A pending extension of the Fair Labor Standards Act has significant potential implications for home care agencies.

Starting January 1, 2015, the U.S. Department of Labor will require all direct care workers employed by home care agencies and other third parties to be covered by minimum wage and overtime protections.  Caregivers will be limited to 40 hours a week without overtime, which must be at least one and one-half times the standard hourly rate. In addition, agencies must offer a minimum wage of $7.25 per hour (the current federal rate) or the current minimum wage in their state, whichever is higher.

A particular element of the Department of Labor’s final rule, published in September of 2013, will also narrow the application of the “companionship services” designation and prohibit “third-party employers, such as home care agencies, from claiming the companionship and live-in exemptions.”

What could this rule change mean for agencies, caregivers, and patients?

Agencies

Home care agencies face an almost guaranteed increase in operating costs: in the first place, if they do not already pay their caregivers at minimum wage they will have to meet that standard. Second, agencies will have to either allow overtime at a higher rate for their nurses to continue working more than 40 hours or hire additional staff to close coverage gaps from a limited 40-hour work week.

Many agencies will have to increase their rates to match their rising costs.

Caregivers

While caregivers will be earning more for the hours they work, many agencies will likely choose to restrict their weeks to 40 hours. Many caregivers typically work as many as 80 hours in a week, meaning that such a restriction would effectively cut their paychecks in half. Another concern: if agencies lose patients due to increased prices, there may be even less work for a caregiver to perform.

Caregivers who face losing a substantial portion of their pay may be forced to take a second job to supplement their income.

Patients

While most of the coverage of this rule change so far has centered on home care agencies and caregivers, there are also meaningful potential consequences for patients who rely on home care. As mentioned above, home care agencies may be forced to raise their prices for care or, alternately, provide fewer services to current and future clients. Patients who pay out of pocket or from a trust for their services may quickly be priced out, as would those who have long-term care insurance. Nonmedical home care is not covered by Medicare.

Case Study

There is already an indication of how this rule will impact home care agencies, based on new legislation enacted in California earlier this year.  The California guidelines set a threshold of 45 hours for regular work time and feature a $9 minimum wage as of July 1.

The New York Times profiled one California home care agency, Select Home Care, and highlighted the owners’ options for continuing to operate. In addition to the options presented earlier in this article, co-owner Dylan Hull also presented the option to turn their employees into independent contractors. This option would almost certainly reduce operating costs for Select Home Care, even when factoring in the additional caregivers they would need to recruit.

However, the contractor path opens Select up to periodic audits from the government to ensure that they are in compliance with the IRS definition of an independent contractor. To meet that description, Select would lose the ability to dictate the quality of care they expect and to hold their employees to that standard. According to feedback from other industry professionals not affiliated with Select, the most promising option is to charge more for services and hire additional staff to accommodate a new shift structure.

The Good News

Fortunately, home care agencies do not have to struggle with increased operating costs alone. Factoring for home care agencies can provide immediate working capital to cover the hiring, training, and payroll costs associated with bringing on new staff. Home care factoring also offers additional benefits that can help home care agencies structure their businesses for continued success. PRN Funding has nearly 15 years of experience providing outstanding service to home care agencies across the country – could you be our next success story? Apply online today to get started!