Fair Labor Standards Act: Extending Protections to Home Care Workers
Published: 2014-12-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Older adults and people with disabilities are increasingly receiving care at home, and home care workers are performing increasingly skilled duties. DOL recently revised its FLSA regulations to extend minimum wage and overtime protections to more of those home care workers. The Home Care Rule, scheduled to go into effect January 2015, may affect a diverse set of stakeholders, including home care workers, consumers receiving home care services, private home care agencies, and state Medicaid programs. GAO was asked to assess the potential effects of this rule.
GAO examined (1) changes DOL made in the Home Care Rule and factors it considered during the rulemaking process, (2) the potential effects of the rule identified by key stakeholders, and (3) steps DOL has taken to help state Medicaid agencies and other stakeholders understand and comply with the Home Care Rule. GAO visited six state Medicaid programs selected in part for variation in state Medicaid program design; reviewed relevant federal regulations; and interviewed government officials and representatives from 14 national organizations representing the spectrum of home care stakeholders, including workers and consumers.
section_title: What GAO Found
paragraphs: The Department of Labor's (DOL) Home Care Rule is expected to increase the number of home care workers who qualify for minimum wage and overtime protections under the Fair Labor Standards Act of 1938, as amended (FLSA). The Home Care Rule narrows the definition of companionship services and limits who may claim the companionship services exemption, among other changes. It is scheduled to go into effect in January 2015, although a challenge to the rule is currently pending in federal court. When developing the rule, DOL considered several factors, including the growth and specialization of the home care workforce, as well as the amount of time needed to make adjustments.
Representatives from national organizations GAO interviewed identified potential effects of the Home Care Rule on jobs and earnings, employer costs, and care, but did not always agree. Some representatives said extending FLSA protections to home care workers will create more full-time employment opportunities for part-time workers, while others said those who work more than 40 hours in a workweek may see reduced hours and earnings. Some representatives said employers may face increased business costs to pay overtime and some said that certain consumers could be placed in institutions because of possible service cost increases. Effects on Medicaid home care services will vary by state. Officials in five of six states GAO visited explained that they were still assessing possible changes to their programs, while one state had determined what changes it would make to comply with the new rule.
After the Home Care Rule was published, DOL collaborated with other federal agencies and stakeholders to develop guidance, conduct outreach, and provide technical assistance to help stakeholders plan for implementation. For example, DOL worked with the Centers for Medicare & Medicaid Services to develop guidance on applying FLSA principles to different home care living arrangements commonly funded by Medicaid. DOL officials said they are focusing on technical assistance to help employers and states with implementation and have developed a phased-in enforcement strategy. The effects of the Home Care Rule, such as whether the workforce will grow or the use of institutional care will increase, remain uncertain, and DOL officials said they do not currently have any plans to evaluate the rule.
section_title: What GAO Recommends
paragraphs: Depending on the outcome of the litigation, GAO recommends that the Secretary of Labor take steps to ensure the agency will be positioned to conduct a meaningful retrospective review of the rule at an appropriate time. DOL agreed with this recommendation and is working on developing data collection plans.

section_title: Letter
paragraphs: The home care workforce—comprising approximately 2 million workers— is considered to be among the fastest growing in the United States, yet  many of these workers have not been covered by the federal minimum  wage and overtime law, the Fair Labor Standards Act of 1938 (FLSA).
Home care workers provide support to people who have limited ability to  care for themselves due to aging‐related impairments or disabilities. The  home care industry has experienced significant changes and growth in  recent decades as home care has become a viable option for many,  including people with significant care needs. Consumers often prefer  home care over receiving care in an institutional setting because it allows  them to maintain their independence and receive less costly services in  their homes. State Medicaid agencies may cover home care for eligible  individuals as an alternative to institutional care.
As the home care workforce has grown to meet the demand, worker  arrangements have become more formalized and workers often use  private agencies to be matched with a consumer who needs care. As a  result, policymakers have been reexamining rules that have excluded  many home care workers from minimum wage and overtime protections.  Recently, the U.S. Department of Labor (DOL) published a final rule, the  Home Care Rule, revising its regulations under the FLSA to provide  federal minimum wage and overtime protections to more home care  workers.to the FLSA regulations because they believe these changes will help  improve working conditions for home care workers. However, other  stakeholders are concerned that the changes will increase the costs of  home care and potentially make it an unaffordable option for some  consumers. To understand some of the potential effects, we reviewed: (1)  changes the Department of Labor made in the Home Care Rule and  factors it considered during the rulemaking process, (2) potential effects  of the Home Care Rule identified by key stakeholders, and (3) steps the  Department of Labor has taken to help state Medicaid agencies and other  stakeholders understand and comply with the Home Care Rule.
In this report, we use the term “existing regulations” to refer to the regulations in effect  on the date that this report was issued (December 17, 2014) and when DOL issued the  final Home Care Rule. home care stakeholders: consumers, workers, employers, and states.  We selected organizations based in part on whose interests they  represent as well as recommendations from experts. We also reviewed  the comments they submitted in response to the proposed rule, if any. We  interviewed officials from DOL and the Department of Health and Human  Services’ Centers for Medicare & Medicaid Services. In addition, we  visited a nongeneralizable sample of six states from December 2013 to  May 2014: Arkansas, California, New York, Pennsylvania, Tennessee,  and Vermont, which represent a variety of Medicaid programs and are  geographically diverse. In selecting states, we included some whose laws  already require minimum wage and overtime wages for home care  workers, and some that do not, as described in the proposed rule. During  our visits, we interviewed state and local officials to learn about their  Medicaid programs, what specific changes they plan to make, if any, and  any challenges they may face in doing so.we interviewed more than 20 other stakeholders in the states we visited— including private home care companies, managed care organizations,  state associations, and fiscal agents—to gain their perspectives on the  potential effects of the final rule and to inquire about pay and scheduling  for home care workers.
In addition to state officials,  We conducted this performance audit from August 2013 to December  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit  work to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Home care workers support consumers of home care services, typically  individuals with disabilities and older adults, with their personal care  needs. Some of the activities that home care workers perform include  helping with activities of daily living (ADLs) such as dressing, grooming,  eating, or bathing, as well as instrumental activities of daily living (IADLs)  that enable a person to live independently such as meal preparation,  driving, light housework, managing finances, and assisting with  medications. Home care services may be provided by one or more  worker(s); however, given the personal nature of the work, experts have  noted the benefits of maintaining continuity among home care workers,  and consumers often prefer to receive care from a limited number of  workers. Home care needs depend on many factors including each  consumer’s functional limitations and the availability of informal supports,  such as those provided by family members, so the amount of time a  home care worker provides care can vary. For example, home care  workers may provide a few hours of home care per week or up to 24  hours per day depending on an individual’s needs. Home care workers  may be employed directly by the consumer or by a third party home  health care agency that matches workers with consumers. Examples of  traditional types of home health care companies include: for-profit home  care agencies, voluntary non-profits, and private not-for-profit home care  agencies.
subsections: section_title: Funding Sources for Home Care and the Role of Federal Agencies
paragraphs: A variety of public and private sources pay for home care services. The  majority of home care is paid for by public sources, such as Medicaid.  Medicaid is a federal-state program that provides health care services to  certain low-income populations. Individuals who qualify for Medicaid and  receive coverage for home care services include individuals aged 65 or  older and individuals who are disabled or blind.
Although Medicaid is  jointly financed by the states and the federal government, it is directly  administered by the states, with oversight from the Centers for Medicare  & Medicaid Services (CMS), within the Department of Health and Human  Services (HHS). State Medicaid spending for most services is matched by  the federal government at a rate that is based in part on each state’s per  capita income according to a formula established by law. State Medicaid  programs cover home care services through a wide and complex range of  options within Medicaid, which include providing this coverage as an  alternative to institutional care. The Medicaid program requires states to  cover certain home health services, and states may also elect to cover  additional home and community-based services under their Medicaid  programs, or through special waivers that allow them added flexibility in  covering these services. CMS has been working in partnership with  states, consumers, providers, and other stakeholders to create a  sustainable, person-driven long-term support system. According to CMS,  the system aims to allow people with disabilities and chronic conditions to  exercise choice and control, and to access quality services that assure  optimal outcomes, such as independence and quality of life. States have  an obligation to provide Medicaid services to eligible individuals with  disabilities in the most integrated setting appropriate to their needs,  consistent with title II, part A of the Americans with Disabilities Act, which  is overseen by the Department of Justice.
section_title: Department of Labor and the FLSA
paragraphs: The FLSA is the primary federal statute that establishes standards for  minimum wage, overtime pay, and child labor. The FLSA requires that  workers who are covered by the act and not specifically exempt from its  provisions be paid at least the federal minimum wage (currently $7.25 per  hour) and 1.5 times their regular rate of pay for hours worked over 40 in a  workweek. The 1974 amendments to the FLSA extended coverage to  workers employed in “domestic service” but established an exemption  from the minimum wage and overtime provisions for individuals providing  “companionship services” to older adults or people with disabilities. The  amendments also created a more limited exemption from the overtime  pay requirements for domestic service employees who reside in the  household where they work (live-in domestic service workers). In 1975,  DOL, the federal agency responsible for overseeing and enforcing the  FLSA, issued the existing regulations which implemented these  provisions and, among other things, defined “companionship services.”  These regulations define companionship services as those which provide  ‘‘fellowship, care, and protection’’ to an elderly person or individual with a  disability, and include household activities related to the care of that  person such as preparing a meal, making the bed, and washing clothes,  for example. Additionally, these regulations permit third party  employers, such as home care services agencies, to claim the  companionship services exemption for workers (which we refer to in this  report as the companionship exemption).
section_title: DOL Revised the Definition of Companionship Services in Light of the Changes in the Home Care Industry
subsections: section_title: DOL Narrowed the Definition of Companionship Services
paragraphs: In October 2013, DOL issued a final rule, commonly referred to as the  Home Care Rule, revising its existing regulations on domestic services  employment and the companionship services exemption. The Home Care  Rule, scheduled to go into effect January 2015, makes three main  changes to the existing regulations:  it updates terminology and narrows the definition of companionship  services;  it limits who may claim the companionship services and live-in  domestic services exemptions by stipulating that third party  employers, such as private home care agencies, will no longer be  able to claim these exemptions; and  it changes the record-keeping requirements for employers of live-in  domestic services workers.
As a result of these changes, more home care workers will be entitled to  protections under the FLSA, which may include the right to time and one- half of their regular hourly wage when they work more than 40 hours in a  week; compensation for time spent traveling between clients’ homes; and  compensation when they wake to care for clients on overnight shifts.  According to DOL, the workers who will be directly affected by the change  to the companionship services exemption are predominantly women in  their mid-40s or older and minorities who have a high school diploma or  less education.
The existing regulations define companionship services as “fellowship,  care, and protection,” and the revised definition of companionship  services includes “fellowship” and “protection” but limits the amount of  time that a worker can spend on the provision of “care” (see fig.1). Under  the Home Care Rule, examples of “fellowship” and “protection” include  activities such as engaging in conversation, reading, accompanying the  person on walks or to appointments, and being present to monitor the  person’s safety and well-being. “Care” is defined to include assisting with  activities of daily living and instrumental activities of daily living such as  dressing, feeding, meal preparation, and light housework – precisely the  types of activities that many home care workers engage in today. Under  the existing regulations, which apply until the Home Care Rule goes into  effect, workers may spend an unlimited amount of time providing these  types of services and still be exempt from the FLSA minimum wage and  overtime provisions. However, in order to qualify for the companionship  services exemption under the revised regulation, the amount of time a  worker spends on these types of activities may not exceed 20 percent of  the total hours worked per person and per workweek.
In the revised Home Care Rule, DOL also limited who may claim the  companionship services exemption. Under the existing regulations, third  party employers may claim the companionship services exemption and  are not required to pay home care workers who qualify for minimum wage  and overtime. However, under the revised regulation, third party  employers, such as private home care agencies, will no longer be able to  claim the companionship services exemption from minimum wage and  overtime.claim the exemption if the home care worker primarily provides fellowship  and protection and spends 20 percent or less of his or her weekly work  hours per care recipient on activities of daily living (ADLs) and  instrumental activities of daily living (IADLs) and if the worker meets  certain other requirements (see fig. 2).
section_title: In Developing the Home Care Rule, DOL Considered Changes to the Home Care Industry and Time Needed for Implementation
paragraphs: When DOL was developing the Home Care Rule, it considered the growth  in the home care industry and the resulting changes in the home care  workforce. In March 2012, Congress held a hearing to examine the  proposed rule and the possible effects of the narrowed definition of  companionship services. According to testimony from a DOL official, the  home care industry has “undergone a dramatic transformation” –due in  part to increased demand for home care—since DOL issued its  regulations on the companionship and live-in exemptions in 1975. For  example, the official stated that the number of certified home health care  agencies had increased from 2,242 in 1975 to more than 10,000 at the  end of 2009. The DOL official stated that the demand for home care has  increased as a result of the growth in the aging population, the rising  costs of institutional care, and the availability of funding assistance from  federally supported programs, such as Medicaid. Similarly, the number of  home care workers has increased. The Bureau of Labor Statistics (BLS)  has reported that the total number of home care workers has more than  doubled in each of the last two decades–with nearly 2.1 million workers in  2012–and is expected to be among the fastest growing occupations in the  coming years. DOL officials also told us that as the industry has grown,  home care workers’ duties have become more specialized. Home care  workers are assisting consumers with many more services than they had  been when the exemptions were enacted. According to DOL officials,  home care workers are increasingly providing specialized care, such as  assistance with activities of daily living and limited medical-related care— services that were previously provided in nursing homes or other  professional settings by trained nurses.
With the expected continued growth in the demand for home care, DOL  officials also told us that in developing the proposed rule, they considered  how to improve worker wages and address high worker turnover. DOL  officials have noted that the growth in the industry and worker  responsibilities has not translated to growth in home care workers’ wages,  which are among the lowest in the country. Additionally, home care  worker turnover has been a concern and one national group describes  the characteristics of the home care workforce to have “chronically high  rates of workforce instability.” DOL officials said the Home Care Rule is  an important step in ensuring that the home care industry attracts and  retains qualified workers, which the industry will need in the future.
The basic process by which federal agencies typically develop and issue  regulations is set forth in the Administrative Procedure Act, as well as  certain other statutes and Executive Orders. Federal rulemaking  procedures generally include issuing a Notice of Proposed Rulemaking  (NPRM) and providing an opportunity for public comment before issuing a  final rule, and may also include conducting a cost-benefit analysis, among  other things. During the rulemaking process for the Home Care Rule,  DOL officials said that in addition to considering the thousands of public  comments received in response to the proposed rule, the agency also  sought input from stakeholders in a variety of forums. Figure 3 highlights  some of the outreach that DOL conducted during the rulemaking process.
During the comment period, DOL received more than 26,000 public  comments from various stakeholders. Comments were submitted by a  range of stakeholders, including individuals and organizations  representing home care workers, consumers of home care services,  public and private home care agencies, the disability community, and  state and federal government agencies. According to DOL, the comments  reflected a wide variety of views, with most of the comments supporting  FLSA protections for home care workers.
In the final rule, DOL made some changes from the proposed rule in  response to stakeholder comments. Among the changes, DOL:
Set the effective date for 15 months after the publication of the final  rule. Because of concerns over the amount of time needed for  employers and state Medicaid programs to make the necessary  adjustments to their programs, the final rule set an extended effective  date for the rule of January 1, 2015.
Modified the proposed recordkeeping requirements for live-in home  care workers to allow employers to require their workers to record and  submit their hours worked. Under the proposed rule, the employer  could not require the live-in home care worker to record his or her  hours worked; rather, the employer would be responsible for making,  keeping, and preserving these records. However, DOL received  comments that such a prohibition would be difficult for individual  consumers who also serve as employers, particularly for those who  have Alzheimer’s disease, dementia, or developmental disabilities.
Clarified the description of services that qualify as “care” and which  are subject to the 20 percent limit.
As previously noted, one central change made by the Home Care Rule is that the  companionship services exemption will apply only when the amount of time a worker  spends on certain activities–including activities of daily living and instrumental activities of  daily living–does not exceed 20 percent of the total hours worked per workweek per  consumer. The description of services that are subject to this limit was changed in the final  rule from the description in the proposed rule. referred to these services as “intimate personal care services that are  incidental to the provision of fellowship and protection.” While DOL  retained the fundamental purpose of the description, to make it easier  for the regulated community to understand, the final rule defines the  provision of care as assistance with activities of daily living (ADLs)  and instrumental activities of daily living (IADLs).
Updated its estimate of the overall economic impact from a net cost of  $4.7 million per year in the proposed rule to a net benefit in the final  rule of between $3.9 and $27.3 million per year on average over 10  years.  DOL officials told us that developing estimates of the number  of home care workers was one of the greatest challenges they faced  when estimating economic impacts. However, they said that they  believe that their assumptions related to their earlier estimate resulted  in an overestimation of the number of workers. In general, limited data  are available on the number of home care workers or the amount of  services provided. As a result, information is limited on the  characteristics of the home care workforce, the terms under which  they are employed, the wage rates they currently earn, or the hours  they currently work. The updated estimate of economic impact  reflects changes to DOL’s assumptions including, among others: (1)  how employers might respond to overtime requirements; (2) the  number of current home care workers without overtime coverage; (3)  the costs associated with hiring new workers; and (4) an estimate of  the benefits of reduced worker turnover resulting from workers  receiving increased wages through travel reimbursement and  overtime compensation.
In the final rule, DOL also responded to some commenters’ questions  about how existing FLSA principles—those not changed by the Home  Care Rule—will likely apply to home care workers. Many of these  questions were raised because when the Home Care Rule becomes  effective, the FLSA will apply to many home care arrangements that were  not originally structured with FLSA requirements in mind. For example,  many stakeholders raised questions about how to calculate work hours  for live-in home care workers who spend some of their time sleeping,  traveling, eating, or engaging in personal pursuits. DOL also responded to  comments in the final rule related to applying FLSA principles to various  home care structures, including those with shared living arrangements  and those where more than one entity could be considered a worker’s  employer under the FLSA (known as joint employment). DOL provided  additional information and example-based scenarios about how the  existing FLSA principles for shared living and joint employment might  apply, noting that actual determinations depend on the unique facts  specific to each individual situation.
section_title: Stakeholders Provided Numerous and Sometimes Differing Perspectives on the Potential Effects of the Home Care Rule on Employers, Workers, Consumers, and State Medicaid Programs
subsections: section_title: Potential Effects on Employers and the Cost of Implementation
paragraphs: The Home Care Rule is expected to extend FLSA overtime requirements  to more home care workers and, as a result of this change,  representatives of almost all of the 14 national organizations we  interviewed agreed that employers will likely manage workers’ hours more  closely. Since third party employers such as private home care agencies  will no longer be able to claim the companionship services or live-in  exemption under the Home Care Rule, more employers will be required to  pay workers an overtime premium when hours worked exceed 40 hours  per week. While almost all (13 out of 14) of the national organizations  we interviewed agree that employers will actively manage overtime hours,  they do not always agree on whether employers will experience a  noticeable difference compared with their current operating procedures.
Representatives in 5 of the 14 national organizations we interviewed  explained how they think employers might react to applying the FLSA  overtime requirements to home care workers and how those decisions  could adversely affect business costs and services, including for small  businesses. One possibility these representatives mentioned is that  employers may avoid increased costs associated with overtime pay by  limiting workers’ hours. However, a couple of stakeholders noted that  these employers would have some increased costs associated with hiring  and training new workers to continue providing the same level of services  to consumers. Representatives of one organization told us that small  businesses, in particular, would not have the capacity to pay overtime  wages and anticipate increased costs to adjust schedules for their current  workers and to hire new workers. Stakeholders also discussed how the  Home Care Rule could potentially decrease business for some  employers. For example, representatives from one private home care  agency we interviewed said they plan to pass along any additional costs  incurred as a result of the Home Care Rule to consumers who pay for  their care privately, which could potentially cause clients to leave their  agency and seek care elsewhere. However, representatives from four  national organizations who predict that the Home Care Rule will help  reduce worker turnover also believe that the transition costs associated  with extending FLSA coverage to home care workers should be moderate  and manageable or that the Home Care Rule could potentially lead to  cost savings for employers in the long-run due to reduced worker  turnover.
In order to estimate the economic impact of the Home Care Rule, DOL  used several assumptions about how employers might choose to comply  with the rule. For example, DOL estimated how much overtime employers  might choose to pay workers and what the costs associated with hiring  new workers would be. According to DOL, the effects of the rule will  depend on what actions employers take and the costs and benefits of the  rule will vary depending upon whether employers choose to continue  current practices, rearrange worker schedules, or hire new workers.  Because overtime compensation, hiring costs, and reduction in turnover  depend on how employers choose to comply with the rule, DOL estimated  a range of impacts.
section_title: Potential Effects on the Home Care Workforce
paragraphs: Several national organizations representing the interests of workers  identified potential effects on workers including increased pay and  opportunities, especially for part-time workers. For example,  representatives from four of these national organizations said the Home  Care Rule may help create more full-time employment opportunities for  part-time workers, and that if employers respond to the rule by actively  managing workers’ hours in order to avoid paying overtime, then part-time  workers might benefit from a redistribution of work hours (see fig. 4).  These stakeholders believe that logging many hours of overtime may not  be in a worker’s best interest and can lead to low morale or increase the  risk of workplace injury. In addition, some workers’ wages may increase  because they may be entitled to overtime pay and compensation for  travel time when the Home Care Rule goes into effect. For example,  DOL’s economic analysis estimates that 12 percent of home care workers  currently work more than 40 hours per week, and whether some of these  workers’ wages will go up will depend on how much overtime employers  choose to pay workers.
On the other hand, representatives in 4 of the 14 national organizations  we interviewed emphasized how workers who are employed for more  than 40 hours in a workweek may be at a disadvantage once the Home  Care Rule goes into effect (see fig. 4). The representatives said these  workers could see their hours and wages reduced by employers seeking  to avoid paying overtime wages. At least two national organizations  predict that in certain situations, workers will have to work for multiple  agencies in order to maintain their current level of income.
Extending minimum wage and overtime protections to home care workers  may help expand the workforce and reduce turnover at a time when the  demand for home care services is expected to increase, according to  representatives in 8 of the 14 national organizations we interviewed,  including worker and consumer advocacy organizations. These  stakeholders often pointed to low wages and poor benefits as an  impediment to recruiting and retaining qualified home care workers and  the cause of high turnover. On the other hand, five national organizations,  including disability advocacy groups and organizations representing  employers, predict that if some workers’ hours are reduced, the Home  Care Rule could lead to higher turnover among workers and cause them  to seek out other jobs, which could result in a labor shortage.
section_title: Potential Effects on Consumers, Including the Cost and Continuity of Care
paragraphs: Extending FLSA coverage to home care workers could also have effects  on consumers. For example, representatives in six national organizations  we interviewed said the Home Care Rule could result in better quality of  care for consumers by reducing turnover among workers. However,  representatives in eight national organizations we interviewed expressed  concern over how the implementation of the overtime requirements might  potentially affect the continuity of care for some consumers. Employers  and consumers seeking to minimize overtime payments might need to  hire additional workers to provide care. Representatives in one national  organization said because of the nature of the work, it is not unusual for  consumers and home care workers to forge close relationships, and  according to a personal attendant coalition we interviewed, introducing  additional workers may disrupt the routines and continuity of care for  consumers who need substantial care. One home care worker we  interviewed said that continuity of care is important for developing trust  and that the particular consumer she works with might be wary of  introducing new workers into her home. Another home care worker said it  takes a considerable amount of time to learn the different techniques  used to support consumers with disabilities and that the Home Care Rule  has the potential to disrupt established relationships between workers  and consumers.
Several national organizations discussed how the Home Care Rule could  potentially affect the affordability of in-home care. Representatives in 8 of  the 14 national organizations we interviewed noted specific situations  where certain consumers receiving home care could be at risk of being  transferred to an institution or having to move to an alternate setting  because of possible service cost increases. For example, in anticipation  of the Home Care Rule going into effect and increased costs,  representatives from one home care agency we interviewed said some  consumers have already decided to hire a neighbor or friend to meet their  home care needs or have left their homes to move into a congregate  setting.
section_title: Potential Effects on State Medicaid Programs
paragraphs: Effects on Medicaid-funded home care services will likely vary by state  since states have some flexibility in designing their Medicaid Programs  and could choose to make adjustments in response to the rule. Many of  the potential effects described by officials in the six states we visited are  similar to some of those we heard from the national organizations– including concerns about cost and potential disruption of the continuity of  care. Most state officials we interviewed were concerned about the  potential effects of the Home Care Rule on existing programs that were  structured and made affordable by means of the companionship or live-in  exemptions. How the FLSA will apply in each case will depend in part on  how services are delivered and the specific facts and circumstances of  each situation. Among the potential effects we heard in the six states we  visited were:
Consumer-directed programs—Consumers have the option to direct  their own care in certain Medicaid-funded programs. Consumer- directed programs under Medicaid are designed to optimize  consumers’ autonomy and independence. In these programs, consumers may exercise their own decision-making authority in areas  such as recruiting, hiring, training, and supervising workers. Officials  in at least two states we visited expressed concern over how the  Home Care Rule might affect the flexibility of these programs or  restrict consumer choice in situations where the state may be  considered an employer along with the consumer. For example, a  consumer may potentially have less decision-making authority over  how many workers are needed to provide care if a state exercises  some control over workers and decides it is necessary to limit  workers’ hours to reduce overtime costs. According to the National  Association of Medicaid Directors, maintaining current levels of  consumer choice under Medicaid either becomes more expensive in  certain situations as a result of the Home Care Rule, or may be  sacrificed in some situations in favor of cost control.
Family caregivers—Some states with consumer-directed Medicaid  programs allow consumers to hire family members to provide their  care. According to the National Association of Medicaid Directors,  paid family caregivers have become a common solution to the  shortage of traditional home care workers. Some states may consider  limiting the number of hours workers, including family members, can  work in order to minimize overtime costs once the Home Care Rule  goes into effect, which could potentially reduce the available  workforce. In addition, some family caregivers may rely on the income  they receive by providing care. In two states we visited, state officials  specifically expressed concern over situations where family members’  work hours may be reduced in response to the Home Care Rule in  order to minimize overtime payments, which could reduce the family’s  income. In another state, officials were less concerned about the  Home Care Rule’s potential effect on family caregivers because one  of their Medicaid home care programs includes certain restrictions on  hiring a family member and limits the number of hours a family worker  can provide care.
Though DOL guidance describes the parameters of an employment  relationship versus a familial relationship for the purposes of the  Home Care Rule, officials from one national organization told us that  it may be a challenge for some consumers and their family caregivers  to determine when FLSA principles apply. According to DOL  guidance, family workers may be entitled to FLSA minimum wage and  overtime protections depending on the specific circumstances of the  work arrangement.
What are family caregivers?
Paid family caregivers are typically not career  home care workers; rather they are usually  close family members and friends willing to  help the consumer. DOL guidance states that  in situations where family members are paid  care providers, there is both a familial and an  employment relationship, and only hours  worked within the scope of the employment  relationship are covered by the FLSA. In  these circumstances, the employment  relationship is usually limited by a “plan of  care” or other written agreement approved by  the program funding the services. For  example, a familial relationship rather than an  employment relationship would exist for a  father who has an adult son with a physical  disability and helps his son with eating dinner  and bathing in the evenings. If the son enrolls  in a Medicaid-funded program and the father  becomes his paid care provider under a  program-approved plan of care that funds 8  hours of services per day, then the father  would also be in an employment relationship  with his son for purposes of the FLSA for  those 8 hours. respite care—a break from caregiving responsibilities—to family  caregivers. In one state we visited, officials expressed concern that  FLSA principles would apply to respite workers. For example, officials  in this state said a worker may easily incur overtime in overnight  respite situations, which could potentially strain a consumer’s budget  for care. Introducing additional workers to provide respite in order to  avoid overtime costs may not always be practical. For example, one  state official said it may be very disruptive for some consumers, such  as those with intellectual and developmental disabilities who do not  handle changes well, to have different caregivers in a respite situation  over the course of a weekend.
Live-in arrangements—Under some Medicaid-funded programs, home  care workers and consumers may live together. Officials in two of the  states we visited told us they were concerned about how FLSA  requirements may affect live-in care arrangements for those  consumers who require substantial care and how it could be costly to  comply with the FLSA in certain live-in situations. Many of these live- in arrangements were designed without consideration of FLSA  overtime requirements and were made affordable by reliance on the  companionship and live-in exemptions. State officials in one state we  visited said they may redesign one of their live-in programs in  response to the Home Care Rule to help keep overtime costs down.  However, they said it would require time to reevaluate and possibly  rewrite parts of existing program guidance.
State budgets—Officials in all of the six states we visited said the  Home Care Rule has the potential to strain limited state budgets. For  example, officials in three states said that Medicaid rates may not be  sufficient to cover additional costs incurred as a result of the rule,  including compensable travel time between Medicaid beneficiaries.  According to state officials in three of the states we visited, their state  legislatures had not yet budgeted additional funding that may be  needed to comply with the Home Care Rule once it goes into effect.  States may have to make systems changes to track overtime among  workers, for example, which could be costly and would require time to  implement. States are also facing their own unique budgetary  challenges. For example, officials from at least two states we visited  mentioned wages increasing, which could also pose a financial strain  and mean that implementing the Home Care Rule’s overtime  requirements will cost more. In one state we visited, the minimum  wage is set to increase from $8.00 to $9.00 by December 31, 2015.
Capacity—In addition to implementing the Home Care Rule, state  officials we interviewed expressed concern over resources and having  the capacity to implement and comply with other recent federal  requirements. For example, officials in three states said that the  Patient Protection and Affordable Care Act’s penalties for employers  failing to offer full-time employees affordable health insurance are  scheduled to go into effect at roughly the same time as the Home  Care Rule. CMS also recently issued regulations on home and  community-based services and some state officials said that they  have been focusing their attention on complying with these  regulations.
section_title: DOL Worked with Federal Agencies and Stakeholders to Develop Guidance on Implementing the Home Care Rule
subsections: section_title: DOL Developed Implementation Guidance
paragraphs: After the Home Care Rule was published, DOL developed guidance,  conducted outreach, and provided technical assistance to help state  Medicaid programs and other stakeholders plan for implementation. For  example, to help workers and consumers determine if federal minimum  wage and overtime pay are required, DOL has made available on its  website several self-assessment tools which ask a series of questions  about the nature of the work, the employer, and the services performed.  In addition, DOL has answered various Frequently Asked Questions  (FAQs) and developed fact sheets to explain how the Home Care Rule  will apply. For example, DOL answers questions on its website about how  to apply FLSA to the hours a worker spends sleeping, as is the case  when a home care worker lives with a consumer. DOL has also published  several fact sheets on specific topics on its website to provide  stakeholders with compliance assistance, such as how the FLSA will  apply to paid family caregivers once the Home Care Rule goes into effect.  DOL officials said they have trained staff in the national and regional  offices in order to expand their capacity for compliance assistance, such  as providing technical assistance.
In its 2014-2018 Strategic Plan, DOL states that one of its goals is to  improve compliance with federal wage and overtime laws by providing  compliance assistance and conducting outreach with stakeholders. After  the final rule was issued, DOL collaborated with federal agencies and  conducted outreach with stakeholders to help them better understand the  implications of the rule on state Medicaid programs and develop  applicable guidance (see fig. 5). Since many Medicaid programs  providing home care services were created with the expectation that the  workers would be exempt from the FLSA, DOL initiated an interagency  workgroup comprised of individuals from DOL, CMS, and DOJ to  understand the variation among different state Medicaid programs and  the laws that protect people with disabilities. DOL identified two areas in  which Medicaid programs could use additional guidance and developed  written guidance, sponsored webinars, and conducted outreach with all  50 states to assist with compliance. In addition, CMS also issued  guidance to assist states in understanding options for consumer-directed  programs in implementing the changes made by the Home Care Rule.
The two major guidance documents DOL issued pertain to:
Shared living arrangements—In response to the proposed rule, DOL  received many comments from stakeholders requesting that it clarify  how FLSA wage and hour requirements apply to certain shared living  arrangements funded under Medicaid. DOL consulted with  stakeholders to learn about the different types of shared living models  used by states and the differences among them. In March 2014, DOL  issued an Administrator’s Interpretation, which provided guidance on  how FLSA principles apply to shared living arrangements.representative from one national organization we interviewed said that  it was collaborating with another national organization to develop a  reader-friendly guide on shared living to further help state Medicaid  agencies and other home care providers implement FLSA  requirements. The design of states’ shared living programs can vary  greatly, as can the specific facts and circumstances around these  living situations. For example, in one state we visited, a state official  said that most shared living arrangements in the state consist of home  care providers opening up their homes to consumers. In another state  we visited, home care workers typically move into the home of the  consumer. The shared living guidance provides detailed examples  about different types of live-in arrangements including: (1) those in  which a consumer lives in a home care worker’s house, (2) those in  which a home care worker lives in a consumer’s house, and (3) those  in which the two move into a new house together (see fig. 6).
The guidance on shared living also explains that FLSA requirements may  or may not apply to home care workers in these arrangements and will  depend, in part, on whether the home care worker would be considered  an employee or an independent contractor. To determine this, DOL  uses the “economic realities” test, which reviews a series of factors.  Some of the factors reviewed in determining whether a worker is an  employee or an independent contractor include who sets wages and work  hours and who determines how the work is performed. The guidance  also provides various examples of shared living arrangements and what  the result would be under the economic realities test. According to the  guidance, in most situations where a consumer moves into the home care  worker’s existing home, the worker will not be considered an employee of  the consumer under the FLSA. This is primarily because the home care  worker has a greater degree of control over the work and investment in  the arrangement, including maintaining and modifying the residence. On  the other hand, the guidance says that when a worker moves into the  home of a consumer, the worker will typically be considered an employee  of the consumer under the FLSA, because the consumer has invested in  and controls the residence, and likely sets the schedule and directs how  and when tasks are to be performed. Several of the national  organizations and states we interviewed appreciated DOL’s efforts to  explain how these different types of Medicaid services are delivered and  the specific examples provided in the shared living guidance. Based on  the guidance, officials in two states we visited said that they do not  anticipate having to make changes because they believe the FLSA does  not apply to them based on the way their shared living programs are  structured.
Joint employment—DOL reached out to stakeholders to understand  how different Medicaid programs are structured to develop guidance  on the application of FLSA joint employment principles and to help  states implement the Home Care Rule. Under the FLSA, a single  worker may be an employee of two or more employers at the same  time. For example, in the context of home care, a consumer and a  third party such as a state Medicaid agency or a private home care  agency may jointly employ a worker. Because the FLSA will apply to  many more home care workers once the Home Care Rule goes into  effect, in June 2014 DOL issued an Administrator’s Interpretation  providing guidance on joint employment. This guidance could help  stakeholders understand situations in which there is a third party joint  employer for purposes of FLSA, such as in certain Medicaid-funded  consumer-directed programs. According to DOL, most, but not all,  consumer-directed programs will have a third party joint employer  such as a private agency, non-profit organization, or public entity in  addition to the consumer.
States have been reexamining their roles and responsibilities under  Medicaid in order to determine if they are third party joint employers in  certain situations and therefore responsible for meeting the FLSA’s  minimum wage and overtime requirements, according to an official at  the National Association of Medicaid Directors. States are particularly  concerned about situations in which they may be a joint employer to  home care workers who provide care for multiple consumers because  such workers may accrue overtime. For example, in one state we  visited, a home care worker said she works for three different  consumers under the state’s consumer-directed programs where the  consumer or a family member is considered the employer. She does  not work for any one consumer for more than 40 hours per week. If  the state is a joint employer for these programs, it may be responsible  for compensating the worker with overtime wages any time she works  more than 40 hours per week cumulatively across any of the  consumers (see fig. 7).
Certain states have already determined that they are joint employers.  Prior to issuing the Administrator’s Interpretation on joint employment,  DOL responded to specific inquiries from states about the application  of FLSA to specific scenarios. For example, an Oregon state official  asked DOL to provide an official opinion on whether the state would  be considered a joint employer of home care workers who provided  services under their Oregon-sponsored consumer-directed Medicaid  program. DOL applied the “economic realities” test used by the courts,  using information provided by the state and determined that the state  would be considered a joint employer in that program. One state we  visited, California, has already determined based on prior experience  that it would be considered a joint employer under the FLSA in certain  Medicaid-funded situations and would therefore be responsible for  paying eligible workers overtime under the new rule. For one  California program, the state considered limiting workers’ hours to 40  hours per week to help control costs, but ultimately budgeted more  than $170 million to pay the approximately 50,000 workers in that  program who work up to a certain amount of overtime, with that cost  expected to increase.
However, five of the six states we visited were still in the process of  trying to determine how the FLSA joint employment principles apply to  their specific Medicaid programs and whether they will have to make  any changes to their programs to keep the cost of home care services  affordable. Two of these states also said they need additional time to  understand the joint employment guidance in order to determine how  their existing Medicaid programs may be affected by the FLSA  framework and what steps they may need to take to comply. Officials  in these two states also said they are trying to figure out if any of their  programmatic changes would require CMS approval. CMS officials  said the approval process could take from 90 to 180 days, depending  on the type of change.
section_title: DOL Plans a Phased-In Enforcement Strategy but Does Not Have Plans to Evaluate the Effects of the Rule
paragraphs: While DOL has several enforcement mechanisms in place to oversee the  Home Care Rule’s implementation once it goes into effect, DOL officials  said they are currently focusing their efforts on technical assistance to  help employers and states with implementing the rule. For example, in  October 2014, DOL announced that it will not bring enforcement actions  against any employer for violations of FLSA resulting from the Home Care  Rule through June 2015. DOL stated that it had received requests from  national organizations representing state Medicaid programs and  disability advocates and two states to extend the effective date of the  Home Care Rule. According to DOL, these entities requested additional  time to make programmatic, budgetary, and operational adjustments to  state Medicaid programs. DOL also said it received requests from  national organizations and worker advocates to implement the Home  Care Rule on the published date of January 1, 2015 so that workers could  be protected by the FLSA without delay. While DOL did not extend the  effective date of the Home Care Rule, the agency recognized that the  implementation of the Home Care Rule raised sensitive issues and it has  been working with employers to minimize the effects on consumers who  rely on home care. For these reasons, DOL stated that during the six  month period of non-enforcement, it will concentrate its resources on  providing intensive technical assistance to the community, particularly  state agencies administering home care programs. In the notice, DOL  stated that from July 1, 2015 until December 31, 2015, it will make  determinations on a case-by-case basis as to whether to bring  enforcement actions in the home care context and will give strong  consideration to an employer’s efforts to meet the requirements under the  FLSA. During this time period, DOL plans to continue extensive outreach  and technical assistance.
While DOL has adopted this phased-in enforcement strategy to promote  compliance, the effects of the Home Care Rule still remain uncertain. In  2011, the President signed Executive Order 13563, entitled Improving  Regulation and Regulatory Review. The order states that our regulatory  system “must promote predictability and reduce uncertainty.” The order  directed each federal executive agency to develop a plan for conducting  retrospective reviews of existing significant regulations, to determine  whether they should be modified, streamlined, expanded, or repealed to  make the agency’s regulatory program more effective or less  burdensome. We previously reported that retrospective reviews are  useful because regulations can change the behavior of regulated entities  and the public in ways that cannot be predicted prior to implementation. In  addition, these reviews may result in various outcomes such as changes  to regulations, changes or additions to guidance, decisions to conduct  additional studies, or validation that existing rules were working as  planned. We have also observed that it is important for agencies to  consider in advance how they will evaluate their regulations, to better  position them to conduct future retrospective analyses. DOL officials told  us it would be premature to think about the effects of the rule since they  are developing further implementation plans and focusing on providing  technical assistance. DOL officials also said they had not made any plans  for evaluating the Home Care Rule and that it is too early to design such  a study. In 2007, we recommended that during the promulgation of  certain new rules, agencies consider how and when they will measure the  performance of the regulation, including how and when they will collect,  analyze, and report the data needed to conduct a retrospective review.  Consistent with that recommendation, guidance from the Office of  Management and Budget also states that regulations should be designed  and written in ways that facilitate evaluation of their consequences and  thus promote retrospective analyses.
section_title: Conclusions
paragraphs: Home care agencies and state Medicaid programs are responding to the  Home Care Rule through programmatic and policy changes, and while  more home care workers will be entitled to receive federal minimum wage  and overtime pay protections as a result of the Home Care Rule, the  effects of the rule will remain unclear until after it is implemented. The  effects on workers and consumers will largely depend on how employers  respond to overtime requirements and the changes that are made to state  Medicaid programs. Given that many state Medicaid programs have  relied on the companionship services exemption and emphasize  providing care at home, state Medicaid officials continue to be concerned  about maintaining services for consumers in their homes as opposed to  institutions. DOL’s recent announcement regarding the phase-in of its  enforcement, coupled with its substantial outreach to stakeholders and  revised estimate of the economic impact of the rule, highlight the  challenges and complexity of implementing the rule. The future of the  Home Care Rule will depend on the outcome of pending litigation and  DOL’s subsequent decisions about implementation. Should the rule go  into effect as scheduled, once it is fully implemented, DOL will have an  opportunity to examine some of the broader implications of the Home  Care Rule such as whether the workforce grows as a result to meet any  increased demand for home care and whether there is any resulting  increase in the use of institutional care. However, in the absence of a plan  to evaluate the effects of the rule, DOL may be unprepared to collect the  necessary data to take advantage of this opportunity. Given the  uncertainty of the Home Care Rule’s ultimate impact, planning for a  retrospective review is important because regulations can change  behaviors and result in consequences that cannot be predicted prior to  implementation.
section_title: Recommendation for Executive Action
paragraphs: Depending on the outcome of the litigation, the Secretary of Labor should  take steps to ensure the agency will be positioned to conduct a  meaningful retrospective review consistent with the Executive Order at an  appropriate time. These steps should be taken in consultation with the  Centers for Medicare & Medicaid Services, and could include, for  example, identifying metrics that could be used to evaluate the rule, and  implementing a plan to gather and analyze the necessary data.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOL for review and comment. DOL’s  Wage and Hour Division (WHD) provided written comments which are  reproduced in appendix I. WHD agreed with our recommendation that the  agency position itself to conduct a meaningful retrospective review at an  appropriate time. Moving forward, WHD said it is working to develop data  collection plans and to explore a potential evaluation that is focused on  the Home Care Rule. As part of this effort, WHD noted that DOL will  continue to work with HHS and other federal partners. DOL also provided  technical comments, which we incorporated as appropriate.
We are sending copies of this report to appropriate congressional  committees, the Secretary of Labor, and other interested parties. In  addition, the report will be available at no charge on the GAO website at  http://www.gao.gov.
If you or your staffs have any questions concerning this report, please  contact me at (202) 512-7215 or sherrilla@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. Key contributors to this report are listed in  appendix II.
section_title: Appendix I: Comments from the Department of Labor
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Blake Ainsworth (Assistant  Director), Anjali Tekchandani (Analyst-in-Charge), Robert Campbell, Sara  Edmondson, and Meredith Moore made significant contributions to all  phases of the work. Also contributing to this report were James Bennett,  Kenneth Bombara, Catina Bradley, Sarah Cornetto, Patricia Donahue,  Alexandra Edwards, Katherine Iritani, Kathy Leslie, Sheila McCoy, Linda  McIver, Jean McSween, Clarita Mrena, Mimi Nguyen, and Kathleen van  Gelder.