[Federal Register Volume 66, Number 13 (Friday, January 19, 2001)]
[Rules and Regulations]
[Pages 5481-5489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1590]


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DEPARTMENT OF LABOR

Employment Standards Administration, Wage and Hour Division

29 CFR Part 552

RIN 1215-AA82


Application of the Fair Labor Standards Act to Domestic Service

AGENCY: Wage and Hour Division, Employment Standards Administration, 
Labor.

ACTION: Notice of proposed rulemaking and request for comments.

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SUMMARY: The Department of Labor is proposing to amend several of the 
existing regulations under the Fair Labor Standards Act (FLSA) 
pertaining to the exemption for companionship

[[Page 5482]]

services. Section 13(a)(15) exempts from the minimum wage and overtime 
provisions of the FLSA domestic service employees employed ``to provide 
companionship services for individuals who (because of age or 
infirmity) are unable to care for themselves (as such terms are defined 
and delimited by regulations of the Secretary).'' This exemption was 
enacted in 1974 at the same time that Congress amended the FLSA to 
cover domestic service employees generally. The pertinent regulations 
governing this exemption have been unchanged since they were 
promulgated in 1975. Due to significant changes in the home care 
industry over the last 25 years, workers who today provide in-home care 
to individuals needing assistance with activities of daily living are 
performing types of duties and working in situations that were not 
envisioned when the companionship services regulations were 
promulgated. The number of workers providing these services has also 
greatly increased, and most of these workers are being excluded from 
the FLSA under the companionship services exemption. The Department has 
reevaluated the regulations and determined that--as currently written--
they exempt types of employees far beyond those whom Congress intended 
to exempt when it enacted section 13(a)(15). Therefore, the Department 
proposes to amend the regulations to revise the definition of 
``companionship services,'' which sets out the duties that a companion 
must be employed to perform in order to qualify for the exemption, to 
more closely mirror Congressional intent. The Department also proposes 
to amend the regulations to clarify the criteria used to judge whether 
employees qualify as trained personnel, who are not recognized as 
exempt companions. Finally, the Department proposes to amend the 
regulations pertaining to employment by a third party. This change 
would deny the companionship services exemption if the worker is 
employed by someone other than a member of the family in whose home he 
or she works. It would similarly deny the exemption for live-in 
domestics, who are exempt from the FLSA's overtime requirements 
pursuant to section 13(b)(21), if they are employed by someone other 
than a member of the family in whose home they reside and work.

DATES: Comments are due on or before March 20, 2001.

ADDRESSES: Submit written comments to T. Michael Kerr, Administrator, 
Wage and Hour Division, Employment Standards Administration, U.S. 
Department of Labor, Attention: Fair Labor Standards Team, Room S-3516, 
200 Constitution Avenue NW., Washington, DC 20210. Commenters who wish 
to receive notification of receipt of comments are requested to include 
a self-addressed, stamped postcard, or to submit comments by certified 
mail, return receipt requested. As a convenience, commenters may 
transmit comments by facsimile (``FAX'') machine to (202) 693-1432. 
This is not a toll free number. If comments are transmitted by FAX and 
a hard copy is also submitted by mail, please indicate on the hard copy 
that it is a duplicate copy of the FAX transmission.

FOR FURTHER INFORMATION CONTACT: Richard M. Brennan, Deputy Director, 
Office of Enforcement Policy, Wage and Hour Division, Employment 
Standards Administration, U.S. Department of Labor, Room S-3510, 200 
Constitution Avenue, NW., Washington, DC 20210; telephone: (202) 693-
0745. This is not a toll free number. Copies of this proposed 
rulemaking may be obtained in alternative formats by calling (202) 693-
0745 or (202) 693-1461 (TTY). The alternative formats available are 
large print electronic file on computer disk (Word Perfect, ASCII, 
Mates with Duxbury Braille System) and audiotape.

SUPPLEMENTARY INFORMATION

I. Background

    Congress expressly extended coverage to ``domestic service'' 
workers under the FLSA in 1974, amending the law to apply to employees 
performing services of a household nature in or about the private home 
of the person by whom they are employed. 29 U.S.C. 202(a), 206(f), 
207(l). Domestic service workers were made subject to the FLSA even 
though they worked for a private household and not for a covered 
enterprise. Domestic service workers include, for example, employees 
working as cooks, butlers, valets, maids, housekeepers, governesses, 
janitors, laundresses, caretakers, handymen, gardeners, and family 
chauffeurs. Senate Report No. 93-690, 93d Cong., 2d Sess. (1974), p. 
20. Simultaneously with extending coverage under the FLSA to domestic 
service workers, Congress created a complete exemption from both the 
minimum wage and overtime requirements for casual babysitters and 
persons ``employed in domestic service employment to provide 
companionship services for individuals who (because of age or 
infirmity) are unable to care for themselves (as such terms are defined 
and delimited by regulations of the Secretary [of Labor]).'' 29 U.S.C. 
213(a)(15). Congress also created a more limited exemption from the 
overtime requirements for domestic service employees in a household who 
reside in that household. 29 U.S.C. 213(b)(21).
    Congressional committee reports describe the reasons for extending 
the minimum wage protections to domestics as ``so compelling and 
generally recognized as to make it hardly necessary to cite them.'' 
Senate Report No. 93-690, p. 18. Private household work had been one of 
the least attractive fields of employment. Wages were low, work hours 
were highly irregular, and non-wage benefits were few. Senate Report 
No. 93-690, p. 18.
    The U.S. House of Representatives, Committee on Education and Labor 
stated its expectation ``that extending minimum wage and overtime 
protection to domestic workers will not only raise the wages of these 
workers but will improve the sorry image of household employment. * * * 
Including domestic workers under the protection of the Act should help 
to raise the status and dignity of this work.'' House Report No. 93-
913, 93d Cong., 2d Sess., (1974), pp. 33-34. The legislative history 
states that the 1974 Amendments were intended to include all employees 
whose vocation was domestic service, but to exempt from coverage 
babysitters and companions who were not regular bread-winners or 
responsible for their families' support. It was not intended that the 
statute exclude trained personnel such as nurses, whether registered or 
practical, from the protections of the Act. Senate Report No. 93-690, 
p. 20. Senator Williams, Chairman of the Senate Subcommittee on Labor 
and the Senate floor manager of the 1974 FLSA Amendments, described 
companions as ``elder sitters'' whose main purpose of employment is to 
watch over an elderly or infirm person in the same manner that a 
babysitter watches over children. All other work (such as occasionally 
making a meal or washing clothes for the person) must be incidental to 
that main purpose. 119 Cong. Rec. 24773, 24801 (1973).
    The Department promulgated implementing regulations in 1975 that 
define ``companionship services'' as including ``fellowship, care, and 
protection'' provided to a person who, because of advanced age or 
physical or mental infirmity, could not care for his or her own needs. 
The regulation defined such exempt services as including household work 
related to the person's care (such as meal preparation, bed making, 
washing of clothes, and other similar services). A companion could also 
perform additional general

[[Page 5483]]

household work without losing the exemption if it was incidental and 
comprised not more than 20 percent of the total weekly hours worked. 
Finally, a companion could be exempt even if employed solely by a 
third-party employer or agency, rather than by an individual or family 
directly. 29 CFR 552.6; 552.109(a). Similarly, live-in domestic service 
workers could be exempt even if employed solely by a third-party 
employer or agency, rather than by the individual or family in whose 
home they resided and worked. 29 CFR 552.109(c).
    The home care industry has changed dramatically since the 
Department published the 1975 regulations implementing the exemption 
for companionship services. There has been a growing demand for long-
term in-home care for persons of all ages, in part because of the 
rising cost of and increasing dissatisfaction with traditional 
institutional care, and because of the availability of public funding 
assistance for in-home care under Medicare and Medicaid. According to 
the National Association of Home Care (NAHC) publication, Basic 
Statistics About Home Care (March 2000), data from the Department of 
Health and Human Services' Health Care Financing Administration (HCFA) 
show that the number of Medicare-certified home care agencies increased 
over three-fold from 2,242 in 1975 to 7,747 in 1999. The number of for-
profit agencies not associated with a hospital, rehabilitation 
facility, or skilled nursing facility, i.e., freestanding agencies, 
increased more than any other category of agency from 47 in 1975 to 
3,129 in 1999. These for-profit agencies grew from 2 percent of total 
Medicare-certified agencies to over 40 percent by 1999, and now 
represent the greatest percentage of certified agencies. Public health 
agencies, which constituted over half of the certified agencies in 
1975, now represent only 12 percent.
    The Federal Government pays for much of the cost of providing home 
care services to care recipients. Medicare provides a notable portion 
of the industry's total revenues; other payment sources include 
Medicaid, insurance plans, and direct pay. Based on data from ``A 
Profile of Medicare Home Health''--a HCFA publication--Medicare and 
Medicaid together account for more than half of the revenues paid to 
freestanding agencies (40 and 15 percent, respectively). Other private 
funds (philanthropy) account for 12 percent, while private health 
insurance accounts for 11 percent. Out-of-pocket funds account for 22 
percent of agency revenues.
    There has been a similarly dramatic increase in the employment of 
home health aides and personal and home care aides in the private homes 
of individuals who need assistance with basic daily living or health 
maintenance activities. Bureau of Labor Statistics' (BLS) national 
occupational employment and wage estimates from the Occupational 
Employment Statistics (OES) survey show that the number of workers in 
these jobs tripled during the decade between 1988 and 1998, and by 1998 
there were 430,440 people working as home health aides and 255,960 
people working as personal and home care aides. The combined 
occupations of personal care and home health aides constitute the 
seventh most rapidly growing occupational group, and BLS estimates that 
their number will increase by another 150 percent from 1998 to 2008. 
The earnings of both categories of employees remain among the lowest in 
the service industry--a 1998 mean annual wage of $16,250 for home 
health aides and $14,920 for personal and home care aides according to 
the OES data. Based on the same data source, ten percent of home health 
aides and personal and home care aides earn below $12,300 a year--lower 
than the 1999 poverty threshold level of $13,880 for a family of three.
    Home health aides generally received more than personal and home 
care aides--$7.51 per hour (mean hourly wage) for personal and home 
care aides, and $8.17 per hour for home health aides. However, 10 
percent of home health aides were paid less than $5.87 an hour, while 
10 percent of personal and home care aides received less than $5.60 per 
hour. Although 90 percent of home health aides and personal and home 
care aides received hourly wages at or above $5.87 or $5.60, nearly 
70,000 of these workers received hourly wages at or below such rates, 
and possibly below the minimum wage.
    According to the BLS National Industry-Occupation Employment Matrix 
(1998), the largest percentage (38 percent) of personal care and home 
health care aides are employed in the home health care services 
industry. Others are employed by miscellaneous social service agencies, 
residential care facilities, personnel supply service agencies, nursing 
homes and hospitals. Only about two percent were self-employed and 
another two percent were employed in private households.
    Current data suggest that many workers in the home care industry 
are now employed in their primary occupation. BLS National Current 
Employment Statistics for 1999 show an average weekly number of hours 
worked among non-supervisory employees in the home health care services 
industry (SIC 808) of 29.1 hours. Workers in the individual and family 
social services industry (SIC 832) averaged 31.2 hours per week. In the 
residential care industry (SIC 836), workers averaged 32.4 weekly hours 
worked. To the extent that time spent traveling from one client to the 
next has not been considered hours worked and thus captured in the 
above data, home care workers may actually be working longer than 
revealed by the BLS statistics. As indicated earlier, it clearly was 
Congress' intent under the 1974 FLSA Amendments to cover all workers 
who performed domestic services as a vocation, excluding casual 
babysitters and providers of companionship services who were not 
regular bread winners or responsible for their families' support.
    These workers perform a variety of housekeeping, personal care, and 
medical duties for individuals who need assistance with activities of 
daily living to enable them to remain in their homes. Home health aides 
perform duties such as preparing meals, dressing patients, 
administering medication and performing medical procedures under a 
doctor's or nurse's direction. Personal and home care aides perform a 
variety of tasks in the home, including household work and assistance 
with nutrition and cleanliness. Employers have generally treated 
workers employed as home health aides and personal and home care aides 
as exempt companions, based upon the Department's current regulations. 
To the extent that the current regulations allow for the exemption of 
an employee who provides very little fellowship, and whose duties 
involve almost exclusively the performance of household chores or 
medical services, they do not appropriately implement Congress' limited 
exemption for employees who provide companionship services. As a 
result, the Department believes it is necessary to amend the 
regulations to focus them on the fellowship and protection duties that 
Congress originally intended the companion exemption to cover.

II. Proposed Regulatory Revisions

A. Duties of a Companion (29 CFR 552.6)

    The Department proposes to amend the definition of ``companionship 
services'' in section 552.6 to clarify the focus on the element of 
fellowship, to align the regulation more closely with Congressional 
intent. The dictionary definition of ``companionship'' is

[[Page 5484]]

instructive in revising the regulation to conform to the concept of a 
companion as originally intended in the legislative history: someone in 
the home primarily to watch over and care for the elderly or infirm 
person, much as a neighbor or babysitter would. The dictionary defines 
companionship as the ``relationship of companions; fellowship.'' And 
the term ``companion'' is defined as a ``person who accompanies or 
associates with another; comrade'' and as a person ``employed to 
assist, live with, or travel with another.'' It further defines 
``fellowship'' as including ``the condition of being together,'' 
``friendship'' and coming together ``in a congenial atmosphere.'' The 
American Heritage Dictionary of the English Language, 1976 Edition. 
Thus, we propose a revision of the regulation that requires that 
fellowship be a significant, important and fundamental aspect of the 
job under the companionship services exemption. Only where the worker 
and the person being served or assisted interact on a close personal 
basis, for a significant percentage of the time, would the 
companionship services exemption be applicable. Of course, the precise 
nature of what activities constitute fellowship will vary, depending 
upon the needs, capabilities, and interests of the care recipient. For 
example, fellowship might involve reading a book or a newspaper to the 
person, chatting with him or her about family or other events, playing 
cards, watching television, or going for a walk. Whatever the specific 
activity, it must involve personal interaction between the in-home care 
provider and the care recipient in order for the proposed companionship 
services exemption to apply.
    The regulatory definition of companionship services cannot be so 
broad as to include someone who essentially is serving as a maid or 
household worker. In 1974, Congress amended the FLSA specifically to 
include domestic service workers (such as maids, cooks, valets and 
laundresses) among those intended to be covered by the Act. Congress 
simultaneously created a narrowly-tailored exemption for casual 
babysitters and those providing companionship services to the elderly 
and infirm. The regulations implementing the exemption should strike a 
balance that implements Congress' twin goals by recognizing that the 
fellowship and protection provided by a companion are very different 
from the household chores performed by a maid or cook or laundress. 
Furthermore, the regulations should also reflect that coverage under 
the FLSA is construed broadly and exemptions narrowly to effectuate the 
Act's remedial purposes.
    The Department recognizes that it is possible to define 
companionship services in several different ways, with the options 
arrayed along a spectrum. The definitions may vary in the degree to 
which they require the provision of fellowship only, or allow the 
provision of fellowship in conjunction with hands-on care. The 
percentage of time that must be spent in fellowship as compared to 
other care duties also may vary. The Department proposes three 
alternatives for defining companionship services and seeks comments on 
all three alternatives. The three possible definitions involve 
variations in the specific types of duties the employee may perform and 
the amount of time the employee may spend in performing such duties. 
All of the alternatives increase the emphasis on fellowship as a 
critical component of a companion's duties, and narrow or eliminate the 
type of care that may comprise a companion's duties. In all three 
alternatives, we also propose to eliminate the current regulatory 
provision that allows the exemption to apply when the worker spends up 
to 20 percent of his or her time performing general household work 
which is unrelated to the care of the person, such as general vacuuming 
and dusting. Such general household work is precisely the sort of work 
that Congress sought to cover when it amended the Act in 1974 to reach 
domestic service workers, and therefore would be precluded.
    The first proposal requires that fellowship be a significant part 
of the person's duties for the companionship services exemption to 
apply, but does not require fellowship duties to occupy a set 
percentage of the worker's time. This proposal anticipates that 
fellowship would occur in conjunction with the performance of other 
intimate personal care chores, such as bathing, grooming, and dressing, 
which also would constitute exempt duties. The first proposal also 
would allow the exemption if the worker performs a limited amount (up 
to 20 percent of the hours worked per week) of work of a household 
nature that is directly related to the client's personal care, such as 
cooking the person's meal, making the person's bed, or washing the 
dishes for that person.
    The second proposal focuses on fellowship and protection as the 
primary duties in order for the companionship services exemption to 
apply. Thus, an employee must spend more than 50 percent of his or her 
time engaging in fellowship or protection duties to be exempt. Such 
fellowship and protection duties would include activities providing 
only fellowship or protection as well as activities in which fellowship 
or protection is provided concurrently with the performance of other 
intimate personal care chores, such as bathing, grooming, and 
toileting. However, only one-half the time spent providing fellowship 
or protection simultaneously with such other intimate personal care 
chores would count when determining if the employee's primary duty was 
providing fellowship or protection. The second proposal also would 
allow the exemption if the worker performs a limited amount (up to 20 
percent of the weekly hours) of work of a household nature that is 
directly related to the person's care.
    The third proposal would require that fellowship and protection be 
the sole core duties in order for the exemption to apply. To qualify 
for the exemption, the individual would have to spend at least 80 
percent of his or her time in activities that provide fellowship or 
protection, not in conjunction with other personal care duties. The 20 
percent tolerance for other types of work would apply to other intimate 
care and related chores. Thus, under this proposal, time spent on 
intimate personal care chores (such as grooming, toileting, and 
feeding) and on directly related work for the person (such as cooking 
the person's meal) may not exceed 20 percent of the weekly hours worked 
for the companionship services exemption to apply.

B. Trained Personnel (29 CFR 552.6)

    There has also been a dramatic change since the enactment of the 
1974 FLSA Amendments in the nature of the duties performed by many 
employees classified as exempt under the companionship services 
exemption. Because many individuals who were formerly institutionalized 
or moved to nursing homes are able, with assistance, to stay in their 
homes, home care providers have taken on a broader range of medically-
related duties. For example, individuals treated as exempt in providing 
companionship services may now perform duties such as medication 
management, taking vital signs (pulse, temperature, respiration), 
routine skin and back care, and assistance with exercise and the 
performance of simple procedures as an extension of physical therapy 
service.
    The training necessary for an employee to perform such duties, 
while less than the training of a physician or nurse, means that such 
individuals are not acting simply as elder sitters or as babysitters 
watching over their charge.

[[Page 5485]]

    Some courts, interpreting the current regulations, have allowed 
employees to qualify for exemption under the present regulatory 
definition of companionship services despite the fact that they had 
extensive training, on the theory that they did not have the two or 
more years of training generally required for LPNs and RNs. For 
example, in McCune v. Oregon Senior Services Division, 894 F.2d 1107 
(9th Cir. 1990), the court found that certified nursing assistants who 
had to pass a 60-hour training class were exempt despite their 
extensive medical training. Similarly, in Cox v. Acme Health Services, 
Inc., 55 F.3d 1304 (7th Cir. 1995), the court held that certified home 
health aides with 75 hours of state-required training were exempt. The 
court in Terwilliger v. Home of Hope, Inc., 21 F. Supp. 2d 1294 (N.D. 
Okla. 1998), also found that employees with 160 hours of training, who 
had to obtain 40 additional hours of training each year, were exempt.
    The Department believes that Congress did not intend for the 
companionship services exemption to apply to employees with the level 
of training necessary to perform medically-related duties such as 
medication management and assistance with physical therapy. Duties 
being performed that require such extensive training are beyond what 
Congress envisioned when it stated that persons providing companionship 
services are present in the home, as a neighbor might be, to watch over 
an elderly person the way a babysitter watches over a child. Thus, the 
Department proposes to clarify the regulatory definition of 
companionship services in section 552.6 to exclude personnel trained in 
the performance of such medically related duties from the companion 
exemption.

C. Third Party Employment (29 CFR 552.109)

    The Department also proposes to amend section 552.109, the 
regulation pertaining to employment by a third party. People providing 
in-home care and assistance to individuals with activities of daily 
living may be employed, or jointly employed, by various parties such as 
the family or household using the companionship services, State or 
local governments, private for-profit agencies, and hospital-related 
and not-for-profit agencies.
    Under the existing regulation, employees who are employed by an 
employer or agency other than the family or household using the 
companionship services may still qualify for the exemption. Similarly, 
under the current regulation live-in workers who are employed by a 
third party, rather than by the family in whose household they work and 
reside, nevertheless may qualify for an overtime exemption under 
section 13(b)(21) of the FLSA.
    The Department believes that employment by a party other than the 
family or household using the companionship services is inconsistent 
with the status of a companion, because the exemption for companionship 
services in section 13(a)(15) of the FLSA is limited to employees who 
are domestic service employees. The overtime exemption in section 
13(b)(21) for live-in employees who reside in the household is 
similarly limited to domestic service employees. While domestic service 
was not defined by Congress in the Act, the Senate report reflects 
Congress' view that ``the generally accepted meaning of domestic 
service relates to service of a household nature performed by an 
employee in or about a private home of the person by whom he or she is 
employed.'' Senate Report No. 93-690, p. 20 (emphasis added). The 
regulations mirror Congressional intent in defining domestic service 
employment as services of a household nature performed by an ``employee 
in or about a private home (permanent or temporary) of the person by 
whom he or she is employed.'' 29 CFR 552.3. Thus, the current 
regulations contain an internal inconsistency, because they allow the 
companion and live-in domestic exemptions to be applied to an employee 
employed by someone other than the person in whose private home the 
work is being performed.
    In 1993, the Department published a proposal to amend this 
regulation in light of the statutory requirement that the exemptions 
for companionship services and live-ins only applied to domestic 
service employees. The proposal provided that the companionship 
services exemption would not apply unless the person receiving the 
companionship services acted, alone or jointly, as an employer. 58 FR 
69310, December 30, 1993. The subsection pertaining to live-in 
employees was similarly proposed for amendment. In 1995 the rule was 
reproposed, suggesting that the exemption might apply if either the 
person receiving the services or a family member or state agency acted 
as an employer of the person providing companionship services, if the 
care recipient was unable to act on his or her own behalf. 60 FR 46797, 
September 8, 1995. The Department received very few comments on either 
of those proposals, and many of the comments indicated that there was 
confusion about the impact and effect of the proposals.
    The Department continues to believe that the current regulation 
impermissibly extends the exemption for companionship services and for 
live-in workers to employees who do not qualify as domestic service 
employees, because they are not working in the home of their employer, 
i.e., the third party employer. In addition, as discussed above, 
changes in the industry and in the nature of the duties being performed 
in peoples' homes by this segment of the work force have resulted in 
increasing numbers of employees working for third-party employers. 
Under the 1974 Amendments, Congress extended coverage of the FLSA to 
domestic service employees who were not previously covered, i.e., those 
who worked only for a private family and not for a covered enterprise. 
Anyone who prior to 1974 had worked for a covered placement agency, for 
example, but who was assigned to work in someone's home, would have 
been covered previously by the FLSA. The Department believes that 
Congress did not intend the 1974 amendments to change the status of 
workers already covered by the FLSA, but only intended to exclude 
casual babysitters and companions from those newly covered by the law, 
that is, those exclusively employed by the homeowner or family member.
    Accordingly, we propose to amend section 552.109 (a) and (c) to 
make the exemptions in sections 13(a)(15) and 13(b)(21) of the FLSA 
applicable only with respect to the family or household using the 
worker's services. For employees who are employed, whether solely or 
jointly, by an employer other than the family or household, such 
workers would not be engaged in ``domestic service employment'' with 
respect to those third party employers, and those third party 
employers, therefore, would not be able to avail themselves of the 
exemptions. A corresponding revision is made to the definition of 
domestic service employment in section 552.103.

III. Paperwork Reduction Act

    This proposed regulation does not contain any information 
collection requirements that require the approval of the Office of 
Management and Budget under the Paperwork Reduction Act.

IV. Executive Order 12866

    The proposed rule is not an ``economically significant'' regulatory 
action within the meaning of section 3(f)(1) of Executive Order 12866 
on

[[Page 5486]]

``Regulatory Planning and Review.'' The rule is not likely to: (1) Have 
an annual effect on the economy of $100 million or more or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities; (2) 
create a serious inconsistency or otherwise interfere with an action 
taken or planned by another agency; or (3) materially alter the 
budgetary impact of entitlements, grants, user fees, or loan programs 
or the rights and obligations of recipients thereof. As a result, the 
Department concluded that a full economic impact and cost/benefit 
analysis was not required for the rule under Section 6(a)(3) of the 
Order. However, because of its importance to the public and to the 
Administration's priorities, the rule was treated as a significant 
regulatory action and it was, therefore, reviewed by the Office of 
Management and Budget.
    Based on our preliminary analysis of the data, it is our conclusion 
that the proposals to change how the companionship services exemption 
is applied under the FLSA will not produce a significant economic or 
budgetary impact on affected entities. The data indicate that more than 
90 percent of the workers employed in the potentially affected 
occupational categories already receive the current federal minimum 
wage of $5.15 an hour or higher, and changing their status under the 
FLSA from exempt to non-exempt would not impose any new wage costs to 
meet minimum wage requirements. Similarly, because it appears that most 
of the workers in these occupational categories do not regularly work 
overtime (i.e., more than 40 hours per week), there would be little 
impact from overtime wage costs if their status were changed from 
exempt to non-exempt. Our analysis suggests that most of the likely 
impact, although small, will be limited to the less than 10 percent of 
workers who do not receive at least $5.15 an hour and to those workers 
who may be entitled to additional compensation (minimum wage or 
overtime) for time spent traveling between multiple client work sites 
during the day. Some employers may not now pay for such travel time. 
For those few workers who may be paid at or near the $5.15 minimum wage 
or who work overtime hours once the travel time is included, some 
employers could incur minor additional wage costs to meet FLSA's 
minimum wage or overtime requirements. However, there are many 
scheduling options available to employers to enable them in that event 
to limit the total hours worked by an employee to 40 or fewer hours per 
week to ensure that overtime costs are not incurred if paying overtime 
wages is not in their own economic self-interests.
    The Department of Health and Human Services' Health Care Finance 
Administration informally estimates that the proposal will have a 
negligible effect on Medicare costs as the types of services at issue 
are not a significant component of the Medicare program. Annual 
Medicaid program expenditures may increase somewhere within a $30 to 
$40 million range, of which 57 percent would be the Federal share. An 
equivalent percent increase in private expenditures for home health 
services would suggest the possibility of a maximum additional increase 
of $35 million in total private expenditures. The combined private and 
public total would likely be no greater than $75 million.
    Accordingly, it is our conclusion that this rulemaking is not an 
economically significant regulatory action for purposes of Executive 
Order 12866.

V. Small Business Regulatory Enforcement Fairness Act

    For similar reasons as noted above, the Department has concluded 
that this proposed rule is not a ``major'' rule requiring approval by 
the Congress under the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.). It will not likely result in (1) an 
annual effect on the economy of $100 million or more; (2) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State or local government agencies, or geographic regions; or 
(3) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic or 
export markets.

VI. Unfunded Mandates Reform Act

    For similar reasons for purposes of the Unfunded Mandates Reform 
Act of 1995, this rule does not include a Federal mandate that may 
result in increased expenditures by State, local, and tribal 
governments in the aggregate of more than $100 million, or increased 
expenditures by the private sector of more than $100 million.

VII. Executive Order 13132 (Federalism)

    The Department has reviewed this rule under the terms of Executive 
Order 13132 regarding federalism and has determined that it does not 
have federalism implications. Because the economic effects under the 
rule will not be substantial for the reasons noted above, the rule does 
not have ``substantial direct effects on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.''

VIII. Effects on Families

    The Department has assessed this rule under section 654 of the 
Treasury and General Government Appropriations Act, 1999, for its 
effect on family well-being and hereby certifies that it will not 
adversely affect the well-being of families.

IX. Regulatory Flexibility Act

    The Department has determined for similar reasons that this 
proposed regulation will not have a significant economic impact on a 
substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, and the Department has so certified to the 
Chief Counsel for Advocacy of the Small Business Administration. As 
discussed above in the analysis under Executive Order 12866, more than 
90 percent of the workers employed in occupational categories addressed 
by this rulemaking already receive wages at rates above the current 
federal minimum wage, and they typically work fewer than 40 hours per 
week. Furthermore, employers are reimbursed by the Federal government 
or insurance companies for most of the cost of providing these 
benefits. Thus, even assuming that the alternative covering the most 
additional (and therefore exempting the fewest) workers is adopted, the 
rule will not have a significant economic impact. The following 
regulatory flexibility analysis supports this determination.

(1) Reasons Why Action is Being Considered

    Section 13(a)(15) of the Fair Labor Standards Act (29 U.S.C. 
213(a)(15)) contains an exemption from both the minimum wage and 
overtime pay requirements for ``3 any employee employed in domestic 
service employment to provide companionship services for individuals 
who (because of age or infirmity) are unable to care for themselves (as 
such terms are defined and delimited by regulations of the Secretary)'' 
(emphasis added). Due to considerable growth in home care and the home 
health care industry since the implementing regulations were 
promulgated in 1975, the Department's

[[Page 5487]]

more recent experience indicates that the ``companionship services'' 
exemption is being asserted in an expansive way for many more workers 
than we believe the Congress originally intended based on a careful 
analysis of the background and legislative history to the exemption. 
Vast numbers of workers employed in regular vocations to provide 
domestic services and care for individuals in their private homes are 
being excluded from FLSA coverage as a result of this misapplication of 
this exemption, which we believe is contrary to the intent and specific 
purposes of the 1974 FLSA Amendments. The Department is therefore 
issuing this proposal to invite public comments on possible 
clarifications to the definitional terms describing the companionship 
services exemption to bring it more in line with original Congressional 
intent.

(2) Objectives of and Legal Basis for Rule

    This proposed rule is issued under the authority provided by 
section 13(a)(15) of the FLSA (29 U.S.C. 213(a)(15)), which grants the 
Secretary of Labor legislative rulemaking authority to define and 
delimit the terms ``employee employed in domestic service employment to 
provide companionship services'' for purposes of exempting such workers 
from the minimum wage and overtime pay requirements of the FLSA.

(3) Number of Small Entities Covered Under the Rule

    A small business profile obtained from the U.S. Small Business 
Administration's Office of Advocacy web site indicates that the health 
services industry is among the top small business industries in the 
United States according to employment figures. The SBA small business 
size standard for Home Health Care Services, NAICS 6216, applies a $10 
million threshold in annual receipts for defining a small business. 
Based on data from the U.S. Census Bureau's 1997 Economic Census, there 
were 16,895 home health care establishments (both exempt from and 
subject to federal income tax) in 1997 that operated for the entire 
year. Of that number, 16,486 (or 98%) had revenues (in the case of tax 
exempt firms) or receipts (in the case of non-exempt firms) of less 
than $10,000,000. For purposes of this analysis, we have assumed that 
most of the entities potentially affected by this proposal would likely 
meet the applicable criteria defining a small business in the home 
health care industry.

(4) Reporting, Recordkeeping, and Other Compliance Requirements of the 
Rule

    The rule contains no reporting, recordkeeping or other compliance 
requirements. All employers covered by the FLSA must comply with its 
minimum wage, overtime pay, child labor, and generally applicable 
recordkeeping requirements with respect to each employee who is not 
otherwise exempt from the FLSA's requirements.

(5) Relevant Federal Rules Duplicating, Overlapping, or Conflicting 
With the Rule

    There are no Federal rules that duplicate, overlap, or conflict 
with this rule governing the scope of the companionship services 
exemption under the FLSA. Regulations issued under the Medicare and 
Medicaid programs govern qualifying reimbursements for eligible 
expenses under those programs.

(6) Differing Compliance or Reporting Requirements for Small Entities

    This proposed rule contains no reporting, recordkeeping, or other 
compliance requirements specifically applicable to small entities or 
that differ from FLSA requirements generally applicable to all 
employers subject to the FLSA. Furthermore, since this is a question of 
application of the basic minimum wage and overtime requirements of the 
Act, and most affected employers would be small, no special treatment 
would be appropriate for small entities. However, the Department has 
prepared three alternative definitions of the scope of exempt duties 
and requested comments on all three.

(7) Clarification, Consolidation, and Simplification of Compliance and 
Reporting Requirements

    There is continuing confusion, among both employees and employers, 
over the scope of the companionship services exemption as it relates to 
the home health care industry. This proposal is intended to delimit how 
the exemption applies in a manner that conforms more fully with 
Congressional intent. Compliance requirements--i.e., payment of not 
less than the minimum wage for all hours worked and overtime pay, 
computed at time-and-one-half the regular rate for hours worked over 40 
per week to all covered employees--are imposed by statute but are also 
relatively simple and easy to comply with. Under the recordkeeping 
requirements generally applicable to all FLSA-covered employers, no 
particular order or form of records is prescribed by regulation and 
employers are free to use any format that assures the essential records 
are kept that meets compliance needs.

(8) Use of Other Standards

    This proposed regulation addresses only statutory coverage and 
definitional terms used in applying the ``companionship services'' 
exemption. Different standards for a statutory exemption are not 
appropriate for small businesses. It should be noted, however, that the 
proposed modification to the exemption to exclude from the exemption 
those workers who are employed by an employer or agency other than the 
family or household using their services would have the effect of 
excluding all large employers (as well as small employers other than 
the family or household).

(9) Exemption of Small Entities From Coverage of the Rule

    An exemption based on the size of the entity/employer would not be 
permitted by the terms of the statute. Coverage and applicability of 
the wage and hours provisions of the FLSA are based on engagement in 
interstate commerce, production of goods for interstate commerce, 
employment in domestic service employment in private households (per 
se), and employment by certain enterprises named in the statute as 
subject to its provisions.

X. Document Preparation

    This document was prepared under the direction and control of 
Thomas M. Markey, Deputy Administrator for Operations, Wage and Hour 
Division, Employment Standards Administration, U.S. Department of 
Labor.

List of Subjects in 29 CFR Part 552

    Domestic service workers, Employment, Labor, Minimum wages, 
Overtime pay, Wages.

    Signed at Washington, DC on this 12th day of January, 2001.
T. Michael Kerr,
Administrator, Wage and Hour Division.

    For the reasons set forth above, part 552 of title 29 of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 552--APPLICATION OF THE FAIR LABOR STANDARDS ACT TO DOMESTIC 
SERVICE

    1. The authority citation for part 552 continues to read as 
follows:

    Authority: Secs. 13(a)(15) and 13(b)(21) of the Fair Labor 
Standards Act, as amended (29 U.S.C. 213(a)(15), (b)(21)), 88 Stat. 
62; Sec. 29(b) of the Fair Labor Standards

[[Page 5488]]

Amendments of 1974 (Pub. L. 93-259, 88 Stat. 76), unless otherwise 
noted.


    2. Sec. 552.3 is proposed to be revised by adding a sentence to the 
end of the section to read as follows:


Sec. 552.3  Domestic service employment.

     * * * Employees who are employed, whether solely or jointly, by an 
employer or agency other than the family or household using their 
services are not engaged in domestic service employment within the 
meaning of this part with respect to such third-party employer.

    3. Sec. 552.6 is proposed to be revised to read as follows:
Alternative 1 for Sec. 552.6


Sec. 552.6  Companionship services for the aged or infirm.

    As used in section 13(a)(15) of the Act, the term companionship 
services shall mean those services which provide fellowship, care and 
protection for a person who, because of advanced age or physical or 
mental infirmity, cannot care for his or her own needs. Although no 
specific percentage of time must be devoted exclusively to fellowship, 
fellowship must be a significant component of a companion's duties. 
Protection generally involves being present in the home of the 
individual to ensure the safety and well being of that individual. Care 
generally involves providing intimate personal care services to that 
individual, such as feeding the person or assisting the person with 
bathing, dressing, grooming, or toileting. A companion may also perform 
household work but only insofar as it is directly related to the care 
of the individual, such as preparing the individual's meal, making the 
individual's bed, washing the individual's clothes and other similar 
services for the person, provided, however, that such work is 
incidental, i.e., does not exceed 20 percent of the total weekly hours 
worked. The term ``companionship services'' does not include services 
relating to the care and protection of the individual which require and 
are performed by personnel with training in medical procedures, 
including, but not limited to, catheter and ostomy care, injections, 
and tube feeding, regardless of whether the caregiver is a registered 
or practical nurse. While such trained personnel do not qualify as 
companions, this fact does not remove them from the category of covered 
domestic service employees when employed in or about a private 
household.
Alternative 2 for Sec. 552.6


Sec. 552.6  Companionship services for the aged or infirm.

    As used in section 13(a)(15) of the Act, the term companionship 
services shall mean those services which provide fellowship, care and 
protection for a person who, because of advanced age or physical or 
mental infirmity, cannot care for his or her own needs. Fellowship and 
protection must be a companion's primary duties and the companion must 
spend at least 50% of his or her weekly hours worked providing 
fellowship or protection. A companion's time may be devoted exclusively 
to fellowship or protection, or fellowship and protection may be 
provided in conjunction with and concurrently with intimate personal 
care activities; however, only one-half of the time spent providing 
fellowship or protection in the context of and concurrently with 
intimate personal care activities may count towards the 50 percent 
requirement. Protection generally involves being present in the home of 
the individual to ensure the safety and well being of that individual. 
Care generally involves providing intimate personal care services to 
that individual, such as feeding the person or assisting the person 
with bathing, dressing, grooming, or toileting. A companion may also 
perform household work but only insofar as it is directly related to 
the care of the individual, such as preparing the individual's meal, 
making the individual's bed, washing the individual's clothes and other 
similar services for the person, provided, however, that such work is 
incidental, i.e., does not exceed 20 percent of the total weekly hours 
worked. The term ``companionship services'' does not include services 
relating to the care and protection of the individual which require and 
are performed by personnel with training in medical procedures, 
including, but not limited to, catheter and ostomy care, injections, 
and tube feeding, regardless of whether the caregiver is a registered 
or practical nurse. While such trained personnel do not qualify as 
companions, this fact does not remove them from the category of covered 
domestic service employees when employed in or about a private 
household.
Alternative 3 for Sec. 552.6


Sec. 552.6  Companionship services for the aged or infirm.

    As used in section 13(a)(15) of the Act, the term companionship 
services shall mean those services which provide fellowship and 
protection for a person who, because of advanced age or physical or 
mental infirmity, cannot care for his or her own needs. Fellowship and 
protection are a companion's sole core duties and a companion must 
spend at least 80% or his or her weekly hours worked exclusively 
providing fellowship or protection. Protection generally involves being 
present in the home of the individual to ensure the safety and well 
being of that individual. A companion may also perform duties that 
provide care, which generally involves providing intimate personal care 
services to the individual, such as feeding the person or assisting the 
person with bathing, dressing, grooming, or toileting. A companion also 
may perform household work but only insofar as it is directly related 
to the care of the individual, such as preparing the individual's meal, 
making the individual's bed, washing the individual's clothes and other 
similar services for the person. However, all intimate personal care 
services and household work directly related to the individual must be 
incidental, i.e., may not exceed 20 percent of the total weekly hours 
worked. The term ``companionship services'' does not include services 
relating to the care and protection of the individual which require and 
are performed by personnel with training in medical procedures, 
including, but not limited to, catheter and ostomy care, injections, 
and tube feeding, regardless of whether the caregiver is a registered 
or practical nurse. While such trained personnel do not qualify as 
companions, this fact does not remove them from the category of covered 
domestic service employees when employed in or about a private 
household.

    4. In Sec. 552.109, paragraphs (a) and (c) are proposed to be 
revised to read as follows:


Sec. 552.109  Third party employment.

    (a) Employees who are employed, whether solely or jointly, by an 
employer or agency other than the family or household using their 
services are not engaged in ``domestic service employment'' within the 
meaning of these regulations with respect to such third party employer. 
Consequently, such a third party employer may not avail itself of the 
minimum wage and overtime pay exemption provided by section 13(a)(15) 
of the Act for employees employed in domestic service employment to 
provide companionship services.
    (b) * * *
    (c) Household workers who are employed, whether solely or jointly, 
by an employer or agency other than the

[[Page 5489]]

family or household using their services are not engaged ``in domestic 
service employment'' within the meaning of these regulations with 
respect to such third party employer. Consequently, such a third party 
employer may not avail itself of the overtime pay exemption provided by 
section 13(b)(21) of the Act for employees employed in domestic service 
who reside in the household.

[FR Doc. 01-1590 Filed 1-18-01; 8:45 am]
BILLING CODE 4510-27-P