected, such as by having more care
providers as a result of this rule. In addition, with the standard of
pay raised, more highly trained and certified workers will seek out and
remain in the HHA and PCA occupations, and a higher quality of service
may be provided to the consumer. While a monetary value cannot be
placed on increased professionalism and improved care, those expected
benefits are noteworthy.
VII. Final Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980 (RFA) as amended by the
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),
hereafter jointly referred to as the RFA, requires agencies to evaluate
the potential effects of their proposed and Final Rules on small
businesses, small organizations and small governmental jurisdictions.
See 5 U.S.C. 604.
The RFA requires agencies to prepare and make available for public
comment a final regulatory flexibility analysis (FRFA) describing the
impact of Final Rules on small entities. The RFA specifies the content
of a FRFA. Each FRFA must contain:
A succinct statement of the need for, and objectives of
the Final Rule;
A summary of the significant issues raised by the public
comments in response to the NPRM, a summary of the agency assessment of
the issues, and a statement of any changes made as a result of such
comments;
The agency's response to any comments filed by the Chief
Counsel for Advocacy of the Small Business Administration;
A description of an estimate of the number of small
entities to which the Final Rule will apply;
A description of the projected reporting, recordkeeping
and other compliance requirements of the Final Rule including an
estimate of the classes of small entities which will be subject to the
requirement and the type of professional skills necessary for
preparation of the report or record;
Description of the steps the agency has taken to minimize
the significant economic impact on small entities consistent with the
stated objectives of applicable statutes, including a statement of the
factual, policy, and legal reasons for selecting the alternative
adopted in the Final Rule and why other alternatives were rejected.
1. Objectives of, and need for, the Final Rule
Section 13(a)(15) of the FLSA exempts from its minimum wage and
overtime compensation provisions domestic service employees employed
``to provide companionship services for individuals who (because of age
or infirmity) are unable to care for themselves (as such terms are
defined and delimited by regulations of the Secretary).'' Due to
significant changes in the home care industry over the last 38 years,
workers who today provide home care services to individuals are
performing duties and working in circumstances that were not envisioned
when the companionship services regulations were promulgated. Section
13(b)(21) provides an exemption from the Act's overtime compensation
requirements for live-in domestic service workers. The current
regulations allow an employer of a live-in service domestic worker to
maintain a copy of the agreement of hours to be worked and to indicate
that the employee's work time generally coincides with that agreement,
instead of requiring the employer to maintain an accurate record of
hours actually worked by the live-in domestic worker. The Department is
concerned that not all hours worked are actually captured by such
agreement and paid, which may result in a minimum wage violation. The
current regulations do not provide a sufficient basis to determine
whether the employee has in fact received at least the minimum wage for
all hours worked.
The Department has re-examined the regulations and determined that
the regulations, as currently written, have expanded the scope of the
companionship services exemption beyond those employees whom Congress
intended to exempt when it enacted Sec. 13(a)(15) of the Act, and do
not provide a sufficient basis for determining whether live-in workers
subject to Sec. 13(b)(21) of the Act have been paid at least the
minimum wage for all hours worked. Therefore, this document revises the
definitions of ``domestic service employment'' and ``companionship
services,'' and requires employers of live-in domestic service workers
to maintain accurate records of hours worked by such employees. In
addition, the regulation limits the scope of duties a direct care
worker may perform and still be considered to perform companionship
services, and prohibits employees of third party employers from
claiming either exemption.
There has been an increase in the employment of home health aides
and personal care aides in the private homes of individuals in need of
assistance with basic daily living or health maintenance activities.
BLS's national occupational employment and wage estimates from the OES
survey show that the number of workers in these jobs tripled during the
decade between 1988 and 1998, and by 1998 there were 430,440 workers
employed as home health aides and 255,960 workers employed as personal
care aides. The combined occupations of personal care and home health
aides continue to constitute a rapidly growing occupational group. BLS
statistics demonstrate that between 1998 and 2009, this occupational
group again more than doubled with home health aides increasing to
955,220 and personal care aides increasing to 630,740.\217\
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\217\ See 1998 and 2009 Occupational Employment and Wage
Estimates, National Cross-Industry Estimates, Available at: http://www.bls.gov/oes/oes_dl.htm.
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The growth in demand, however, has not resulted in growth in
earnings for workers providing home care services. The earnings of
employees in the home health aide and personal care aide categories
remain among the lowest in the service industry. Studies have shown
that the low income of direct care workers continues to impede efforts
to improve both jobs and care.\218\
[[Page 60549]]
Protecting domestic service workers under the Act is an important step
in ensuring that the home care industry attracts and retains qualified
workers that the sector will need in the future. Moreover, the workers
that are employed by home care staffing agencies are not the workers
that Congress envisioned when it enacted the companionship exemption
(i.e., neighbors performing elder sitting) but are instead professional
direct care workers entitled to FLSA protection based on the expanded
nature of the duties many of them perform. In view of the dramatic
changes in the home care sector in the 38 years since these regulations
were first promulgated and the growing concern about the proper
application of the FLSA minimum wage and overtime protections to
domestic service employees, the Department believes it is appropriate
to narrow the scope of the definition of ``companionship services'' and
limit the companion and live-in exemptions to the individual,
household, or family using the services to more accurately reflect
Congressional intent.
---------------------------------------------------------------------------
\218\ See Brannon, Diane, et al. (2007). Job Perceptions and
Intent to Leave Among Direct Care Workers: Evidence From the Better
Jobs Better Care Demonstrations. The Gerontologist, 47(6): 820-829.
---------------------------------------------------------------------------
2. Summary of Significant Issues Raised by Public Comments, Assessment
of the Agency and Response
3. The Agency's Response to the Comment Filed by the Chief Counsel for
Advocacy of the Small Business Administration
The Small Business Administration's Office of Advocacy (Advocacy)
submitted a comment summarizing key issues raised by small business
representatives during a roundtable and in subsequent conversations;
the small business representatives focused on three key issues with the
IRFA and also suggested several alternatives for consideration (the
alternatives are addressed under number 5, below).\219\
---------------------------------------------------------------------------
\219\ Winslow Sargeant, WHD-2011-0003-7756.
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Specifically, small businesses suggested that the Department re-
evaluate the private pay sector of the companion services market, the
incidence of overtime among these workers because it may be
underestimated, and account for the costs of restricting hours and
hiring additional workers to avoid the cost of overtime compensation.
The Department appreciates this feedback from small businesses and
endeavored to refine the final economic analysis to include it. First,
the Department analyzed available data on the private pay sector and
incorporated this sector into the discussion of the market and the
analysis of deadweight loss and disemployment resulting from the Final
Rule. The available data did not support the assertion of the
significant size of the private pay market, as discussed in the
Executive Orders 12866 and 13563 analysis. As stated earlier in this
final rule, limited data exists regarding the private pay sector and
overtime utilization within that sector. However, based on the
analysis, it is clear that this sector behaves differently than the
publicly funded market and should be analyzed differently.
Second, the Department reviewed the references used to estimate the
incidence of overtime among these workers in addition to any other
available data on this issue and determined that, in the absence of new
statistically reliable data sources, the two national surveys of direct
care workers provide the best source of information on the amount of
overtime worked. However, the estimated total number of overtime hours
worked and the associated overtime compensation transfers have
increased due to the addition approximately 80,000 workers who were
previously unaccounted for (30,000 in Illinois, 50,000 in California).
The estimated total number of overtime hours worked also increased
because, after further evaluation of the data in the NHHAS, the
Department determined that the estimated 12 percent of workers who work
overtime average 8.8 hours of overtime per week instead of the 6.3
hours estimated in the proposed rule.
Third, the Department agrees with commenters that adjusting worker
schedules and hiring additional workers in order to eliminate overtime
hours is not costless. This cost has been incorporated into the
analysis by adjusting the assumption on OT Scenario 3 to account for
administrative costs and local rigidities in the availability of
additional workers; specifically, the NPRM assumed that employers could
adjust to absorb all of the overtime hours currently worked, and the
final analysis assumes that employers could adjust to absorb all but 10
percent of overtime hours due to the costs associated with
administration.
The U.S. Chamber of Commerce also submitted a comment expressing
serious concerns with the impact of the rule on small entities, stating
that the Department underestimated the costs of regulatory
familiarization, especially to families, and inappropriately labeled
some costs of the rule as transfers. The comment references data from
the Chamber of Commerce's members, but does not provide any additional
detail. Thus, as explained in some detail in the section describing the
estimation of regulatory familiarization costs, the Department
maintains its assumptions concerning regulatory familiarization. As
stated previously, most third party employers are already covered by
the FLSA and employ other workers who are not exempt, so they are
familiar with the FLSA's minimum wage and overtime compensation
requirements. Therefore, they simply need to apply the FLSA to an
additional category of workers. The Department will provide guidance
and educational materials that individuals and families who employ
direct care workers can rely on to learn about the rule's requirements.
With respect to the Chamber of Commerce's comment relating to whether
transfers are costs, the Department describes the estimated transfers
due to payment of travel time and overtime compensation as transfers in
the economic analysis because those payments are not a loss to the
larger economy; however, the transfers are treated as compliance costs
to employers for the purpose of estimating the deadweight loss and
disemployment effects of the Final Rule in recognition of the fact that
it will impact the behavior of employers.
Advocacy also suggested that the Department clarify that registries
are not third party employers. The employment relationship was not
addressed by the proposed rule and the Department proposed no changes
to its longstanding test of what constitutes an employment relationship
under the FLSA. However, in response to Advocacy's suggestion, the
Department has included in the preamble to this Final Rule a lengthy
description of the employment relationship test and how it applies in
various factual scenarios including registries. This discussion is
found in the Joint Employment section of this preamble.
4. Description and Estimate of the Number of Small Entities To Which
the Final Rule Will Apply
The RFA defines a ``small entity'' as a (1) small not-for-profit
organization, (2) small governmental jurisdiction, or (3) small
business. The Department used standards defined by SBA to classify
entities as small for the purpose of this analysis. For the two
industries that are the focus of this analysis, the SBA defines a small
business as one that has average annual receipts of less than $14
million for HHCS and $10 million for SEPD.\220\
---------------------------------------------------------------------------
\220\ These thresholds were updated in 2012 from $13.5 and $7
million, respectively. See: http://www.fns.usda.gov/ora/MENU/Published/snap/FILES/Participation/2011Characteristics.pdf.
---------------------------------------------------------------------------
[[Page 60550]]
Based on the estimated average annual revenues per establishment in
each employment size category derived from Statistics of U.S.
Businesses (SUSB) data and attributed to the establishments in the HHCS
and SEPD industries, it appears that no employers exceed the SBA size
standards of $14 million in annual revenues for HHCS and $10 million in
annual revenues for SEPD. Thus, for the purposes of this analysis, the
entire HHCS and SEPD industries (89,400 establishments) are composed of
small businesses.
Although in reality it is possible that there are some firms in the
100-499 and 500+ employee categories that earn revenues in excess of
the SBA standard for their industry, we include all establishments in
order to not underestimate the number of small firms affected by the
rule. We also believe we have not mischaracterized this sector in any
meaningful way: We believe these industries are primarily, if not
completely, composed of small businesses by SBA standards.
In order to better understand the impact of the rule on businesses
of different sizes, the Department analyzed small business impacts
using establishment size as a proxy for firm size. The Department
combined Quarterly Census of Employment and Wages data for the HHCS and
SEPD industries and then used the SUSB, 2007, data set to distribute
establishments and employees to the following size categories: 0-4, 5-
9, 10-19, 20-99, 100-499, and 500+ employees.
Although basing this analysis on establishment size will bias
results, the bias will tend to overestimate the number of small
businesses affected by the rule and the impacts to those small
businesses. First, the analysis overestimates the number of small
entities; a firm composed of multiple establishments might earn
aggregate revenues that exceed the threshold the SBA used to define
``small'' in these industries. Second, costs are in part a function of
the number of firms in the industry due to the need for each firm to
become familiar with the Final Rule. Our cost model thus assigns those
familiarization costs to each establishment. Again, to the extent that
firms own multiple establishments, compliance costs associated with
regulatory familiarization will be smaller than estimated here. Third,
compliance costs are also a function of the number of establishment
employees. Because there are no data linking the use of the
companionship services exemption to establishment size, there is no
direct way to measure the impact of this rule's minimum wage and
overtime requirements by size categories. The Department thus assumed
compliance costs associated with meeting those requirements would be
proportionate to the number of establishment employees. Therefore,
these costs increase in proportion to establishment size (as measured
by the number of employees), and smaller establishments are not unduly
impacted relative to larger establishments. This proportionate approach
may not capture the full impact of the regulatory requirements on
smaller establishments given the lack of available data.
Table 21 presents the estimated number of establishments,
employees, and revenue by establishment size. The table shows that the
500+ employee category employs 42 percent of workers, and accounts for
20 percent of establishments and 43 percent of revenue for the combined
industries. Conversely, establishments with fewer than 20 employees
account for only six percent of employment but more than 44 percent of
establishments.
Table 21--Affected Establishments, Workers, and Revenue by Employment Size \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
Total Percent of Workers Workers Total Percent of Revenue Percent revenue per
Number of employees employees total without MW without OT establishments establishments ($ mil.) industry establishment
(1,000) employment revenue ($1,000)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0-4.............................. 22 1.1 0 10,426 24,548 27.5 $1,954 2.2 $80
5-9.............................. 29 1.5 0 14,080 7,262 8.1 1,779 2.0 245
10-19............................ 64 3.3 0 30,471 7,685 8.6 3,752 4.1 488
20-99............................ 421 22.0 0 201,744 18,495 20.7 18,422 20.3 996
100-499.......................... 573 29.9 0 274,541 13,287 14.9 25,860 28.5 1,946
500 +............................ 804 42.1 0 385,776 18,111 20.3 39,079 43.0 2,158
----------------------------------------------------------------------------------------------------------------------
Total........................ 1,912 100.0 0 917,039 89,388 100.0 90,846 100.0 1,016
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Data in this Table are distributed across categories using percentages from SUSB, 2007.
5. Description of the Projected Reporting, Recordkeeping and Other
Compliance Requirements for Small Entities
The FLSA sets minimum wage, overtime compensation, and
recordkeeping requirements for employment subject to its provisions.
All non-exempt covered employees must be paid at least the minimum wage
and not less than one and one-half times their regular rates of pay for
overtime hours worked. Workers performing domestic service but not
meeting the definition of companionship services and live-in domestic
service workers employed by third parties will need to be paid in
accordance with the FLSA's minimum wage and overtime compensation
provisions.
This Final Rule provides no differing compliance requirements and
reporting requirements for small entities. The Department has strived
to minimize respondent recordkeeping burden by requiring no order or
specific form of records under the FLSA and its corresponding
regulations. Moreover, employers would normally maintain the records
under usual or customary business practices.
Every covered employer must keep certain records for each non-
exempt worker. The regulations at 29 CFR part 516 require employers to
maintain records for employees subject to the minimum wage and overtime
compensation provisions of the FLSA. The recordkeeping requirements
under 29 CFR part 516 are not new requirements; however, some
additional employees will be included in the universe of covered
employees under the Final Rule. As indicated in this analysis, the
Final Rule expands minimum wage and overtime compensation coverage to
approximately 1.30 million workers. This results in an increase in
employer burden and is estimated in the Paperwork Reduction Act (PRA)
section of this Final Rule. Note that the burdens reported for the PRA
section of this Final Rule include the entire
[[Page 60551]]
information collection and not merely the additional burden estimated
as a result of this Final Rule.
Cost to Small Entities
Table 22 presents the results of the first year, recurring years,
and annualized cost and impact analyses as distributed by establishment
size. The figures in the table include the costs of regulatory
familiarization, hiring costs, complying with minimum wage
requirements, travel time compensation, and overtime compensation,
assuming employers respond by adjusting work schedules so that overtime
hours are reduced to 60 percent of the current value (Scenario 1; in
addition, we assume 30 percent of reallocated overtime hours are
assigned to new hires). This scenario is the most costly of the three
examined, and thus the results presented here show the anticipated
upper bound.
Table 22--First Year, Recurring, and Annualized Compliance Costs by Employment Size \a\
----------------------------------------------------------------------------------------------------------------
Cost per
Percent of Cost per establishment
Number of employees Cost ($1,000) total cost establishment as a percent of
average revenue
----------------------------------------------------------------------------------------------------------------
First Year
----------------------------------------------------------------------------------------------------------------
0-4..................................... $4,423 1.9 $180 0.23
5-9..................................... 3,983 1.7 548 0.22
10-19................................... 8,003 3.5 1,041 0.21
20-99................................... 50,494 22.0 2,730 0.27
100-499................................. 67,801 29.5 5,103 0.26
500 +................................... 95,228 41.4 5,258 0.24
-----------------------------------------------------------------------
Total............................... 229,933 100.0 2,572 0.25
----------------------------------------------------------------------------------------------------------------
Recurring Costs
----------------------------------------------------------------------------------------------------------------
0-4..................................... 2,450 1.1 100 0.13
5-9..................................... 3,308 1.5 456 0.19
10-19................................... 7,159 3.3 932 0.19
20-99................................... 47,402 22.0 2,563 0.26
100-499................................. 64,506 29.9 4,855 0.25
500 +................................... 90,642 42.1 5,005 0.23
-----------------------------------------------------------------------
Total............................... 215,468 100.0 2,410 0.24
----------------------------------------------------------------------------------------------------------------
Annualized Costs, at 7% Real Rate
----------------------------------------------------------------------------------------------------------------
0-4..................................... 2,712 1.2 110 0.14
5-9..................................... 3,398 1.6 468 0.19
10-19................................... 7,272 3.3 946 0.19
20-99................................... 47,813 22.0 2,585 0.26
100-499................................. 64,945 29.9 4,888 0.25
> 500................................... 91,252 42.0 5,038 0.23
-----------------------------------------------------------------------
Total............................... 217,393 100.0 2,432 0.24
----------------------------------------------------------------------------------------------------------------
\a\ Totals in this Table exclude costs related to California's IHSS workers because these workers are not
employed by private small establishments and therefore the employer will not incur costs associated with IHSS
workers.
First year costs range from $180 for entities where the owner has
fewer than five employees in addition to him- or herself (a 0-4
employee establishment), to $5,258 per establishment for entities with
more than 500 employees (Table 22). Annual recurring costs are somewhat
smaller, ranging from $100 per year per establishment in the 1 to 4
employee class, to $5,005 in the 500 employee or more size class. Over
ten years, the rule is projected to cost establishments an annual
average ranging from $110 for establishments with fewer than five
employees to $5,038 for 500+ employee establishments per year when cost
are annualized using a 7 percent real interest rate.
Total costs and cost per establishment are consistently
proportionate to establishment size as measured by either revenues or
employment regardless of cost type (first year, recurring, or
annualized). For example, employers with more than 500 employees are
projected to incur 41.4 percent of total first year costs, which is
proportionate to their share of the industry employment and revenues
(see Table 21 and Table 22). In addition, the ratio of compliance costs
to average establishment revenue is relatively similar regardless of
establishment size. For example, the table shows that average
annualized compliance costs vary between 0.14 and 0.26 percent of
average annual revenues for all establishments ranging from the 0 to 4
employee class to the 500+ employee class.
In summary, first year compliance costs do not exceed $2,730 for
establishments with fewer than 100 employees, and do not exceed $5,258
for those with more than 100 employees; first-year compliance costs do
not exceed 0.27 percent of establishment revenue for all establishment
size classes; average annualized compliance costs do not exceed $2,585
for establishments with fewer than 100 employees, and do not exceed
$5,038 for those with more than 100 employees; and average annualized
compliance costs do not exceed 0.26 percent of establishment revenue
regardless of establishments size.
[[Page 60552]]
Impacts to small businesses are unlikely to vary significantly over
time. Existing firms incur regulatory familiarization costs once, and
these costs do not impose a significant economic burden. It is
possible, however, that the actual cost burdens to small entities may
differ from the Department's estimates. The Department estimates that
recurring costs such as overtime and travel time compensation (transfer
payments in the EO 12866 analysis) are proportionate to firm size.
These costs will increase if the firm grows, but in proportion to the
firm's ability to bear them. As new firms enter the market, they will
bear the same costs: One-time regulatory familiarization costs, and
recurring payments for overtime and travel. Again, recurring costs will
be proportionate to firm size. Therefore, based on these assumptions,
if the revisions to the companionship services regulations are
affordable for existing firms, they will be affordable to new market
entrants as well.
There are limitations to this analysis. It is assumed that the
distribution of employees by establishment size has not changed
significantly since 2007 (although the number of employees has
increased significantly). We also assume that the occupations of HHA
and PCA are distributed by establishment size similarly to other
occupations in the HHCS and SEPD industries. With the exponential
growth in these industries, it is possible that the distribution of
workers by employment size class has shifted. In addition, the cost
analysis conducted in this report is unable to capture the difference
in costs for urban versus rural home care agencies.
6. Description of the Steps the Agency Has Taken To Minimize the
Significant Economic Impact on Small Entities Consistent With the
Stated Objectives of Applicable Statutes, Including a Statement of the
Factual, Policy, and Legal Reasons for Selecting the Alternative
Adopted in the Final Rule and Why Other Alternatives Were Rejected
As previously discussed, the Department believes it has chosen the
most effective option that updates and clarifies the rule. Based on the
commenters' suggestions, among the options considered by the Department
but not described in the NPRM, the least restrictive option was taking
no regulatory action. A more restrictive option was to add to the
provisions being finalized a limit on the personal care services that
can be performed. NELP and the National Council on Aging among others
suggested that the Department require an initial assessment be
conducted to determine if a direct care worker is performing primarily
fellowship and protection for the consumer. If it is found that the
direct care worker is not engaged primarily in fellowship and
protection, then the subsequent list of personal care services should
not be considered at all and the worker should not be considered
exempt. The National Council on Aging further expressed the view that
toileting, bathing, driving, and tasks involving positioning and/or
transfers be excluded from the list of permissible duties. ANCOR
suggested that the list be made exclusive and include fewer tasks. The
commenter added that the Department should consider providing an
allowance for household work defined as no more than one hour in a
seven day period. AFSCME expressed the view that those workers who
regularly engage in mobility tasks should not be considered companions.
The Department carefully considered such views in development of the
Final Rule. The Department ultimately settled on a less restrictive
list of permissible care services (assistance with ADLs and IADLs) than
initially proposed as well as less restrictive than options suggested
by some of these commenters. The Department views the resulting list as
a compromise that allows for some delivery of care services by the
exempt companion while at the same time recognizing and making an
effort to address the health and safety concerns of direct care workers
and consumers. Taking no regulatory action does not address the
Department's concerns discussed above under Need for Regulation. The
Department found the most restrictive option to be overly burdensome on
business in general and specifically small business.
Pursuant to the RFA, the Department considered several other
approaches to accomplish the objectives of the rule and minimize the
economic impact on small entities including those suggested in comments
on the NPRM as well as more traditional approaches.
In its comment, Advocacy noted that small businesses are most
concerned with the cost of overtime compensation and less so the
minimum wage provision. One suggested alternative was to maintain the
exemption from overtime compensation for third party employers of live-
in workers, consistent with the laws in at least three states
(Michigan, Nevada, and Washington). The Department recognizes that this
approach would represent incremental progress towards narrowing the
exemption for this set of workers and result in a very small economic
impact on the industry from the Final Rule.
However, the Department believes this approach is inconsistent with
Congress's intent to provide FLSA protections to domestic service
workers, while providing a narrow exemption for live-in domestic
service workers. It is apparent from the legislative history that the
1974 amendments were intended to expand coverage to include more
workers, and were not intended to roll back coverage for employees of
third parties who already had FLSA protections as employees of covered
enterprises. Moreover, this approach does not support the objectives of
the rule or the purposes of the overtime requirements of the FLSA, one
of which is to spread employment.
Another alternative suggested by Advocacy and the participants at
the Small Business Roundtable hosted by Advocacy was to allow employers
to exclude some nighttime hours from ``hours worked'' to reduce the
potential burden of overtime compensation to workers providing care on
higher hour cases (12- or 24-hour shifts). For example, Minnesota and
North Dakota state laws exclude up to eight hours from the overnight
hours (from 10:00 p.m. to 9:00 a.m.) from the ``hours worked'' for
purposes of minimum wage and overtime calculations. This Final Rule
does not include revisions to the longstanding regulations applicable
to all FLSA-covered employers addressing when sleep time constitutes
hours worked and when sleep time may be excluded from hours worked.
Therefore, employers still have the opportunity to exclude bona fide
sleep hours; however, there would be no basis under the FLSA for
treating sleep time hours differently for domestic service workers than
for other employees. The Department's existing regulations already
provide for the exclusion of sleep time from compensable hours worked
under certain conditions. As previously discussed in the Hours Worked
section of this preamble, under the Department's existing regulations,
an employee who is required to be on duty for less than 24 hours is
working even though he or she is permitted to sleep or engage in other
personal activities when not busy. See Sec. 785.21. Where an employee
is required to be on duty for 24 hours or more, the employer and
employee may agree to exclude a bona fide meal period or a bona fide
regularly scheduled sleeping period of not more than eight hours from
the employee's hours worked under certain conditions. See Sec. 785.22.
The conditions for the exclusion of such a sleeping period from hours
worked are (1) that adequate
[[Page 60553]]
sleeping facilities are furnished by the employer, and (2) that the
employee's time spent sleeping is usually uninterrupted. When an
employee must return to duty during a sleeping period, the length of
the interruption must be counted as hours worked. If the interruptions
are so frequent that the employee cannot get at least five hours of
sleep during the scheduled sleeping period, the entire period must be
counted as hours worked. Id.; see also Wage and Hour Opinion Letter,
1999 WL 1002352 (Jan. 7, 1999). Where no expressed or implied agreement
exists between the employer and employee, the eight hours of sleeping
time constitute compensable hours worked. This description of these
longstanding rules in the Final Rule's preamble is provided to help to
educate small business employers regarding their ability to exclude
sleep time from hours worked. See Sec. 785.22. However, because there
would be no basis under the FLSA for treating sleep time hours
differently for domestic service workers than for other employees, the
commenters' suggestion was not adopted.
Another approach suggested by small business representatives at the
Small Business Roundtable and in subsequent conversations between small
businesses and Advocacy would be to calculate overtime compensation
based on a different rate of pay than straight time; for example, under
New York state law overtime hours are paid at one and a half times the
minimum wage rather than the worker's regular rate of pay for some
workers. Again, there is no legal basis in the FLSA for calculating
overtime compensation at a rate other than one-and-one-half times the
employee's regular rate of pay. Moreover, the Department does not
believe that this supports the objective of the rule or the spread of
employment under the Act. In terms of economic burden, this alternative
could reduce the cost to employers of overtime by approximately 25
percent under OT Scenario 2; however, 15 states currently require
payment of overtime at time and a half of regular pay with no evidence
of significant economic burden. Quoting the Michigan Olmstead Coalition
``we have seen no evidence that access to or the quality of home care
services are diminished by the extension of minimum wage and overtime
protection to home care aides in this state almost six years ago.''
Another alternative discussed by commenters is to exclude travel
time from hours worked in order to decrease the burden of overtime
compensation. However, the comments provided little justification for a
departure from the general FLSA principles applicable to all employers
on the compensability of travel time set forth in 29 CFR 785.33-785.41.
Excluding travel time that is ``all in the day's work'' from
compensable hours worked, for example, would be inconsistent with the
Portal-to-Portal Act amendment to the FLSA and inconsistent with how
such travel time is treated for all other employees. Sec. Sec. 785.38;
790.6. Furthermore, the analysis above suggests that the economic
impacts of combined overtime and travel time pay are not significant,
and travel time is merely a fraction of overtime cost. Thus, travel
time adds a relatively small amount to the burden of this rulemaking.
The Department also considered several traditional alternatives
suggested in the SBA guide ``How to Comply with the Regulatory
Flexibility Act.'' \221\ Those alternatives include:
---------------------------------------------------------------------------
\221\ SBA, A Guide for Government Agencies: How to Comply with
the Regulatory Familiarization Flexibility Act, Implementing the
President's Small Business Agenda and Executive Order 13272. June
2010. pgs 47-58. Available at: www.sba.gov/advo.
---------------------------------------------------------------------------
Compliance Assistance. The Department has made a variety
of educational assistance materials related to this Final Rule
available on its Web site, and WHD offices throughout the country are
available to provide compliance assistance at no charge to employers.
The Department intends to engage in robust outreach efforts and make
every effort to work with employers to ensure compliance. As mentioned
elsewhere in this preamble, the Department will work closely with
stakeholders and the Department of Health and Human Services to provide
additional guidance and technical assistance so that stakeholders,
including employee and employer advocacy groups, as well as state
agencies, understand their rights and responsibilities under the FLSA
and this Final Rule.
Differing compliance or reporting requirements that take
into account the resources available to small entities. The FLSA sets a
floor below which employers may not pay their employees. As shown
above, nearly all employers affected by the rule meet the criteria for
small entities and the costs to the smallest of these employers are not
overly burdensome; for example, the annualized cost of the rule is
estimated to be $110 for an employer with 0-4 employees and $5,038 for
an employer with 500 or more employees. See Table 22. To establish
differing compliance or reporting requirements for small businesses
would undermine this important purpose of the FLSA and appears to not
be necessary given the small annualized cost of the rule. The
Department makes available a variety of resources to employers for
understanding their obligations and achieving compliance. Therefore the
Department declines to establish differing compliance or reporting
requirements for small businesses.
Clarification, consolidation, or simplification of
compliance and reporting requirements for small entities. This rule
simplifies and clarifies compliance requirements for employers of
workers performing companionship services. The rule imposes no
reporting requirements. The recordkeeping requirements imposed by this
rule are necessary for the employer to determine their compliance with
the rule as well as for the Department and domestic service employees
to determine the employer's compliance with the law. The recordkeeping
provisions apply generally to all businesses--large and small--covered
by the FLSA; no rational basis exists for creating an exemption from
compliance and recordkeeping requirements for small businesses in the
HHCS and SEPD industries. The Department makes available a variety of
resources to employers for understanding their obligations and
achieving compliance.
Use of performance rather than design standards. Under the
Final Rule, the employer may achieve compliance through a variety of
means. The employer may: hire additional workers and/or spread
employment over the employer's existing workforce to ensure employees
do not work more than 40 hours in a workweek, and/or pay employees time
and one-half for time worked over 40 hours in a workweek. In addition,
the FLSA recordkeeping provisions require no particular order or form
of records to be maintained so employers may create and maintain
records in the manner best fitting their situation. The Department
makes available a variety of resources to employers for understanding
their obligations and achieving compliance.
An exemption from coverage of the rule, or any part
thereof, for such small entities. The FLSA contains no authority to
allow the Department to create an exemption for certain employers based
on size of their workforce. Furthermore, creating an exemption from
coverage of this rule for businesses with as many as 500 employees,
those defined as small businesses under SBA's size standards, is
inconsistent with Congressional intent in expanding FLSA coverage to
workers providing domestic services in private households and its
creation of a
[[Page 60554]]
narrow companionship services exemption.
The Department notes that while it is not appropriate to employ all of
these traditional alternatives to lessen the impact of this Final Rule
on small entities, the delayed effective date of this Final Rule
creates a transition period during which all entities potentially
impacted by this rule, including small entities, have the opportunity
to review existing policies and practices and make necessary
adjustments for compliance with this Final Rule. This transition period
coupled with the Department's compliance assistance efforts lessens the
impacts of complying with this Final Rule, relative to a regulatory
alternative in which compliance is required immediately upon
finalization.
VIII. Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1501, requires
agencies to prepare a written statement that identifies the: (1)
Authorizing legislation; (2) cost-benefit analysis; (3) macro-economic
effects; (4) summary of state, local, and tribal government input; and
(5) identification of reasonable alternatives and selection, or
explanation of non-selection, of the least costly, most cost-effective
or least burdensome alternative; for rules for which a general notice
of proposed rulemaking was published and that include any federal
mandate that may result in increased expenditures by state, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million ($141 million in 2012 dollars, using the Gross Domestic Product
deflator) or more in any one year.
Authorizing Legislation
This rule is issued pursuant to Sections 13(a)(15), 13(b)(21), and
11(c) of the Fair Labor Standards Act (FLSA), 29 U.S.C. 213(a)(15),
213(b)(21), 211(c). Section 13(a)(15) of the FLSA exempts from its
minimum wage and overtime provisions domestic service employees
employed ``to provide companionship services for individuals who
(because of age or infirmity) are unable to care for themselves (as
such terms are defined and delimited by regulations of the
Secretary).'' Section 13(b)(21) of the FLSA exempts from the overtime
provision any employee employed ``in domestic service in a household
and who resides in such household.'' The requirements to maintain the
exemptions provided by these sections are contained in this Final Rule,
29 CFR part 552. Section 3(e) of the FLSA defines ``employee'' to
include an individual employed by the government of a state or
political subdivision of a state, or interstate governmental agency.
Section 3(x) of the FLSA, also defines public agencies to include the
government of a state or political subdivision thereof, or any
interstate governmental agency. Section 11(c) of the FLSA indicates
that employers subject to minimum wage and/or overtime requirements
must make, keep, and preserve records as the Administrator prescribes
by regulation.
Cost-Benefit Analysis
For purposes of the Unfunded Mandates Reform Act of 1995, this rule
includes a Federal mandate that might result in increased expenditures
by the private sector or state, local, and tribal governments of more
than $100 million in any one year. The primary impact on state, local,
and tribal governments may be through increased Medicaid reimbursement
rates. The magnitude of that impact will depend on two factors: (1) How
home care agencies adjust scheduling to reduce or eliminate overtime
hours; and (2) how states adjust Medicaid budgets in response to the
rule.
On average, Medicaid expenditures are one of the most significant
components of state budgets, second only to primary and secondary
education as a source of expenditures from state general revenues. In
fiscal year 2011, the National Association of State Budget Officers
estimated that the state share of Medicaid expenditures accounted for
17.4 percent of state general revenues.\222\ Although some direct care
workers are employed, or jointly employed, by state or county agencies
(e.g., California, Illinois), these state or county agencies primarily
serve the states' Medicaid population. Impacts to these agencies and
direct care workers are thus a subset of the impact of the rule on the
state share of Medicaid expenditures; to analyze these impacts
separately would constitute double-counting. Therefore the Department
will focus this section on the potential impact of the rule on the
state share of Medicaid expenditures.
---------------------------------------------------------------------------
\222\ Office of the Actuary, Centers for Medicare & Medicaid
Services, U.S. Department of Health & Human Services. 2012 Actuarial
Report on the Financial Outlook for Medicaid. Available at: http://medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Financing-and-Reimbursement/Downloads/medicaid-actuarial-report-2012.pdf.
Accessed April 17, 2013.
---------------------------------------------------------------------------
The Department estimated a range of total transfers of overtime and
travel wages based on three adjustment scenarios, depending upon the
percentage of current overtime hours worked that employers continue to
provide to employees (10 percent, 40 percent or 60 percent); the middle
scenario (described in the Regulatory Impact Analysis as OT Scenario 2)
results in payment of 40 percent of current overtime hours worked
(average annualized value of $321.8 million per year). For the reasons
discussed in the Regulatory Impact Analysis, the Department believes OT
Scenario 2 represents the most likely impact of the Final Rule.
As described in the regulatory impact analysis (with respect to the
Agency Model in Section VI.D), home health care expenditures accounted
for by Medicare and Medicaid range from about 75 to 90 percent of total
home health care expenditures. However, as previously described, not
all Medicaid expenditures on home care services are included in the
standard Medicaid accounting classification; in 2009 the sum of State
Home Health, PCS, and HCBS 1915(c) waiver programs\223\ ($50.0 billion)
was about twice the size of the NHE line item for Medicaid home health
care expenditures ($24.3 billion).\224\
---------------------------------------------------------------------------
\223\ Kaiser Commission on Medicaid and the Uninsured. 2012
Medicaid Home and Community-Based Services Programs: 2009 Data
Update. http://statehealthfacts.org/comparetable.jsp?ind=242&cat=4.
\224\ Centers for Medicare and Medicaid Studies, Office of the
Actuary, National Health Expenditure Projections, 2011-2021.
Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
---------------------------------------------------------------------------
To avoid underestimating the Medicaid share of home care
expenditures, the Department added these additional sources of home
care spending to the NHE values and calculated that as much as 55
percent of home care expenditures may be accounted for by
Medicaid.\225\ Thus, perhaps $175.3 million of the $321.8 million in
additional average annualized transfers under OT Scenario 2 might be
attributed to Medicaid programs. It is unlikely that the entire amount
will be expenditures from state budgets because the federal government
also contributes to Medicaid expenditures. The CMS Office of the
[[Page 60555]]
Actuary projects that the federal share of Medicaid expenditures will
average 60.2 percent through 2020; thus, the state share of additional
wages under this scenario may be about 39.8 percent of the $175.3
million, or $69.8 million in average annualized wages.\226\ Based on
data from the CMS, we calculated that in 2011 state Medicaid
expenditures totaled $158.6 billion and the average annualized value of
projected state Medicaid expenditures is $232.5 billion per year from
2011 through 2020 (after adjusting for inflation).\227\ Thus, if state
Medicaid programs reimburse agencies for the entire amount of
additional wages expected under OT Scenario 2, it will increase state
Medicaid budgets by approximately 0.03 percent per year over that time
horizon. This estimate represents an average across states; some will
experience impacts greater than 0.03 percent and other less than 0.03
percent depending on whether state-level laws already require overtime
or travel time payments for direct care workers. Information about
state-level requirements appears in Table 3.
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\225\ In 2009, the NHE listed total home health care
expenditures as $66.1 billion, $29.9 billion (45 percent) of which
were accounted for by Medicare, $24.3 billion by Medicaid (37
percent), with the remainder attributed to a mix of other government
programs, private insurance, and private out-of-pocket spending. The
Department calculated its adjusted Medicaid percent of expenditures
by adding $25.7 billion ($50.0 billion minus $24.3 billion) to both
total and Medicaid expenditures, then dividing $50.0 billion by
$91.8 billion ($66.1 billion plus $25.7 billion) to estimate that
roughly 54.5 percent of home care expenditures may be attributable
to Medicaid.
\226\ Office of the Actuary, Centers for Medicare & Medicaid
Services, United States Department of Health & Human Services. 2012
Actuarial Report on the Financial Outlook for Medicaid. Available
at: http://medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Financing-and-Reimbursement/Downloads/medicaid-actuarial-report-2012.pdf. Accessed April 17, 2013.
\227\ Centers for Medicare and Medicaid Studies, Office of the
Actuary, National Health Expenditure Projections, 2011-2021.
Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
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Macro-Economic Effects
Agencies are expected to estimate the effect of a regulation on the
national economy, such as the effect on productivity, economic growth,
full employment, creation of productive jobs, and international
competitiveness of United States goods and services, if accurate
estimates are reasonably feasible and the effect is relevant and
material. 5 U.S.C. 1532(a)(4). However, OMB guidance on this
requirement notes that such macro-economic effects tend to be
measureable in nationwide econometric models only if the economic
impact of the regulation reaches 0.25 percent to 0.5 percent of the
Gross Domestic Product,\228\ or in the range of $39 to $77 billion. A
regulation with smaller aggregate effect, such as this one, is not
likely to have a measurable impact in macro-economic terms unless it is
highly focused on a particular geographic region or economic sector.
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\228\ Real Gross Domestic Product for the first quarter of 2012
was $15.454 trillion. Bureau of Economic Analysis, News Release:
National Income and Product Accounts Gross Domestic Product, 1st
quarter 2012 (second estimate); Corporate Profits, 1st quarter 2012
(preliminary estimate). Available at: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.
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This regulation is focused on two sub-industries (HHCS and SEPD)
within the Health Care and Social Assistance industry (NAICS 62), which
account for just over 10 percent of total employment in this
industry.\229\ The Department's RIA estimates that the total first-year
impacts of the rule on employers of workers providing home health care
services will be approximately $20.7 million, with additional transfers
of approximately $210.2 million, depending on the approach employers
choose to manage overtime hours. However, given OMB's guidance, the
Department has determined that a full macro-economic analysis is not
likely to show any measurable impact on the economy.
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\229\ BLS Quarterly Census of Employment and Wages: 2011 Annual
employment for NAICS 62 (18,368,506). Total annual employment in
2011 for NAICS 6216 (HHCS) and 62412 (SEPD) was 1,912,306. Available
at: http://www.bls.gov/cew/#databases.
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The total first-year costs of $20.7 million comprise 0.04 percent
of payroll in the two industries nationwide, and total first-year costs
as a percent of revenues are 0.02 percent nationwide. The total first-
year transfers of $210.2 million as a percent of HHCS and SEPD payrolls
are 0.5 percent, and the total first-year transfers as a percent of
revenues are about 0.2 percent.
Summary of State, Local, and Tribal Government Input
Several state employers commented on specific aspects of the
proposed rule. These comments have been addressed above in the preamble
and Paperwork Reduction Act sections of the Final Rule. During the
public comment period, representatives of the state of Washington,
Tennessee, Arkansas, California, Virginia, and Oregon submitted written
comments to the agency for review. Additionally, organizations such as
the National Association of Medicaid Directors and the California State
Association of Counties submitted written comments for review. While
such associations are not representatives of specific states, many of
their members are representatives of state and local government.
Representatives of individual states expressed concern about cost
(and income transfers). For example, the State of California Health and
Human Services Agency referenced the state's budget issues and
requested that the Department postpone acting on the requirement of
overtime wages to be paid to home care workers who are employed by
third parties, such as home care staffing agencies.\230\ The State of
Washington, Aging and Disability Services Administration, stated that
the proposed rule's discussion concerning costs requires further
research. See State of Washington.\231\ The Arkansas Department of
Human Services expressed the view that implementing these changes
without also identifying additional funding sources is ``ill advised.''
See Arkansas Department of Human Services.\232\ In the same general
category of cost, some representatives of individual states expressed
concern over the requirement to pay overtime compensation to direct
care workers. The Department also held a listening session with state
Medicaid directors or their representatives where the state
participants reiterated these concerns.
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\230\ WHD-2011-0003-9531.
\231\ WHD-2011-0003-6166.
\232\ WHD-2011-0003-9232.
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The Department notes that there was little objection among
commenters that individuals providing companionship services be paid
the minimum wage. Indeed, many commenters indicated that such employees
are already receiving at least the federal minimum wage for hours
worked. Additionally, as noted in the Department's Final Rule Defining
and Delimiting the Exemptions for Executive, Administrative,
Professional, Outside Sales and Computer Employees (April 23, 2004) (69
FR 22122), Congress amended the FLSA in 1985 following the Garcia
decision to readjust how the FLSA would apply to public sector
employers by allowing compensatory time off in lieu of cash overtime
compensation. Pursuant to the definition section of the Unfunded
Mandates Reform Act, the term ``direct costs'' shall be determined on
the assumption that state, local, and tribal governments and the
private sector will take all reasonable steps necessary to mitigate the
costs resulting from a Federal mandate. See 2 U.S.C. 658; Public Law
104-4, (March 22, 1995). Further, nothing in the Final Rule requires
that employers schedule employees for more than 40 hours per workweek.
Employers can avoid the overtime premium payment (or in the case of the
public sector, compensatory time off) merely by limiting the employee
to 40 hours of work in a workweek. Limiting workers to 40 hours per
week should affect very few consumers. The Department's analysis of
overtime hours worked showed 88 percent of direct care workers do not
[[Page 60556]]
typically work more than 40 hours per week, and consumers served by
those workers should not be affected by the rule. Although consumers
served by those direct care workers who exceed 40 hours per week are
likely to be affected, not all such workers will have their hours
adjusted (e.g., agencies that voluntarily pay overtime compensation are
less likely to adjust worker schedules, and other agencies may not
completely eliminate overtime hours). Thus, only some subset of
consumers cared for by direct care workers currently working overtime
hours are likely to be affected by the rule.
Least Burdensome Option or Explanation Required
The Department's consideration of various options has been
described throughout the preamble and the Regulatory Flexibility
Analysis. The Department believes it has chosen the most effective
option that updates and clarifies the rule and which, given the changes
made in the Final Rule in response to comments received, minimizes the
burden to the extent possible. Based on the commenters' suggestions,
among the options considered by the Department but not described in the
NPRM, the least restrictive option was taking no regulatory action. A
more restrictive option was to add to the provisions being finalized a
limit on the personal care services that can be performed. NELP and the
National Council on Aging among others suggested that the Department
require an initial assessment be conducted to determine if a direct
care worker is performing primarily fellowship and protection for the
consumer. If it is found that the direct care worker is not engaged
primarily in fellowship and protection, then the subsequent list of
personal care services should not be considered at all and the worker
should not be considered exempt. The National Council on Aging further
expressed the view that toileting, bathing, driving, and tasks
involving positioning and/or transfers be excluded from the list of
permissible duties. ANCOR suggested that the list be made exclusive and
include fewer tasks. The commenter added that the Department should
consider providing an allowance for household work defined as no more
than one hour in a seven day period. AFSCME expressed the view that
those workers who regularly engage in mobility tasks should not be
considered companions. The Department carefully considered such views
in development of the Final Rule. The Department ultimately settled on
a broader set of permissible care services than initially proposed as
well as less restrictive than options suggested by some of these
commenters. The Department views the inclusion of assistance with
activities of daily living and instrumental activities of daily living
as a compromise that allows for some delivery of care services under
the companionship services exemption while at the same time recognizing
and making an effort to tailor the types of permissible duties to
Congress' original intent and to address the health and safety concerns
of direct care workers and consumers. Taking no regulatory action does
not address the Department's concerns discussed above under Need for
Regulation. The Department found the most restrictive option to be
overly burdensome on business in general and specifically small
business.
IX. Executive Order 13132 (Federalism)
The Final Rule does not have federalism implications as outlined in
Executive Order 13132 regarding federalism. The Final Rule does not
have substantial direct effects on the states, on the relationship
between the national government and the states, or on the distribution
of power and responsibilities among the various levels of government.
X. Executive Order 13175, Indian Tribal Governments
This Final Rule was reviewed under the terms of Executive Order
13175 and determined not to have ``tribal implications.'' The Final
Rule does not have ``substantial direct effects on one or more Indian
tribes, on the relationship between the federal government and Indian
tribes, or on the distribution of power and responsibilities between
the federal government and Indian tribes.'' As a result, no tribal
summary impact statement has been prepared.
XI. Effects on Families
The undersigned hereby certifies that this Final Rule will not
adversely affect the well-being of families, as discussed under section
654 of the Treasury and General Government Appropriations Act, 1999.
XII. Executive Order 13045, Protection of Children
Executive Order 13045, dated April 23, 1997 (62 FR 19885), applies
to any rule that (1) is determined to be ``economically significant''
as defined in Executive Order 12866, and (2) concerns an environmental
health or safety risk that the promulgating agency has reason to
believe may have a disproportionate effect on children. This Final Rule
is not subject to Executive Order 13045 because it has no environmental
health or safety risks that may disproportionately affect children.
XIII. Environmental Impact Assessment
A review of this Final Rule in accordance with the requirements of
the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et
seq.; the regulations of the Council on Environmental Quality, 40 CFR
1500 et seq.; and the Departmental NEPA procedures, 29 CFR part 11,
indicates that the Final Rule will not have a significant impact on the
quality of the human environment. As a result, there is no
corresponding environmental assessment or an environmental impact
statement.
XIV. Executive Order 13211, Energy Supply
This Final Rule is not subject to Executive Order 13211. It will
not have a significant adverse effect on the supply, distribution, or
use of energy.
XV. Executive Order 12630, Constitutionally Protected Property Rights
This Final Rule is not subject to Executive Order 12630, because it
does not involve implementation of a policy ``that has takings
implications'' or that could impose limitations on private property
use.
XVI. Executive Order 12988, Civil Justice Reform Analysis
This Final Rule was drafted and reviewed in accordance with
Executive Order 12988 and will not unduly burden the federal court
system. The Final Rule was: (1) Reviewed to eliminate drafting errors
and ambiguities; (2) written to minimize litigation; and (3) written to
provide a clear legal standard for affected conduct and to promote
burden reduction.
List of Subjects in 29 CFR Part 552
Companionship, Domestic service workers, Employment, Labor, Minimum
wages, Overtime pay, Wages.
Laura A. Fortman,
Principal Deputy Administrator, Wage and Hour Division.
For the reasons discussed in the preamble, 29 CFR part 552 is
amended as follows:
PART 552--APPLICATION OF THE FAIR LABOR STANDARDS ACT TO DOMESTIC
SERVICE
0
1. The authority citation for part 552 continues to read as follows:
[[Page 60557]]
Authority: 29 U.S.C. 213(a)(15), (b)(21), 88 stat. 62; Sec.
29(b) of the Fair Labor Standards Act Amendments of 1974 (Pub. L.
93-259, 88 Stat. 76).
0
2. Revise Sec. 552.3 to read as follows:
Sec. 552.3 Domestic service employment.
The term domestic service employment means services of a household
nature performed by an employee in or about a private home (permanent
or temporary). The term includes services performed by employees such
as companions, babysitters, cooks, waiters, butlers, valets, maids,
housekeepers, nannies, nurses, janitors, laundresses, caretakers,
handymen, gardeners, home health aides, personal care aides, and
chauffeurs of automobiles for family use. This listing is illustrative
and not exhaustive.
0
3. Revise Sec. 552.6 to read as follows:
Sec. 552.6 Companionship services.
(a) As used in section 13(a)(15) of the Act, 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. The provision of
fellowship means to engage the person in social, physical, and mental
activities, such as conversation, reading, games, crafts, or
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 his or her home or to accompany the person when outside of
the home to monitor the person's safety and well-being.
(b) The term 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 care means to assist the person with activities of daily
living (such as dressing, grooming, feeding, bathing, toileting, and
transferring) and instrumental activities of daily living, which are
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).
(c) The term companionship services does not include domestic
services performed primarily for the benefit of other members of the
household.
(d) The term companionship services does not include the
performance of medically related services provided for the person. The
determination of whether services are medically related is based on
whether the services typically require and are performed by trained
personnel, such as registered nurses, licensed practical nurses, or
certified nursing assistants; the determination is not based on the
actual training or occupational title of the individual performing the
services.
0
4. Amend Sec. 552.101 by revising the first three sentences of
paragraph (a) to read as follows:
Sec. 552.101 Domestic service employment.
(a) The definition of domestic service employment contained in
Sec. 552.3 is derived from the regulations issued under the Social
Security Act (20 CFR 404.1057) and from ``the generally accepted
meaning'' of the term. Accordingly, the term includes persons who are
frequently referred to as ``private household workers.'' See. S. Rep.
93-690, p. 20. The domestic service must be performed in or about a
private home whether that home is a fixed place of abode or a temporary
dwelling as in the case of an individual or family traveling on
vacation. * * *
* * * * *
0
5. Amend Sec. 552.102 by revising paragraph (b) to read as follows:
Sec. 552.102 Live-in domestic service employees.
* * * * *
(b) If it is found by the parties that there is a significant
deviation from the initial agreement, the parties should reach a new
agreement that reflects the actual facts of the hours worked by the
employee.
0
6. Revise Sec. 552.106 to read as follows:
Sec. 552.106 Companionship services.
The term ``companionship services'' is defined in Sec. 552.6.
Persons who provide care and protection for babies and young children
who do not have illnesses, injuries, or disabilities are considered
babysitters, not companions. The companion must perform the services
with respect to the elderly person or person with an illness, injury,
or disability and not generally to other persons. The ``casual''
limitation does not apply to companion services.
0
7. Amend Sec. 552.109 by revising paragraphs (a) and (c) to read as
follows:
Sec. 552.109 Third party employment.
(a) Third party employers of employees engaged in companionship
services within the meaning of Sec. 552.6 may not avail themselves of
the minimum wage and overtime exemption provided by section 13(a)(15)
of the Act, even if the employee is jointly employed by the individual
or member of the family or household using the services. However, the
individual or member of the family or household, even if considered a
joint employer, is still entitled to assert the exemption, if the
employee meets all of the requirements of Sec. 552.6.
* * * * *
(c) Third party employers of employees engaged in live-in domestic
service employment within the meaning of Sec. 552.102 may not avail
themselves of the overtime exemption provided by section 13(b)(21) of
the Act, even if the employee is jointly employed by the individual or
member of the family or household using the services. However, the
individual or member of the family or household, even if considered a
joint employer, is still entitled to assert the exemption.
0
8. Amend Sec. 552.110 by revising paragraphs (b), (c), and (d) and
adding new paragraph (e) to read as follows:
Sec. 552.110 Recordkeeping requirements.
* * * * *
(b) In the case of an employee who resides on the premises, the
employer shall keep a copy of the agreement specified by Sec. 552.102
and make, keep, and preserve a record showing the exact number of hours
worked by the live-in domestic service employee. The provisions of
Sec. 516.2(c) of this chapter shall not apply to live-in domestic
service employees.
(c) With the exception of live-in domestic service employees, where
a domestic service employee works on a fixed schedule, the employer may
use a schedule of daily and weekly hours that the employee normally
works and either the employer or the employee may:
(1) Indicate by check marks, statement or other method that such
hours were actually worked; and
(2) When more or less than the scheduled hours are worked, show the
exact number of hours worked.
(d) The employer is required to maintain records of hours worked by
each covered domestic service employee. However, the employer may
require the domestic service employee to record the hours worked and
submit such record to the employer.
(e) No records are required for casual babysitters.
[FR Doc. 2013-22799 Filed 9-30-13; 8:45 am]
BILLING CODE 4510-27-P