On December 17, 2015, the U.S. Department of Labor’s (DOL) Wage and Hour Division issued guidance on permissible deductions for lodging under the Fair Labor Standards Act (FLSA), with particular emphasis on the law’s effect on home care workers. Section 203(m) of the FLSA permits employers to count as wages the “reasonable cost” of room and board. The recently issued guidance attempts to clarify the “fair value” of such room and board. This is an issue of particular relevance to employers of home care workers, as those workers are now covered by federal minimum wage and overtime laws under federal regulations issued in 2013.

Five requirements must be met in order to claim this deduction from employee wages.

1. First, such lodging must be furnished regularly by the employer or similar employers. If, for instance, those workers who provide continuous care hospice services typically live with their employers, they would be covered by this regulation.
2. Second, the employee must voluntarily accept such lodging. More specifically, if a condition of employment is that the employee must live on the premises, such as in his or her role as an apartment complex manager or in a skilled nursing context, then the arrangement is considered to be voluntary under the regulations. Employers should note that a written employment agreement—while not necessary—is helpful in determining whether the lodging is voluntary.
3. Third, employers should note that substandard housing or housing not zoned for residential use will not qualify under this guidance. All lodging used to comply with minimum wage requirements under the FLSA must comply with federal, state, and local laws.
4. Fourth, the provision of lodging must “primarily” benefit the employee. While there is a presumption that lodging benefits the employee, an employer may not claim any credit where the primary benefit inures to the employer (in other words, if the person is lodged so that he or she can be on call). Indeed, this will likely be a particularly sticky area for home healthcare workers, since it is not entirely clear to whom the benefit of such lodging inures. Among other things, the DOL will consider whether the employee is constantly “engaged to wait,” that is to say, whether the employee is on call in the event of a health emergency. The DOL will also consider the adequacy of the lodging provided to the employee. A separate room, access to a kitchen, and a private bathroom all support a finding that the lodging is for the employee’s benefit, as opposed to the employer’s primary benefit.
5. Fifth and finally, employers must maintain accurate records of any costs incurred in furnishing lodging. For live-in domestic service employees, an employer may claim up to seven and one-half times the statutory minimum hourly wage for each week that lodging is furnished to an employee.

The employer bears the burden of establishing the reasonable cost of lodging. Records of mortgage or rental payments, as well as utility bills, are all important in establishing the cost of furnishing lodging. Adequate recordkeeping, therefore, is fundamental to any claim.