New Final FLSA Rule Gives Home Workers Minimum Wage, Overtime, Other FLSA Protections

Health care and other parties employing or otherwise engaging the services of home care workers should review and update their policies and  practices for scheduling, tracking hours worked and paying these workers to ensure that they comply by January 1, 2015 with a new final rule announced by the U.S. Department of Labor’s Wage and Hour Division today (September 18, 2013). Today’s announcement of the regulatory changes means employers of home care workers can expect to see costs rise and also will join most other U.S. businesses that must worry about getting caught in minimum wage and overtime enforcement traps.

New Home Care Worker Rules Effective January 2015

Under the new final rule, the Labor Department extends the Fair Labor Standards Act’s minimum wage and overtime protections to most of the nation’s direct care workers who provide essential home care assistance to elderly people and people with illnesses, injuries, or disabilities beginning January 1, 2015.

The new final rule generally will require that the approximately two million home care workers such as home health aides, personal care aides, and certified nursing assistants will qualify for minimum wage and overtime.  Employers engaging these services also generally will need to keep records and comply with other FLSA requirements with respect to these workers as well.

In anticipation of the rollout of these new protections, the Labor Department is kicking off a public outreach campaign to educate home care workers and their employers about the rule change. The Department will be hosting five public webinars during the month of October and has created a new, dedicated web portal here with fact sheets, FAQs, interactive web tools, and other materials.

The Labor Department’s focus on home workers is an extension of its expanded regulation and enforcement efforts targeting a broad range of health care industry employers. Home care and other health industry employers should act to manage their rising exposures to minimum wage, overtime and other federal and state wage and hour law risks.

The impending change in the treatment of home care workers is part of a larger commitment by the Obama Administration to both expansion and enforcement of the FLSA’s minimum wage and overtime provisions, and a specific program targeting employers in health care and related services industries.

The Obama Administration since taking office has conducted an aggressive campaign seeking to significantly increase the minimum wage under the FLSA and expand other protections.  Along with this proactive regulatory agenda, the Obama Administration also specifically is aggressively targeting health care and other caregiver businesses in its enforcement and audit activities. See, e.g. Home health care company in Dallas agrees to pay 80 nurses more than $92,000 in back wages following US Labor Department investigation; US Department of Labor secures nearly $62,000 in back overtime wages for 21 health care employees in Pine Bluff, Ark.; US Department of Labor initiative targeted toward increasing FLSA compliance in New York’s health care industry; US Department of Labor initiative targeted toward residential health care industry in Connecticut and Rhode Island to increase FLSA compliance; Partners HealthCare Systems agrees to pay 700 employees more than $2.7 million in overtime back wages to resolve U.S. Labor Department lawsuit; US Labor Dnda epartment sues Kentucky home health care provider to obtain more than $512,000 in back wages and damages for 22 employees; and Buffalo, Minn.-based home health care provider agrees to pay more than $150,000 in back wages following US Labor Department investigation.

Violation of wage and hour laws exposes health care and other employers to significant back pay awards, substantial civil penalties and, if the violation is found to be willful, even potential criminal liability.   Because states all have their own wage and hour laws, employers may face liability under either or both laws.   Coupled with these and other enforcement efforts against health and other caregiver businesses, today’s announcement reflects enforcement risks will continue to rise for employers of home care workers.

In light of the proposed regulatory changes and demonstrated willingness of the Labor Department and private plaintiffs to bring actions against employers violating these rules, health care and others employing home care workers should take well-documented steps to manage their risks.  These employers should both confirm the adequacy of their practices under existing rules, as well as evaluate and begin preparing to respond to the proposed modifications to these rules.  In both cases, employers of home care or other health care workers are encouraged to critically evaluate their classification or workers, both with respect to their status as employees versus contractor or leased employees, as well as their characterization as exempt versus non-exempt for wage and hour law purposes.  In addition, given the nature of the scheduled frequently worked by home care givers, their employers also generally should pay particular attention to the adequacy of practices for recordkeeping.

Of course, the home care and health care industry are not the only industries that need to worry about FLSA enforcement.   The Obama Administration is very aggressive in its enforcement of wage and hour and overtime laws generally.  For instance, First Republic Bank recently paid $1,009,643.93 in overtime back wages for 392 First Republic Bank employees in California, Connecticut, Massachusetts, New York and Oregon after the Labor Department found the San Francisco-based bank wrongly classified the employees as exempt from the FLSA’s overtime and recordkeeping requirements, resulting in violations of the Fair Labor Standards Act’s overtime and record-keeping provisions.  The Labor Department announced the settlement resulting in the payment on November 27, 2012.  The  settlement resulted from an investigation by the Labor Department that found the San Francisco-based bank wrongly classified the employees as exempt from overtime, resulting in violations of the FLSA’s overtime and record-keeping provisions.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also are required to maintain accurate time and payroll records.

While the FLSA provides an exemption from both minimum wage and overtime pay requirements for individuals employed in bona fide executive, administrative, professional and outside sales positions, as well as certain computer employees, job titles do not determine the applicability of this or other FLSA exemptions. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the department’s regulations. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week.

Investigators found that First Republic Bank failed to consider the FLSA’s criteria that allow certain administrative and professional employees to be exempt from receiving overtime pay. In fact, the employees were entitled to overtime compensation at one and one-half times their regular rates for hours worked over 40 in a week. Additionally, the bank failed to include bonus payments in nonexempt employees’ regular rates of pay when computing overtime compensation, in violation of the act. Record-keeping violations resulted from the employer’s failure to record the number of hours worked by the misclassified employees.

“It is essential that employers take the time to carefully assess the FLSA classification of their workforce,” said Secretary of Labor Hilda L. Solis in the Labor Department’s announcement of the settlement. “As this investigation demonstrates, improper classification results in improper wages and causes workers real economic harm.”

 FLSA Violations Generally Costly;  Enforcement Rising

The enforcement record of the Labor Department confirms that employers that improperly treat workers as exempt from the FLSA’s overtime, minimum wage and recordkeeping requriements run a big risk.  The Labor Deprtment and private plaintiffs alike regularly target employers that use aggressive worker classification or other pay practices to avoid paying minimum wage or overtime to workers.  Under the Obama Administration, DOL officials have made it a priority to enforce overtime, record keeping, worker classification and other wage and hour law requirements.  See e.g.,  Boston Furs Sued For $1M For Violations Of Fair Labor Standards Act; Record $2.3 Million+ Backpay Order; Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes; Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny; 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For EmployersQuest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay In an effort to further promote compliance and enforcement of these rules,  the Labor Department is using  smart phone applications, social media and a host of other new tools to educate and recruit workers in its effort to find and prosecute violators. See, e.g. New Employee Smart Phone App New Tool In Labor Department’s Aggressive Wage & Hour Law Enforcement Campaign Against Restaurant & Other Employers.    As a result of these effort, employers violating the FLSA now face heightened risk of enforcement from both the  Labor Department and private litigation.

Employers Should Strengthen Practices For Defensibility

 To minimize exposure under the FLSA, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take other actions to minimize their potential liability under applicable wages and hour laws.  Steps advisable as part of this process include, but are not necessarily limited to:

  • Audit of each position current classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;
  • Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services;
  • Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported;
  • Review of existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;
  • If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiation of proper corrective action after consultation with qualified legal counsel;
  • Review of existing documentation and record keeping practices for hourly employees;
  • Exploration of available options and alternatives for calculating required wage payments to non-exempt employees; and
  • Re-engineering of work rules and other practices to minimize costs and liabilities as appropriate in light of the regulations and enforcement exposures.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel before starting their risk assessment and assess risks and claims within the scope of attorney-client privilege to help protect the ability to claim attorney-client privilege or other evidentiary protections to help shelter conversations or certain other sensitive risk activities from discovery under the rules of evidence.

For Help With Investigations, Policy Updates Or Other Needs

If you need help in conducting a risk assessment of or responding to an IRS, DOL, Justice Department, or other federal or state agencies or other private plaintiff or other legal challenges to your organization’s existing workforce classification or other labor and employment, compliance,  employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer here or at (469) 767-8872 .

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer is nationally and internationally recognized for more than 23 years of work helping employers; employee benefit plans and their sponsors, administrators, fiduciaries; employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit  and management policies and practices. The Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer often has worked, extensively on these and other workforce and performance related matters.   She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For more information about Ms. Stamer and her experience or to get access to other publications by Ms. Stamer see here or contact Ms. Stamer directly.

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©2012 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press, Inc.™  All other rights reserved.

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