FLSA Final Rules Released

FLSA Final Rules Released

As you have likely seen by now, the final rules on the companionship exemption were issued by the Department of Labor (DOL) yesterday.  CDPAANYS has examined the proposed rules on a preliminary basis.  Our initial sentiment is that, while the rules are not as bad as they could have possibly been, the potential damage to the program is still tremendous and DOL and the Obama administration, whether willfully or through their own ignorance, placed the ability of high need consumers to live independently outside of institutions in real jeopardy under the false premise of higher wages for workers.


DOL demonstrates their continued misunderstanding of how the rules will effect people early in their proposed final rule.  In the “Costs and Benefits” section on page 9 of the 385 page document, DOL states that, “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 7percent 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.”
This shows that, despite the fact that advocates, and even proponents of the regulations, have maintained that overtime will not be paid and in fact the regulations will lead to less hours for workers, DOL is falsely labeling this as redistributive in a positive manner for workers.  There are other gross mischaracterizations of the real-life impact, most notably in DOL’s contention that the payment of overtime will lead to a more stable workforce.  What we know is that these rules will dramatically impact workers ability to retain workers, since they will not be able to work enough hours at the rates offered by managed care plans and others, to allow them to earn enough money.  We know that workers who currently put in 60 hours a week will lose one-third of the salary.  This cannot lead to greater continuity of care.
CDPAANYS is currently working with our counsel to provide an in depth analysis of the rule and what it means for fiscal intermediaries moving forward.  However, we want to provide you with some information immediately so you can begin to get a picture of what action DOL took.
Companionship – The final rule maintains the original requirement that an individual providing companionship services and therefore exempt from the regulation not spend more than 20% of his or her time performing services that do not qualify as “fellowship and protection.”  “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.”  Any medical services cannot be consider companionship.  No third party employer may claim the companionship exemption.
Third-party employers/joint employers – The final rules made modifications to the section on joint employment.  As of right now, we know that the rule does not fully exempt fiscal intermediaries; however, it is unclear the extent to which we are included.  Further, it is unclear the manner in which FIs are included and what the interaction DOL has set up between consumers, who are not included, and FIs, who are, means.
In the case of joint employers, DOL said, “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.”  On initial review, this seems to be completely unworkable and establish a false expectation for the consumer that they will be able to continue to control the worker’s schedule indefinitely because they are not covered by the regulations.  However, even on the off chance that a worker does fall into the companionship exemption (see above), the FI would still be liable for overtime pay, and therefore would have to implement some kind of cost control measures such as preventing consumers from utilizing workers for over 40 hours, even amongst several different workers.

There is a shimmer of hope in this section for FIs and consumers.  DOL noted that it will use the “economic realities test” to establish the employment relationship between the consumer, the FI and the worker.  In an instance where the consumer is seen to be substantially in charge of all services, the consumer would be the “sole employer.”  DOL laid out the criteria for the economic realities test as follows:

  • 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.

DOL goes on to note that the 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).”

Therefore, the fact that under CDPA, a consumer would be in charge of recruiting, hiring, training, supervising, and terminating his or her own workers would work strongly in a FIs favor.  The fact that the collection of taxes, payment of insurance and unemployment and other services are provided by the FI, as well as the fact that in general the FI dictates to the consumer what he or she is able to pay their workers, works against us.

DOL has stated in the rules that these guidelines will be decided on a case by case basis.  We will continue to work with them to present our case and let them know why CDPA, when done properly, in NY needs to be considered not the employer.

The largest potential impacts of this determination do not relate to the exemption of the worker from overtime.  Indeed, in most circumstances, even if the consumer is deemed the employer, overtime will likely apply as the consumer is likely to need more than 20% of the worker’s time dedicated to something other than “companionship.”  However, if a FI is not the employer under the rules, the overtime provisions would likely not apply across multiple consumers.  So, for instance, if Mary Doe and Tom Davis both use Michael Smith as their worker, and both receive 40 hours of service a week from Michael, they could continue to do so if the consumer is deemed to be the sole employer.  If the FI is deemed to be a joint employer under the rules, then the FI would have an obligation to either limit the hours Michael Smith worked across both consumers or pay 40 hours of overtime.

Another example of what would be impacted is the FIs’ obligation to reimburse for travel time from one consumer’s house to another.  Using the example above, if Mary Doe utilized Michael Smith until 1:30 and then Michael drove directly to Tom Davis’ house to begin a shift with him, the FI would need to reimburse Michael for his travel time.  To be absolutely clear, DOL acknowledged, in response to CDPAANYS comments on this topic, that Medicaid and other public entities (which now included Medicaid managed care and managed long term care plans) are unlikely to reimburse for this; but, that it should be considered a cost of doing business.  DOL showed a thorough lack of understanding about the intent of CDPAANYS comments here and we will follow up.

The final note for presentation immediately is that DOL recognized the complexity of implementing these regulations.  They established an effective date of January 1, 2015.  They noted that there are a number of issues in the regulations that still need to be clarified and worked through, particularly as it related to consumer direction.  We will work with them through this process to continue the discussion that was begun and work for guidance documents and opinions that work to the benefit of FIs, consumers and workers, just as we have been doing to this point.

Our analysis of this topic is ongoing.  This is a cursory review to give you an idea of the regulations.  In addition to what we have written here, we maintain high levels of skepticism about DOL’s claim that these rules do not violate the requirements under Olmstead.  We will have more analysis in the upcoming days and weeks.  If you have questions, please do not hesitate to contact me.  For members, we will have a legal analysis on the member’s portion of the website as soon as possible.  We will also consider additional trainings and compliance sessions on this topic to continue members and consumers education on this critical topic.

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