A final rule issued by the Department of Labor (“DOL”) is to erode significantly a longstanding exemption under the Fair Labor Standards Act (“FLSA”). For nearly 40 years, under the companionship services exemption, home care agencies and other third parties have not had to pay federally required minimum wage and overtime to workers providing home care assistance to elderly people and individuals with illnesses, injuries, or disabilities. The scope of this exemption will be narrowed considerably on January 1, 2015, the effective date of the DOL’s new rule, which will require many employers to extend FLSA minimum wage and overtime protections to direct care workers, including home health aides, personal care aides, and certified nursing assistants.

Of the estimated 1.9 million direct care workers in the United States, according to the DOL, the majority work for home care agencies, which this rule especially impacts. The DOL’s new rule comes after years of attempts to circumscribe the companionship services exemption, which Congress developed in 1974. Until now, direct care workers were classified as performing “companionship services,” tasks similar to those of a casual babysitter.

Recognizing the changing landscape of the home care industry as more Americans choose to receive long-term care at home instead of in nursing homes or other facilities, the DOL has narrowed the duties that may be considered “companionship services.” This has effectively excluded from the exemption those providing more professionalized services, such as direct care workers, who increasingly are receiving more advanced skills and training, and carrying out the type of work that trained nurses previously used to perform.

The DOL noted in the final rule that “[t]he companionship services exemption was not intended to exclude ‘trained personnel such as nurses, whether registered or practical.’” In its press release, the DOL further stated that this change to the exemption “will help guarantee that those who rely on the assistance of direct care workers have access to consistent and high-quality care from a stable and increasingly professional workforce.”

In addition to the companionship services exemption, in 1974, Congress exempted from the FLSA’s overtime provisions domestic service employees who reside in the household in which they provide services (i.e., live-in domestic service workers). The final rule will now eliminate the ability of health care agencies and other third-party employers to claim this exemption as well as the companionship services exemption for these employees. Thus, only individuals or families who directly employ live-in domestic service and direct care workers may do so.

The availability of the companionship services exemption is also qualified in another key respect.  The final rule defines “companionship services” as the provision of fellowship and protection (e.g., offering company to, visiting, or engaging in hobbies with individuals) and care incidental to such activities, as long as they do not exceed 20 percent of the total hours worked per person and per workweek. A direct care worker will not fall within the exemption if he or she (1) spends more than 20 percent of his or her time performing care, which includes tasks that assist an individual with the instrumental activities of daily living, such as dressing, feeding, bathing, meal preparation, driving, or managing finances; (2) performs household work that primarily benefits other members of the household; or (3) conducts medically related tasks. If a worker performs any of these three tasks, he or she will be entitled to minimum wage and overtime under the FLSA.

Lastly, the final rule requires employers to maintain accurate time records for live-in domestic service employees to better ensure they are compensated for all hours worked.

Along with the final rule issued by the DOL, employers also must comply with state laws. 15 states already offer both minimum wage and overtime protections to direct care workers, while an additional 6 states and the District of Columbia require only that such workers receive state minimum wage.

Take-Away: Employers affected by the DOL rule should prepare to implement it starting January 1, 2015. The DOL will expect companies to comply, and penalties for violating the FLSA can be significant. To assist companies in following the new rule, the DOL is providing upcoming webinars along with other helpful tools, fact sheets, and materials on its website.