[Federal Register Volume 78, Number 190 (Tuesday, October 1, 2013)]
[Rules and Regulations]
[Pages 60454-60557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-22799]



[[Page 60453]]

Vol. 78

Tuesday,

No. 190

October 1, 2013

Part III





 Department of Labor





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Wage and Hour Division





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29 CFR Part 552





Application of the Fair Labor Standards Act to Domestic Service; Final 
Rule

  Federal Register / Vol. 78 , No. 190 / Tuesday, October 1, 2013 / 
Rules and Regulations  

[[Page 60454]]


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DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Part 552

RIN 1235-AA05


Application of the Fair Labor Standards Act to Domestic Service

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Final rule.

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SUMMARY: In 1974, Congress extended the protections of the Fair Labor 
Standards Act (FLSA or the Act) to ``domestic service'' employees, but 
it exempted from the Act's minimum wage and overtime provisions 
domestic service employees who provide ``companionship services'' to 
elderly people or people with illnesses, injuries, or disabilities who 
require assistance in caring for themselves, and it exempted from the 
Act's overtime provision domestic service employees who reside in the 
household in which they provide services. This Final Rule revises the 
Department's 1975 regulations implementing these amendments to the Act 
to better reflect Congressional intent given the changes to the home 
care industry and workforce since that time. Most significantly, the 
Department is revising the definition of ``companionship services'' to 
clarify and narrow the duties that fall within the term; in addition 
third party employers, such as home care agencies, will not be able to 
claim either of the exemptions. The major effect of this Final Rule is 
that more domestic service workers will be protected by the FLSA's 
minimum wage, overtime, and recordkeeping provisions.

DATES: This regulation is effective January 1, 2015.

FOR FURTHER INFORMATION CONTACT: Mary Ziegler, Director, Division of 
Regulations, Legislation, and Interpretation, U.S. Department of Labor, 
Wage and Hour Division, 200 Constitution Avenue NW., Room S-3502, FP 
Building, Washington, DC 20210; telephone: (202) 693-0406 (this is not 
a toll-free number). Copies of this Final Rule may be obtained in 
alternative formats (Large Print, Braille, Audio Tape, or Disc), upon 
request, by calling (202) 693-0675 (not a toll-free number). TTY/TTD 
callers may dial toll-free (877) 889-5627 to obtain information or 
request materials in alternative formats.
    Questions of interpretation and/or enforcement of the agency's 
current regulations may be directed to the nearest Wage and Hour 
Division (WHD) District Office. Please visit http://www.dol.gov/whd for 
more information and resources about the laws administered and enforced 
by WHD. Information and compliance assistance materials specific to 
this Final Rule can be found at: www.dol.gov/whd/homecare. You may also 
call the WHD's toll-free help line at (866) 4US-WAGE ((866)-487-9243) 
between 8:00 a.m. and 5:00 p.m. in your local time zone..

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
II. Background
III. Summary of Comments on Changes to FLSA Domestic Service 
Regulations
    A. Section 552.3 (Domestic Service Employment)
    B. Section 552.6 (Companionship Services)
    C. Section 552.102 (Live-In Domestic Service Employees) and 
Section 552.110 (Recordkeeping Requirements)
    D. Section 552.109 (Third Party Employment)
    E. Other Comments
IV. Effective Date
V. Paperwork Reduction Act
VI. Executive Orders 12866 (Regulatory Planning and Review) and 
13563 (Improving Regulation and Regulatory Review)
VII. Final Regulatory Flexibility Analysis
VIII. Unfunded Mandates Reform Act
IX. Executive Order 13132 (Federalism)
X. Executive Order 13175 (Indian Tribal Governments)
XI. Effects on Families
XII. Executive Order 13045 (Protection of Children)
XIII. Environmental Impact Assessment
XIV. Executive Order 13211 (Energy Supply)
XV. Executive Order 12630 (Constitutionally Protected Property 
Rights)
XVI. Executive Order 12988 (Civil Justice Reform Analysis)
List of Subjects in 29 CFR part 552
Signature
Amendments to Regulatory Text

I. Executive Summary

Purpose of the Regulatory Action

    Prior to 1974, the FLSA's minimum wage and overtime compensation 
provisions did not protect domestic service workers unless those 
workers were employed by enterprises covered by the Act (generally 
those that had at least a certain annual dollar threshold in business, 
see 29 U.S.C. 203(s)). Congress amended the FLSA in 1974 to extend 
coverage to all domestic service workers, including those employed by 
private households or companies too small to be covered by the Act. See 
Fair Labor Standards Amendments of 1974, Public Law 93-259 Sec.  7, 88 
Stat. 55, 62 (1974). At the same time, Congress created an exemption 
from the minimum wage and overtime compensation requirements for 
domestic service workers who provide companionship services and an 
exemption from the Act's overtime compensation requirement for domestic 
service workers who reside in the households in which they provide 
services, i.e., live-in domestic service workers. Id.; 29 U.S.C. 
13(a)(15), 13(b)(21).\1\ The new statutory text explicitly granted the 
Department the authority to define the terms ``domestic service 
employment'' and ``companionship services.'' See 29 U.S.C. 213(a)(15).
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    \1\ Congress simultaneously also created an exemption from the 
Act's minimum wage and overtime requirements for domestic service 
employees ``employed on a casual basis . . . to provide babysitting 
services.'' 29 U.S.C. 213(a)(15). This rulemaking does not make, nor 
did the proposal it follows suggest, changes to the Department's 
regulations regarding the babysitting exemption.
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    The legislative history of the 1974 amendments explains that the 
changes were intended to expand the coverage of the FLSA to include all 
employees whose vocation was domestic service, but to exempt from 
coverage casual babysitters and individuals who provided companionship 
services. The ``companionship services'' exemption was to apply to 
``elder sitters'' whose primary responsibility was to watch over an 
elderly person or person with an illness, injury, or disability in the 
same manner that a babysitter watches over children. See 119 Cong. Rec. 
S24773, S24801 (daily ed. July 19, 1973) (statement of Sen. Williams). 
The companionship services exemption was not intended to exclude 
``trained personnel such as nurses, whether registered or practical,'' 
from the protections of the Act. See Senate Report No. 93-690, 93rd 
Cong., 2d Sess., p. 20 (1974); House Report No. 93-913, 93rd Cong., 2d 
Sess., p. 36 (1974).
    In 1975, the Department promulgated regulations implementing the 
companionship services and live-in domestic service employee 
exemptions. See 40 FR 7404 (Feb. 20, 1975); 29 CFR part 552. These 
regulations defined companionship services as ``fellowship, care, and 
protection,'' which included ``household work . . . such as meal 
preparation, bed making, washing of clothes, and other similar 
services'' and could include general household work not exceeding ``20 
percent of the total weekly hours worked.'' 29 CFR 552.6. Additionally, 
the 1975 regulations permitted third party employers, or employers of 
home care workers other than the individuals receiving care or their 
families or households, to claim both the companionship services and

[[Page 60455]]

live-in domestic service employee exemptions. 29 CFR 552.109. These 
regulations have remained substantially unchanged since they were 
promulgated.
    The home care industry, however, has undergone dramatic expansion 
and transformation in the past several decades. The Department uses the 
term home care industry to include providers of home care services, and 
the term ``home care services'' to describe services performed by 
workers in private homes and whose job titles include home health aide, 
personal care attendant, homemaker, companion, and others.
    In the 1970s, many individuals with significant care needs were 
served in institutional settings rather than in their homes and their 
communities. Since that time, there has been a growing demand for long-
term home care for persons of all ages, largely due to the rising cost 
of traditional institutional care and, in response to the disability 
civil rights movement, the availability of federal funding assistance 
for home care, reflecting the nation's commitment to accommodate the 
desire of individuals to remain in their homes and communities. As more 
individuals receive services at home rather than in nursing homes or 
other institutions, workers who provide home care services, referred to 
as ``direct care workers'' in this Final Rule but employed under titles 
including certified nursing assistants, home health aides, personal 
care aides, and caregivers, perform increasingly skilled duties. Today, 
direct care workers are for the most part not the elder sitters that 
Congress envisioned when it enacted the companionship services 
exemption in 1974, but are instead professional caregivers.
    Despite this professionalization of home care work, many direct 
care workers employed by individuals and third-parties have been 
excluded from the minimum wage and overtime protections of the FLSA 
under the companionship services exemption, which courts have read 
broadly to encompass essentially all workers providing services in the 
home to elderly people or people with illnesses, injuries, or 
disabilities regardless of the skill the duties performed require. The 
earnings of these workers remain among the lowest in the service 
industry, impeding efforts to improve both jobs and care. The 
Department believes that the lack of FLSA protections harms direct care 
workers, who depend on wages for their livelihood and that of their 
families, as well as the individuals receiving services and their 
families, who depend on a professional, trained workforce to provide 
high-quality services.
    Because the 1975 regulations define companionship services and 
address third-party employment in a manner that, given the changes to 
the home care services industry, the home care services workforce, and 
the scope of home care services provided, no longer aligns with 
Congress's intent when it extended FLSA protections to domestic service 
employees, the Department is modifying the relevant regulatory 
provisions in 29 CFR part 552. These changes are intended to clarify 
and narrow the scope of duties that fall within the definition of 
companionship services in order to limit the application of the 
exemption. The Department intends for the exemption to apply to those 
direct care workers who are performing ``elder sitting'' rather than 
the professionalized workforce for whom home care is a vocation. In 
addition, by prohibiting employers of direct care workers other than 
the individual receiving services or his or her family or household 
from claiming the companionship services or live-in domestic service 
employment exemptions, the Department is giving effect to Congress's 
intent in 1974 to expand coverage to domestic service employees rather 
than to restrict coverage for a category of workers already covered.

Summary of the Major Provisions of the Final Rule

    This Final Rule makes changes to several sections of 29 CFR part 
552, the Department's regulations concerning domestic services 
employment.
    The Department is slightly revising the definition of ``domestic 
service employment'' in Sec.  552.3 to clarify the language and 
modernize the list of examples of professions that fall within this 
category.
    This Final Rule also updates the definition of ``companionship 
services'' in Sec.  552.6 in order to restrict the term to encompass 
only workers who are providing the sorts of limited, non-professional 
services Congress envisioned when creating the exemption. Specifically, 
paragraph (a), which uses more modern language than appears in the 1974 
amendments or 1975 regulations, provides that ``companionship 
services'' means the provision of fellowship and protection for an 
elderly person or person with an illness, injury, or disability who 
requires assistance in caring for himself or herself. It also defines 
``fellowship'' as engaging the person in social, physical, and mental 
activities and ``protection'' as being present with the person in his 
or her home, or to accompany the person when outside of the home, to 
monitor the person's safety and well-being. Paragraph (b) provides that 
the term ``companionship services'' also includes the provision of care 
if the care is provided attendant to and in conjunction with the 
provision of fellowship and protection and if it does not exceed 20 
percent of the total hours worked per person and per workweek. It 
defines ``care'' as assistance with activities of daily living and 
instrumental activities of daily living. Paragraph (c) provides that 
the term ``companionship services'' does not include general domestic 
services performed primarily for the benefit of other members of the 
household. Paragraph (d) provides that the term ``companionship 
services'' does not include the performance of medically related 
services, and it explains that the determination of whether the 
services performed are medically related is based on whether the 
services typically require and are performed by trained personnel, such 
as registered nurses, licensed practical nurses, or certified nursing 
assistants, regardless of the actual training or occupational title of 
the individual providing the services.
    In order to better ensure that live-in domestic service employees 
are compensated for all hours worked, the Department is also changing 
the language in Sec. Sec.  552.102 and .110 to require the keeping of 
actual records of the hours worked by such employees.
    The Department is revising Sec.  552.109, the regulatory provision 
regarding domestic service employees employed by third-party employers, 
or employers other than the individual receiving services or his or her 
family or household. To better ensure that the domestic service 
employees to whom Congress intended to extend FLSA protections in fact 
enjoy those protections, the new regulatory text precludes third party 
employers (e.g., home care agencies) from claiming the exemption for 
companionship services or live-in domestic service employees.

Effective Date

    These changes will become effective on January 1, 2015. The 
Department believes that this extended effective date takes into 
account the complexity of the federal and state systems that are a 
significant source of funding for home care work and the needs of the 
diverse parties affected by this Final Rule (including consumers, their 
families, home care agencies, direct care workers, and local, state and 
federal Medicaid

[[Page 60456]]

programs) by providing such parties, programs and systems time to 
adjust.

Costs and Benefits

    The Table below illustrates the potential scale of projected 
transfers, costs, and net benefits of the revisions to the FLSA 
regulations addressing domestic service employment. The primary effect 
shown in the Table is the transfer of income from home care agencies 
(and payers because a portion of costs will likely be passed through 
via price increases) to direct care workers, due to more workers being 
protected under the FLSA; the Department projects an average annualized 
transfer of $321.8 million in the medium-impact scenario (using a 7 
percent real discount rate). These income transfers result from the 
narrowing of the companionship services exemption, specifically: 
payment for time spent by direct care workers traveling between 
individuals receiving services (consumers) for the same employer, and 
payment of an overtime premium when hours worked exceed 40 hours per 
week. Transfers resulting from the requirement to pay the minimum wage 
are expected to be zero because current wage data suggests that few 
affected workers, if any, are currently paid less than the federal 
minimum wage per hour.
    The Department projects that the average annualized direct costs 
for regulatory familiarization, hiring new workers, and the deadweight 
loss due to the potential allocative inefficiency resulting from the 
rule will average $6.8 million per year over a 10-year period. In 
perspective, regulatory familiarization, hiring new workers, and the 
deadweight loss represents about 0.007 percent of industry revenue, 
while the disemployment impact of the rule affects about 0.06 percent 
of direct care workers. The relatively small deadweight loss occurs 
because both the demand for and supply of home care services appear to 
be inelastic in the largest component of this market, in which public 
payers reimburse for home care; thus, the equilibrium quantity of home 
care services is not very responsive to the changes in price.
    The Department also expects the rule will reduce the high turnover 
rate among direct care workers, along with its associated employment 
costs to agencies, a key quantifiable benefit of the Final Rule. 
Because overtime compensation, hiring costs, and reduction in turnover 
depend on how employers choose to comply with the rule, the Department 
estimated a range of impacts based on three adjustment scenarios; the 
table below presents the intermediate scenario--``Overtime Scenario 
2''--which is, along with a complete discussion of the data sources, 
methods, and results of this analysis, presented in Section VI, 
Executive Orders 12866 and 13563.

                  Table--Summary of Impact of Changes to FLSA Companionship Services Exemption
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                                                                                  Average annualized value  ($
                                                              Future years ($               mil.) \a\
                 Impact                    Year 1  ($ mil.)        mil.)       ---------------------------------
                                                                                  3% Real rate     7% Real rate
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                                                 Total Transfers
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Minimum wages \b\ + Travel wages +                  $210.2      $240.9 $468.3           $330.6           $321.8
 Overtime Scenario 2....................
                                                                               ---------------------------------
    (Lower bound--upper bound)..........       ($104-$281)        ($119-$627)              ($159-$442)
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                                          Total Cost of Regulations \e\
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Regulatory Familiarization + Hiring                  $20.7          $4.2 $5.1             $6.5             $6.8
 Costs \c\ + Deadweight Loss............
                                                                               ---------------------------------
    (Lower bound--upper bound)..........         ($19-$21)            ($4-$5)                ($6-$7)
                                                                               ---------------------------------
Disemployment (number of workers).......               812          885 1,477               1,144 \d\
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                                                  Net Benefits
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Overtime Scenario 2 \c\.................              $9.4        $20.5 $15.5            $17.1            $17.1
                                                                               ---------------------------------
    (Lower bound--upper bound)..........          ($-4-20)           ($3-$31)               ($4-$27)
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\a\ These costs represent a range over the nine year span. Costs are lowest in Year 2 and highest in Year 10 so
  these two values are reported.
\b\ 2011 statistics on wages indicate that few affected workers, if any, are currently paid below the minimum
  wage (i.e. in no state is the 10th percentile wage below $7.25 per hour). See the Bureau of Labor Statistics
  Occupational Employment Statistics (OES), 2011 state estimates. Available at: http://stats.bls.gov/oes/.
\c\ Based on overtime hours needed to be covered under Overtime Scenario 2.
\d\ Simple average over 10 years.
\e\ Excludes paperwork burden, estimated in Section V.

    Not included in the table is the opportunity cost of managerial 
time spent adjusting worker schedules to reduce or avoid overtime hours 
and travel time. The Department expects these costs to be relatively 
small because employers, particularly home care agencies, already 
manage the schedules of nonexempt home care employees and therefore 
have systems in place to facilitate scheduling workers. Also 
unquantified is the potential impact on direct care workers resulting 
from employers making such schedule changes.
    The costs, benefits and transfer effects of the Final Rule depend 
on the actions of employers, decision-makers within federal and state 
programs that provide funding for home care services, consumers, and 
workers. Depending upon whether employers choose to continue current 
work practices, rearrange worker schedules, or hire new workers, the 
costs, benefits and transfers will vary. The Department notes that the 
delayed effective date of this Final Rule creates a transition period 
during which all entities potentially impacted by this rule have the 
opportunity to review existing policies and practices and make 
necessary adjustments for compliance with this Final Rule. We believe 
this

[[Page 60457]]

transition period mitigates short-term impacts for the regulated 
community, relative to a regulatory alternative in which compliance is 
required immediately upon finalization. The Department will work 
closely with stakeholders and the Department of Health and Human 
Services to provide additional guidance and technical assistance during 
the period before the rule becomes effective, in order to ensure a 
transition that minimizes potential disruption in services and supports 
the progress that has allowed elderly people and persons with 
disabilities to remain in their homes and participate in their 
communities.

II. Background

A. What the FLSA Provides

    The FLSA requires, among other things, that all covered employees 
receive minimum wage and overtime compensation, subject to various 
exemptions. The FLSA as originally enacted only covered domestic 
service workers if they worked for a covered enterprise, i.e., an 
agency or business subject to the FLSA or were an individual engaged in 
interstate commerce, an unlikely occurrence. Thus, prior to 1974, 
domestic service workers employed by covered businesses to provide 
cooking, cleaning, or caregiving tasks in private homes were entitled 
to the Act's minimum wage and overtime compensation provisions. In 
1974, Congress extended FLSA coverage to ``domestic service'' employees 
employed in private households. See 29 U.S.C. 202(a), 206(f), 207(l). 
Domestic service workers include, for example, employees employed as 
cooks, butlers, valets, maids, housekeepers, governesses, janitors, 
laundresses, caretakers, handymen, gardeners, and family chauffeurs. 
Senate Report No. 93-690, 93rd Cong., 2d Sess. p. 20 (1974). Thus, 
workers performing domestic tasks, such as cooking, cleaning, doing 
laundry, driving, and general housekeeping, and employed in private 
homes, either by households or by third party employers, are protected 
by the basic minimum wage and overtime protections of the FLSA.
    Congressional committee reports state the reasons for extending the 
minimum wage and overtime protections to domestic service employees 
were ``so compelling and generally recognized as to make it hardly 
necessary to cite them.'' Senate Report No. 93-690, p. 18. The reports 
also state that private household work had been one of the least 
attractive fields of employment because wages were low, work hours were 
highly irregular, and non-wage benefits were few. Id. The U.S. House of 
Representatives Committee on Education and Labor stated its expectation 
``that extending minimum wage and overtime protection to domestic 
service 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, 93rd 
Cong., 2d Sess., pp. 33-34 (1974). During a debate on the amendments, 
one Senator referred to the importance of ``the dignity and respect 
that ought to come with honest work'' and the low wages that left many 
domestic service employees unable to rise out of poverty. See 119 Cong. 
Rec. S24773, S24799-80 (daily ed. July 19, 1973) (statement of Sen. 
Williams).
    When Congress extended FLSA protections to domestic service 
employees, however, it created two exemptions within that category. 
First, it exempted from both the minimum wage and overtime compensation 
requirements of the Act casual babysitters and ``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).'' 29 U.S.C. 213(a)(15). Second, it exempted from the 
overtime pay requirement ``any employee who is employed in domestic 
service in a household and who resides in such household.'' 29 U.S.C. 
213(b)(21).
    The legislative history explains:

    It is the intent of the committee to include within the coverage 
of the Act all employees whose vocation is domestic service. 
However, the exemption reflects the intent of the committee to 
exclude from coverage . . . companions for individuals who are 
unable because of age and infirmity to care for themselves. But it 
is not intended that trained personnel such as nurses, whether 
registered or practical, shall be excluded. People who will be 
employed in the excluded categories are not regular bread-winners or 
responsible for their families' support. The fact that persons 
performing . . . services as companions do some incidental household 
work does not keep them from being . . . companions for purposes of 
this exclusion.

Senate Report No. 93-690, p. 20; House Report No. 93-913, pp. 36. In 
addition, Senator Williams, Chairman of the Senate Subcommittee on 
Labor and the Senate floor manager of the 1974 amendments to the FLSA, 
described individuals who provided companionship services as ``elder 
sitters'' whose primary responsibility was ``to be there and to watch'' 
over an elderly person or person with an illness, injury, or disability 
in the same manner that a babysitter watches over children, ``not to do 
household work.'' 119 Cong. Rec. S24773, S24801 (daily ed. July 19, 
1973). He explained that the category of workers to which the term 
refers includes ``a neighbor'' who ``comes in and sits with'' ``an aged 
father, an aged mother, an infirm father, an infirm mother.'' Id. 
Senator Williams further noted that ``if the individual is [in the 
home] for the actual purpose of being . . . a companion,'' any work 
that is ``purely incidental'' would not mean the exemption did not 
apply. Id. Examples of such incidental work in the legislative history 
were ``making lunch'' or, in the babysitting context, ``throwing a 
diaper into the washing machine.'' Id.

B. Regulatory History

    On February 20, 1975, the Department issued regulations at 29 CFR 
part 552 implementing the domestic service employment provisions. See 
40 FR 7404. Subpart A of the rule defined and delimited the terms 
``domestic service employment,'' ``employee employed on a casual basis 
in domestic service employment to provide babysitting services,'' and 
``employment to provide companionship services to individuals who 
(because of age or infirmity) are unable to care for themselves.'' 
Subpart B of the rule set forth statements of general policy and 
interpretation concerning the application of the FLSA to domestic 
service employees including live-in domestic service employees. Section 
552.6 defined companionship services as ``fellowship, care, and 
protection,'' which included ``household work . . . such as meal 
preparation, bed making, washing of clothes, and other similar 
services'' and could include general household work not exceeding ``20 
percent of the total weekly hours worked.'' Section 552.109 provided 
that third party employers could claim the companionship services 
exemption or live-in domestic service employee exemption.
    On December 30, 1993, the Department published a Notice of Proposed 
Rulemaking (NPRM) in the Federal Register, inviting public comments on 
a proposal to revise 29 CFR 552.109 to clarify that, in order for the 
exemptions under Sec.  13(a)(15) and Sec.  13(b)(21) of the FLSA to 
apply, employees engaged in companionship services and live-in domestic 
service who are employed by a third party employer or agency must be 
``jointly'' employed by the individual, family, or household using 
their services. Other

[[Page 60458]]

minor updating and technical corrections were included in the proposal. 
See 58 FR 69310. On September 8, 1995, the Department published a Final 
Rule revising the regulations to incorporate changes required by the 
recently enacted changes to Title II of the Social Security Act and 
making other updating and technical revisions. See 60 FR 46766. That 
same day, the Department published a proposed rule re-opening and 
extending the comment period on the proposed changes to Sec.  552.109 
concerning third party employment. See 60 FR 46797. The Department did 
not finalize this proposed change.
    On January 19, 2001, the Department published an NPRM to amend the 
regulations to revise the definition of ``companionship services'' to 
more closely adhere to Congressional intent. The Department also sought 
to clarify the criteria used to determine whether employees qualify as 
trained personnel and to amend the regulations concerning third party 
employment. On April 23, 2001, the Department published a proposed rule 
re-opening and extending the comment period on the January 2001 
proposed rule. See 66 FR 20411. This rulemaking was eventually 
withdrawn and terminated on April 8, 2002. See 67 FR 16668.
    On December 27, 2011, the Department published an NPRM inviting 
public comments for a period of sixty (60) days on proposed changes to 
the exemptions for employees performing companionship services and 
live-in domestic service employees. See 76 FR 81190. The proposed 
changes were based on the Department's experience, including its 
previous rulemaking efforts, a thorough review of the legislative 
history, meetings with stakeholders, as well as additional research 
conducted concerning the changes in the demand for home care services, 
the home care industry, and the home care services workforce. On 
February 24, 2012, the Department extended the period for filing 
written comments. See 77 FR 11021. On March 13, 2012, the Department 
again extended the period for filing written comments with a final 
comment closing date of March 21, 2012. See 77 FR 14688. This Final 
Rule is the result of consideration of the comments received in 
response to the December 27, 2011 NPRM.

C. Need for Rulemaking

    Since the Department published its regulations implementing the 
1974 amendments to the FLSA, the home care industry has undergone 
dramatic transformation. In the 1970s, individuals who had significant 
care needs went into institutional settings. Over time, however, our 
nation has come to recognize the importance of providing services in 
private homes and other community-based settings and of supporting 
individuals in remaining in their homes and communities. This shift is 
in part a result of the rising cost of traditional institutional care, 
and has been made possible in significant part by the availability of 
government funding assistance for home care under Medicare and 
Medicaid.\2\ The growing demand for long-term home care services is 
also due to the significant increase in the percentage of elderly 
people in the United States.\3\ The Supreme Court's decision in 
Olmstead v. L.C., 527 U.S. 581 (1999), which held that it is a 
violation of the Americans with Disabilities Act for public entities to 
fail to provide services to persons with disabilities in the most 
integrated setting appropriate, further solidified our country's 
commitment to decreasing institutionalization and has also influenced 
this important trend.
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    \2\ Public funds pay the overwhelming majority of the cost for 
providing home care services. Medicare payments represent over 40 
percent of the industry's total revenues; other payment sources 
include Medicaid, insurance plans, and direct pay. The National 
Association for Home Care and Hospice (NAHC) reports, based on data 
from the Centers for Medicare and Medicaid Services (CMS), state 
that Medicare and Medicaid together paid roughly two-thirds of the 
funds paid to freestanding agencies (41 and 24 percent, 
respectively). Centers for Medicare and Medicaid Services (CMS), 
Office of the Actuary, National Health Care Expenditures Historical 
and Projections: 1965-2016. State and local governments account for 
15 percent of revenues, while private health insurance accounts for 
eight percent. Out-of-pocket funds account for 10 percent of agency 
revenues. http://www.bls.gov/oes/current/oes399021.htm.
    \3\ See Shrestha, Laura, The Changing Demographic Profile of the 
United States, Congressional Research Service p. 13-14 (2006).
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    This shift is reflected in the increasing number of agencies and 
workers engaged in home care. The number of Medicare-certified home 
care agencies increased from 2,242 in 1975 to 7,747 in 1999 and by the 
end of 2009, had grown to 10,581.\4\ There has been a similar increase 
in the employment of home health aides and personal care aides in the 
private homes of individuals in need of assistance with basic daily 
living or health maintenance activities. The number of workers in these 
jobs tripled between 1988 and 2001; by 2001 there were 560,190 workers 
employed as home health aides and 408,360 workers employed as personal 
care aides.\5\ Between 2001 and 2011, home health aide employment 
increased 65 percent to 924,650 and personal care aide employment 
doubled, increasing to 820,600.\6\
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    \4\ See The National Association for Home Care & Hospice (NAHC), 
Basic Statistics About Homecare: Updated 2010, (2010). Available at: 
http://web.archive.org/web/20120515112644/http://nahc.org/facts/10HC_Stats.pdf.
    \5\ Bureau of Labor Statistics' (BLS), Occupational Employment 
Statistics (OES).
    \6\ http://www.bls.gov/oes/current/oes399021.htm.
---------------------------------------------------------------------------

    Furthermore, as services for elderly people and people with 
illnesses, injuries, or disabilities who require assistance in caring 
for themselves (referred to in this Final Rule as consumers) have 
increasingly been provided in individuals' homes rather than in nursing 
homes or other institutions, the duties performed in homes have changed 
as well. Most direct care workers are employed to do more than simply 
sit with and watch over the individuals for whom they work. They assist 
consumers with activities of daily living and instrumental activities 
of daily living, such as bathing, dressing, housework, or preparing 
meals. They often also provide medical care, such as managing the 
consumer's medications or performing tracheostomy care, that was 
previously almost exclusively provided in hospitals, nursing homes, or 
other institutional settings and by trained nurses. This work is far 
more skilled and professional than that of someone performing ``elder 
sitting.'' Although some direct care workers today still perform the 
services Congress contemplated, i.e., sit with and watch over 
individuals in their homes, most do much more.
    Yet the growth in demand for home care and the professionalization 
of the home care workforce have not resulted in growth in earnings for 
direct care workers. The earnings of employees in the home health aide 
and personal care aide categories remain among the lowest in the 
service industry. Studies have shown that the low income of direct care 
workers continues to impede efforts to improve both the circumstances 
of the workers and the quality of the services they provide.\7\ 
Covering direct care workers under the Act is, thus, an important step 
in ensuring that the home care industry attracts and retains qualified 
workers that the sector will need in the future.
---------------------------------------------------------------------------

    \7\ See Brannon, Diane, et al., ``Job Perceptions and Intent to 
Leave Among Direct Care Workers: Evidence From the Better Jobs 
Better Care Demonstrations'' The Gerontologist, 47, 6, p. 820-829 
(2007).
---------------------------------------------------------------------------

    These low wages are at least in part the result of the application 
of the companionship services exemption to a wide range of direct care 
workers who then may not be paid minimum wage

[[Page 60459]]

for all hours worked and likely do not receive overtime wages for hours 
worked over forty in a workweek. In some instances, employers may be 
improperly claiming the exemption as to employees whose work falls 
outside the existing definition of companionship services in 29 CFR 
552.6. In many others, however, employers are relying on the 
Department's 1975 regulation, which was written at a time when the 
scope of direct care work was much more limited and neither Congress 
nor the Department predicted the developments in home care services 
that were to come.
    Courts have interpreted the current regulation broadly such that 
the companionship services exemption has expanded along with the home 
care industry and workforce; based on this expansive reading of the 
current regulation, essentially any services provided for an elderly 
person or person with an illness, injury, or disability in the person's 
private home constitute companionship services for which minimum wage 
and overtime need not be paid. See, e.g., Sayler v. Ohio Bureau of 
Workers' Comp., 83 F.3d 784, 787 (6th Cir. 1996) (holding that a worker 
who ``helps [an adult with a serious back injury] dress, gives him his 
medication, helps him bathe, assists him in getting around their home, 
and cleans his bedclothes when he loses control of his bowels'' is 
providing companionship services under Sec.  552.6); McCune v. Or. 
Senior Servs. Div., 894 F.2d 1107, 1108-09 (9th Cir. 1990) (accepting 
that ``full-time, live-in attendants for elderly and infirm individuals 
unable to care for themselves'' who perform ``cleaning, cooking, and 
hygiene and medical care'' for those individuals were providing 
companionship services because under the current regulation, ``the 
recipients of these services [are] the determinative factor in applying 
the [companionship services] exception''); Fowler v. Incor, 279 F. 
App'x 590, 596 (10th Cir. 2008) (noting that ``[c]are related to the 
individual'' that falls within the current definition of companionship 
services ``has been expanded to include more frequent vacuuming and 
dusting for a client with allergies, mopping and sweeping for clients 
who crawl on the floor, and habilitation training, which often includes 
training the client to do housework, cooking, and attending to person 
hygiene''); Cook v. Diana Hays and Options, Inc., 212 F. App'x 295, 
296-97 (5th Cir. 2006) (holding that a direct care worker ``employed by 
. . . a non-profit corporation that provides home health care'' who 
``provided simple physical therapy, prepared [consumers'] meals, 
assisted with [consumers'] eating, baths, bed-making, and teeth 
brushing, completed housework . . . and accompanied them on walks, to 
doctor visits, to Mass, and to the grocery store'' was exempt from the 
FLSA under the companionship services exemption as defined in current 
Sec.  552.6). Furthermore, courts have narrowly construed the 
regulation's exclusion of ``trained personnel'' from companionship 
services such that direct care workers providing medical care, 
including certified nursing assistants and often home health aides, are 
not protected by the FLSA. See, e.g., McCune, 894 F.2d at 1110-
11(holding that certified nursing assistants were not ``trained 
personnel'' excluded from the regulatory definition of companionship 
services because, unlike registered nurses and licensed practical 
nurses, certified nursing assistants in that case received only 60 
hours of training); Cox v. Acme Health Servs., Inc., 55 F.3d 1304, 
1309-10 (7th Cir. 1995) (holding that a home health aide who had 
completed 75 hours of required training and ``performed patient care'' 
including ``administering complete bed baths, position and turning 
patients in bed, tube-feeding, the taking and recording of vital signs, 
bowel and bladder training, changing and cleaning patients' catheters, 
administering enemas, range-of-motion exercise training, speech 
training, and inserting non-medicated suppositories'' did not qualify 
as ``trained personnel'' and therefore provided ``companionship 
services'' as defined in the Department's regulations).
    In this Final Rule, the Department is exercising its authority to 
amend the domestic service employment regulations to clarify and narrow 
the set of employees as to whom the companionship services and live-in 
domestic service employee exemptions may be claimed. See Long Island 
Care at Home, Ltd. v. Coke, 551 U.S. 158, 165 (2007) (discussing the 
gaps in the FLSA, including ``the scope and definition of statutory 
terms such as `domestic service employment' and `companionship 
services''' that Congress ``entrusted the agency to work out'' (citing 
29 U.S.C. 213(a)(15))). These limits are meant to ensure that these 
exemptions are applied only to the extent Congress intended in enacting 
the 1974 amendments.
    Furthermore, because of the Department's revisions to these 
regulations, as home-based services continue to expand, employers will 
have clear guidance about the need to afford most direct care workers 
the protections of the FLSA, and the continued growth of home-based 
services will occur based on a realistic understanding of the 
professional nature of the home care workforce. Specifically, as 
explained in detail in this preamble, only direct care workers who 
primarily provide fellowship and protection are providing companionship 
services. Direct care workers who are employed by third party 
employers, such as private home care agencies, are the type of 
professional workers whose vocation merits minimum wage and overtime 
protections. Direct care workers who provide medically related 
services, such as certified nursing assistants, are doing work that 
calls for more skill and effort than that encompassed by the term 
``companionship services.'' The Department believes that based on these 
principles, most direct care workers acting as home health aides, and 
many whose title is personal care assistant, will be entitled to 
minimum wage and overtime. These workers are due the respect and 
dignity that accompanies the protections of the FLSA.
    The Department recognizes that this Final Rule will have an impact 
on individuals and families who rely on direct care workers for crucial 
assistance with day-to-day living and community participation. 
Throughout the rulemaking process, the Department has carefully 
considered the effects of the rule on consumers and has taken into 
account the perspective of elderly people and people with illnesses, 
injuries, and disabilities, as well as workers, employers, public 
agencies, and others. The Department has responded to comments from 
members of those groups and organizations representing them throughout 
this Final Rule. In particular, this preamble explains that the 
Department does not believe, as some commenters have suggested, that 
the rule will interfere with the growth of home- and community-based 
caregiving programs and thereby lead to increased institutionalization. 
Furthermore, the preamble explains that many states require the payment 
of minimum wage and often overtime to direct care workers, and the 
detrimental effects on the home care industry some commenters predict 
have not occurred in those states. To the contrary, the Department 
believes that ensuring minimum wage and overtime compensation will not 
only benefit direct care workers but also consumers because supporting 
and stabilizing the direct care workforce will result in better 
qualified employees, lower

[[Page 60460]]

turnover, and a higher quality of care. Furthermore, as described in 
detail throughout this preamble, the Department has modified the 
proposed regulations in response to comments to make the rule easier 
for the regulated community to understand and apply.

III. Summary of Comments on Changes to the FLSA Domestic Service 
Regulations

    More than 26,000 individuals commented on the Department's Notice 
of Proposed Rulemaking. Comments were received from a broad array of 
constituencies, including direct care workers, consumers of home care 
services, small business owners and employers, worker advocacy groups 
and unions, employer and industry advocacy groups, law firms, Members 
of Congress, state government agencies, federal government agencies, 
professional associations, the disability community, and other 
interested members of the public. Several organizations attached the 
views of some of their individual members: National Partnership for 
Women and Families (8,733 individual comments), Progressive Jewish 
Alliance and Jewish Funds for Justice (687 individual comments), and 
Interfaith Worker Justice (500 individual comments), for example. Other 
organizations submitted a comment and attached membership signatures, 
such as the National Women's Law Center (Center) (3,392 signatures). 
Additional comments submitted after the comment period closed are not 
considered part of the official record and were not considered. All 
comments timely received may be viewed on the www.regulations.gov Web 
site, docket ID WHD-2011-0003.
    Many comments received in response to the NPRM are: (1) Very 
general statements of support or opposition; (2) personal anecdotes 
that do not address a specific aspect of the proposed changes; (3) 
comments that are beyond the scope or authority of the proposed 
regulations; or (4) identical or nearly identical ``form letters'' sent 
in response to comment initiatives sponsored by various constituent 
groups. The remaining comments reflect a wide variety of views on the 
merits of particular sections of the proposed regulations. Many include 
substantive analyses and arguments in support of or in opposition to 
the proposed regulations. The substantive comments received on the 
proposed regulations are discussed below, together with the 
Department's response to those comments and a section-by-section 
discussion of the changes that have been made in the final regulatory 
text.

Terminology

    Several commenters indicated that terms used by the Department in 
the NPRM were inconsistent with industry use and may be misinterpreted. 
Commenters themselves used a number of different terms in referring to 
the industry, the workers potentially impacted by the proposed rule, 
and the individuals receiving services from workers potentially 
impacted by the proposed rule. The Department has made an effort to 
modify its use of language where possible in the Final Rule except when 
quoting the statute, legislative history, case law, or when quoting a 
commenter. For example, the Department notes that the terms ``aged'' 
and ``infirmity'' appear in the current regulatory text due to the 
language Congress used in the statutory exemption. See 29 U.S.C. 
213(a)(15). However, where possible throughout the preamble discussion, 
the Department instead uses the term ``consumers'' or ``elderly people 
or people with illnesses, injuries, or disabilities'' when discussing 
those who receive home care services, including companionship services. 
When discussing the workers who may be impacted by the Final Rule, the 
Department instead uses the term ``direct care worker'' to encompass 
the occupational categories of these domestic service workers and the 
terms used by commenters, such as home health aides, personal care 
aides, attendants, direct support professionals, and family caregivers. 
Finally, in this Final Rule, the Department uses the term ``home care'' 
to reflect the broader industry rather than home health care which 
specifically covers medical assistance performed by certified 
personnel.

Section-by-Section Analysis of Final Regulations

A. Section 552.3 (Domestic Service Employment)
    Section 552.3, which defines domestic service employment, currently 
reads, ``[a]s used in section 13(a)(15) of the Act, the term domestic 
service employment refers to 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.'' Section 552.3 also provides 
an illustrative list of various occupations which are considered 
``domestic service employment.''
    In the NPRM, the Department proposed to update and clarify the 
definition of domestic service employment in Sec.  552.3. Specifically, 
the Department proposed to remove the qualifying introductory language 
``as used in section 13(a)(15) of the Act'' because section 13(a)(15) 
refers to the Act's exemption for those employed to provide babysitting 
services on a casual basis and those performing companionship services. 
The definition of domestic service employment has a broader context 
than just the exemption found in 13(a)(15). The Department also 
proposed to remove the phrase ``of the person by whom he or she is 
employed'' from the definition because the Department believes this 
phrase may be confusing and misread as impermissibly narrowing coverage 
of domestic service employees under the Act. In addition, the 
Department proposed to delete the more outdated occupations listed in 
Sec.  552.3, such as ``governesses,'' ``footmen,'' and ``grooms,'' and 
to include more modern occupations, such as ``nannies,'' ``home health 
aides,'' and ``personal care aides.'' The Department also proposed to 
include babysitters and companions on the list of domestic service 
workers. For the reasons stated below, this provision is adopted 
without change in the Final Rule. An additional conforming change has 
also been made to Sec.  552.101(a).
    Several organizations wrote to support the proposed changes, 
commenting that the proposed revised language would add clarity, thus 
reducing confusion among workers and employers. For example, the Equal 
Justice Center (EJC) lauded the Department's deletion of the 
introductory language referencing section 13(a)(15) of the Act, noting 
that ``the introductory language of section 552.3 . . . created a 
definitional inconsistency by exempting a group of workers Congress 
intended to include. The proposed deletion of this language effects 
clarity and serves as a recognition of the broad spectrum of 
occupations within the home Congress intended to protect.''
    Other organizations supported the Department's proposal to remove 
the language specifying that domestic service work be performed in the 
home of the person by whom he or she is employed. The Center stated 
that the removal of the language ``will prevent confusion that could 
lead to narrower coverage of domestic service employees under the FLSA. 
This is particularly important given the high percentage of home care 
workers employed by third parties or agencies.'' Similarly, the 
American Federation of State, County and Municipal Employees (AFSCME) 
supported the Department's revised definition, stating, ``removal of 
the definitional interpretation potentially limiting such work to a 
private home of

[[Page 60461]]

the employer aptly adjusts the law to existing workplace realities.''
    Commenters also voiced support for the Department's proposal to 
update the list of occupations that fall within the definition of 
domestic service employment. The EJC supported the Department's change 
to the list of illustrative occupations, explaining that, the revision 
``limits litigation of coverage by guiding the Courts through modern 
and more accessible terminology that denotes the occupations that 
Congress intended to cover since 1974.'' This organization also 
commended the Department's addition of home health aides and personal 
care aides in the regulation, reflecting the prominence of the 
occupations in the burgeoning home care industry. See also American 
Civil Liberties Union (ACLU); PHI; and Susan Flanagan.
    Few comments were received in opposition to the proposed 
definition. Those that opposed the proposed changes did so generally, 
such as the Texas Association for Home Care and Hospice, which 
commented that the definition should not be amended to include 
companions, home health aides, or personal care aides. Additionally, 
AARP, although generally supportive of the changes, recommended adding 
language to the regulation stating that a job title does not control 
legal status.
    The Department has carefully considered all the comments regarding 
the proposed change to the definition of ``domestic service 
employment'' and has decided to adopt the regulation as proposed. The 
Department is making a conforming change to Sec.  552.101(a) by 
deleting the phrase ``of the employer,'' so that the definition of 
``domestic service employment'' is consistent with Sec.  552.3. The 
Department believes that updating and clarifying this definition by 
deleting the limiting language ``as used in section 13(a)(15) of the 
Act'' reflects the legislative history, which is to extend FLSA 
coverage to all domestic employees whose ``vocation'' was domestic 
service. The Department also believes that deleting the phrase ``of the 
person by whom he or she is employed'' from the definition is more 
consistent with the legislative history. As discussed in the NPRM, this 
language has been part of the regulations since first implemented in 
1975; however, the Department believes the definition may be confusing 
and may be misread as impermissibly narrowing coverage of domestic 
service employees under the FLSA. The Senate Committee responsible for 
the 1974 amendments looked at regulations issued under the Social 
Security Act for defining domestic service. The Department borrowed 
this language from the Social Security regulations without discussion 
or elaboration, and has consistently maintained that the phrase is an 
extraneous vestige. See Long Island Care at Home, Ltd. v. Coke, 551 
U.S. 158, 169-70 (2007). This phrasing is not applicable to the 
realities of domestic service employment today, in which many employees 
are employed, either solely or jointly, by an entity other than the 
person in whose home the services are performed. Removal of this 
extraneous language more accurately reflects Congressional intent and 
clarifies coverage of these workers. 76 FR 81192.

Private Home

    The Department also received a few comments concerning what 
constitutes a ``private home.'' The ACLU noted that a private home is 
distinguishable from a building that an employer rents out to 
strangers. One individual stated that the Department's definition of 
private home is too restrictive and does not extend to Independent 
Living or Assisted Living communities. This individual suggested that 
such residences should be considered the private home of the elderly 
individuals because they live there, the living arrangements are not 
temporary, and the individual's furniture, pictures, and personal files 
remain in the residence.
    As explained above, in order to qualify as a domestic service 
employee, an employee's work must be performed in or about a ``private 
home.'' Sec. Sec.  552.3, 552.101. The Department did not propose any 
changes to the definition of ``private home,'' and nothing in this 
Final Rule is altering the determination of whether work is being 
performed in or about a private home. Nonetheless, because this is a 
threshold question for determining whether an employer is entitled to 
claim the companionship services exemption, the Department is offering 
a summary of the definition of ``private home'' under existing law.
    Under the Department's regulations, a private home may be a fixed 
place of abode or a temporary dwelling. Sec.  552.101(a). ``A separate 
and distinct dwelling maintained by an individual or a family in an 
apartment house, condominium or hotel may constitute a private home.'' 
Id. However, ``[e]mployees employed in dwelling places which are 
primarily rooming or boarding houses are not considered domestic 
service employees. The places where they work are not private homes but 
commercial or business establishments.'' Sec.  552.101(b).
    The Senate Report also discusses the term ``private home,'' noting 
that ``the domestic service must be performed in a private home which 
is a fixed place of abode of an individual or family.'' S. Rep. No. 93-
690, at 20 (1974). The Senate Report notes that ``[a] separate and 
distinct dwelling maintained by an individual or family in an apartment 
house or hotel may constitute a private home. However, a dwelling house 
used primarily as a boarding or lodging house for the purpose of 
supplying such services to the public, as a business enterprise, is not 
a private home.'' Id.
    Several courts have addressed whether home care services were 
performed in a private home. In Welding v. Bios Corp., 353 F.3d 1214 
(10th Cir. 2004), the Tenth Circuit Court of Appeals analyzed whether a 
business providing services to individuals with developmental 
disabilities was entitled to rely on the companionship services 
exemption in paying its employees. The court explained that to claim 
the exemption, the business must establish that the services were 
provided in a private home. In assessing whether the residences at 
issue were private homes, the court described six factors (discussed 
below) to consider. Id. at 1219-20; see Johnston v. Volunteers of Am., 
Inc., 213 F.3d 559, 562 (10th Cir. 2000) (explaining that the employer 
bears the burden of proving its employees fit within the companionship 
exemption). The court noted that the ``key inquiries are who has 
ultimate management control of the living unit and whether the living 
unit is maintained primarily to facilitate the provision of assistive 
services.'' Id. at 1219.
    The first factor calls for considering whether the client lived in 
the living unit before he or she received any services. If the person 
did not live in the home before becoming a client, and if the person 
would not live in the home if he or she were not receiving services, 
then the living unit would not be considered a private home. Id.
    The second factor analyzes who owns the living unit; the court 
noted that ``[o]wnership is significant because it evidences control.'' 
353 F.3d at 1219. If the living unit is owned by the client or the 
client's family, this is an indication that the services are performed 
in a private home. Id. However, if the living unit is owned by a 
service provider, this is an indication that the services are not 
performed in a private home. Id. If the client or the client's family 
leases the unit directly from the owner, the court concluded that this 
is some indication that it is a private home. Id.; see Terwilliger v. 
Home of Hope, Inc., 21 F.

[[Page 60462]]

Supp. 2d 1294, 1299 (N.D. Okla. 1998) (holding that services were 
performed in a private home when the clients owned or leased the 
residences from a third party and the service provider had no legal 
interest in the residence). If the service provider leases the unit, 
the court concluded that this is some indication that it is not a 
private home. 353 F.3d at 1219; Madison v. Res. for Human Dev., Inc., 
233 F.3d 175, 179 (3d Cir. 2000) (holding that residences were not 
private homes when clients selected residences from provider-approved 
list and service provider leased the residences and subleased them to 
clients).
    The third factor looks to who manages and maintains the residence, 
i.e., who provides the essentials that the client needs to live there, 
such as paying the mortgage or rent, utilities, food, and house wares. 
The court explained that ``[i]f many of the essentials of daily living 
are provided for by the client or the client's family, that weighs 
strongly in favor of it being a private home. If they are provided for 
by the service provider, that weighs strongly in favor of it not being 
a private home.'' 353 F.3d at 1220.
    The fourth factor is whether the client would be allowed to live in 
the unit if the client were not receiving services from the service 
provider. 353 F.3d at 1220. If the client would be allowed to live in 
the unit without contracting for services, then this factor would weigh 
in favor of it being a private home. Id.; Madison, 233 F.3d at 183 
(concluding that it is not a private home if clients could not remain 
in the residence if they terminated their relationship with the service 
provider).
    The fifth factor considers the relative difference in the cost/
value of the services provided and the total cost of maintaining the 
living unit. 353 F.3d at 1220. ``If the cost/value of the services is 
incidental to the other living expenses, that weighs in favor it being 
a private home.'' Id.
    The sixth factor addresses whether the service provider uses any 
part of the residence for the provider's own business purposes. 353 
F.3d at 1220. The court concluded that if the service provider uses any 
part of the residence for its own business purpose, then this fact 
weighs in favor of it not being a private home. Id.; see Johnston, 213 
F.3d at 565 (concluding that a residence is not a private home when the 
service provider had an office in the home for employees). If, however, 
the service provider does not use any part of the residence for its own 
business purpose, then this factor weighs in favor of it being a 
private home. 353 F.3d at 1220.
    Other courts have looked at additional factors, emphasizing that 
all relevant factors must be considered. Those factors include: whether 
significant public funding is involved; who determines who lives 
together in the home; whether residents live together for treatment 
purposes as part of an overall care program; the number of residents; 
whether the clients can come and go freely; whether the employer or the 
client acquires the furniture; who has access to the home; and whether 
the provider is a for profit or not for profit entity. See, e.g., 
Johnston, 213 F.3d at 563-65; Linn v. Developmental Services of Tulsa, 
Inc., 891 F. Supp. 574 (N.D. Okla. 1995); Lott v. Rigby, 746 F. Supp. 
1084 (N.D. Ga. 1990).
    Several courts have addressed the question of whether particular 
group residences of individuals in need of care are private homes. For 
example, the Tenth Circuit Court of Appeals held in Johnston v. 
Volunteers of America, Inc., 213 F.3d 559 (10th Cir. 2000), that a 
business that provides care services to individuals with developmental 
disabilities in a supported living program did not meet its burden of 
proof to show that services were provided in a private home when the 
residents were placed outside the family home with strangers who also 
needed services and without the full-time, live-in care of a relative. 
Id. at 565. The court also relied on the facts that the clients' diets 
and daily activities were controlled by the business' employees and not 
a family member, and that the business could appropriate a room to use 
as an office. Id. Similarly, in Madison v. Resources for Human 
Development, Inc., 233 F.3d 175 (3d Cir. 2000), the Third Circuit held 
that a non-profit corporation that provides supported living 
arrangements for adults with disabilities was not providing services in 
a private home. Id. at 184. In support of this holding, the court noted 
that the clients do not have a possessory interest in the homes; they 
sublease the property from the corporation, and they may only remain in 
the home to the extent they maintain a continued relationship with the 
corporation. Id. at 183. The court also relied on the fact that the 
clients do not have full control over who may access the home and that 
the clients did not have unfettered freedom in their day-to-day 
conduct. Id.
    Following the analysis provided for in the case law, the Department 
has recognized that whether a living arrangement qualifies as a private 
home is a fact-specific inquiry. See Wage and Hour Opinion Letter, 2001 
WL 15558952 (Feb. 9, 2001); Wage and Hour Opinion Letter, FLSA 2006-
13NA (June 23, 2006). In evaluating whether a residence is a private 
home, the Department considers the six factors identified by the Tenth 
Circuit in Welding as well as the other factors identified in Johnston, 
Linn and Lott. See Wage and Hour Opinion Letter, FLSA 2006-13NA (June 
23, 2006). The Department has made clear that the fact that the home is 
the sole residence of the individual is not enough to make it a private 
home under the FLSA. See Wage and Hour Opinion Letter, FLSA 2006-13NA 
(June 23, 2006), at 2; see also Lott, 746 F. Supp. at 1087 (concluding 
that the fact that the home was the client's sole residence was not 
enough to make it a private home). For example, in an opinion letter, 
the Department concluded that ``adult homes'' designed for individuals 
who are in need of assistance with certain day-to-day functions, such 
as meal preparation, housekeeping, and medications, were not private 
homes. See Wage and Hour Opinion Letter, FLSA 2001-14, 2001 WL 1869966, 
at 1 (May 14, 2001). The Department's conclusion was based on the fact 
that the clients are placed in a residence outside the family home and 
without the full-time live-in care of a relative. Id. at 2. The clients 
are housed in a residence with others who are also in need of long-term 
residential care. Id. Moreover, facility employees, and not a family 
member, control the client's diets and daily activities (to some 
degree). The Department also considered that the adult homes may select 
the clients who will share the same residence and can set up two 
residents per room, although the client has the right to request a 
private room for a higher fee. Id. Finally, despite the client's 
participation in the upkeep of the home, the service provider is 
ultimately responsible for the maintenance of the residence. Id.
    However, in another case, the Department concluded that supported 
living services provided to consumers were performed in a private home. 
See Wage and Hour Opinion Letter, 1999 WL 1002387, at 2 (Apr. 8, 1999). 
In support of this conclusion, the Department noted that neither the 
public agency nor the private agency that provides the services 
determines where a client will live or with whom. Id. Rather, the 
client or the client's guardian makes these decisions and he or she is 
responsible for leasing the residence and paying the rent as well as 
for furnishing it to suit the individual's tastes and resources. Id. 
The Department also noted that the client typically lives alone or with 
only one roommate, and

[[Page 60463]]

that the private agency has no financial interest in the client's 
housing as it does not own or lease any of the housing.
    As explained above, determining whether a particular living unit is 
a private home requires a fact-intensive analysis. Generally, such an 
inquiry exists along a continuum: on one end, a home owned and occupied 
for many years by an elderly individual would be a private home; on the 
other end of the continuum, a typical nursing home would not be 
considered a private home under the regulations. This Final Rule does 
not alter this inquiry in any way; rather, the analysis to determine 
whether an employee is working in a ``private home'' remains unchanged. 
Thus, employees who are working in a location that is not a private 
home were never properly classified as domestic service employees under 
the current regulations, and employers were not and are not entitled to 
claim the companionship services or live-in worker exemptions for such 
employees.
B. Section 552.6 (Companionship Services)
    Current Sec.  552.6 defines the term ``companionship services'' as 
``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.'' In the NPRM, the Department 
stated its intention to modernize and clarify what is encompassed 
within the definition of fellowship, care, and protection. 
Specifically, the Department proposed to divide Sec.  552.6 into four 
paragraphs. Proposed paragraph (a) defined ``companionship services'' 
as ``the provision of fellowship and protection'' and described the 
duties and activities that fall within the meaning of those terms. 
Proposed paragraph (b) described the ``intimate personal care 
services'' that could be part of companionship services if provided 
``incidental'' to fellowship and protection. Proposed paragraph (c) 
excluded from companionship services household work benefitting members 
of the household other than the consumer. Proposed paragraph (d) 
provided that companionship services do not include medical care of the 
type described.
    The Final Rule maintains the general organizational structure of 
this section as proposed but modifies the proposed regulatory text as 
described below.
    As an initial note, in this Final Rule, the Department has modified 
proposed Sec.  552.6 by deleting the terms ``aged,'' ``advanced age,'' 
``infirm,'' ``infirmity,'' and ``physical or mental infirmity'' in the 
title and regulatory text of this section. Where a descriptor is 
needed, the Department has substituted ``elderly person or person with 
an illness, injury, or disability.'' In addition, the Department has 
replaced in the regulatory text the phrase ``unable to care for 
themselves'' with ``requires assistance in caring for himself or 
herself.'' Although the language being replaced is derived from FLSA 
section 13(a)(15) and the existing regulations at Sec.  552.6, the 
Department recognizes that such language is outdated and does not 
reflect contemporary views regarding the elderly and people with 
disabilities. The Department therefore has modified the text in the 
Final Rule and has made conforming changes to the title and text of 
Sec.  552.106, which repeats the language from Sec.  552.6. In 
addition, throughout this preamble, the Department has sought to use 
updated language, except when quoting from the statute, the legislative 
history, the current or proposed regulations, or comments submitted in 
response to the NPRM. By modernizing this language, the Department does 
not in any way intend to change the intent of Congress with respect to 
those who use companionship services.
Section 552.6(a) (Fellowship and Protection)
    Proposed Sec.  552.6(a) defined ``companionship services'' as ``the 
provision of fellowship and protection'' for an elderly person or 
person with an illness, injury, or disability who requires assistance 
in caring for himself or herself. The proposed language further defined 
the term ``fellowship'' to mean ``to engage the person in social, 
physical, and mental activities, including conversation, reading, 
games, crafts, walks, errands, appointments, and social events'' and 
the term ``protection'' to mean ``to be present with the person in 
their home or to accompany the person when outside of the home to 
monitor the person's safety and well-being.'' The Department adopts 
paragraph (a) essentially as proposed, with the slight modifications 
described below.
    Comments from employees, employee advocacy groups and labor 
organizations generally supported the proposed revision of paragraph 
(a), agreeing with the Department that the definition more accurately 
reflected Congress's intent that the companionship exemption be akin to 
``elder sitting.'' See, e.g., Golden Gate University School of Law, 
Women's Employment Rights Clinic; Center on Wisconsin Strategy (COWS); 
National Employment Law Project (NELP); see also comments of several 
individual direct care workers stating that their work is not ``at 
all'' like elder sitting. Specifically, these individuals and 
organizations noted that Congress clearly wished to include under the 
protections of the Act employees for whom domestic work was a vocation, 
while allowing a narrow exemption for more casual arrangements. The 
Service Employees International Union (SEIU) explained that this 
distinction should turn on whether ``such tasks and duties are of a 
nature more typically performed by a worker engaged in his or her 
livelihood or rather, on a less formal basis, by a non-breadwinner.'' 
See SEIU; see also AFSCME, American Federation of Labor-Congress of 
International Organizations (AFL-CIO). In addition, Senator Harkin, 
joined by 18 other Senators, affirmed the Department's assessment of 
the legislative history, explaining that ``by the term `companion' 
Congress meant someone who sits with an elderly or infirm person.''
    Some non-profit advocacy organizations such as AARP, the National 
Council on Aging, and the National Consumers League (NCL) also 
supported the revised definition. These organizations noted that the 
revised definition would be helpful in clarifying what duties would be 
considered exempt ``companionship services'' and that the Department 
correctly identified ``fellowship'' and ``protection'' as the primary 
duties of an exempt companion. Similarly, the EJC stated that the 
definition would provide clarity, ``thereby assisting attorneys and 
courts to more readily find coverage by effectively categorizing an 
employee's work as either domestic or companionship services.''
    Several employers, employer organizations and some associations 
opposed the proposed Sec.  552.6(a), stating that its focus on 
fellowship and protection was inconsistent with legislative intent. 
Some of these commenters stated that the scope of the proposed 
definition is too restrictive, and ``goes too far conceptually in 
relating companionship to baby or elder `sitting'.'' See National 
Association of State Directors of Developmental Disabilities Services 
(NASDDDS). In addition, although the American Network of Community 
Options and Resources (ANCOR), among others, concurred that the focus 
of companionship services should be fellowship and protection, it also 
requested that ``most assistance with dressing, grooming, meal 
preparation, feeding, and driving'' be included as part of fellowship 
and protection.

[[Page 60464]]

    Commenters also sought further guidance from the Department 
concerning the scope of the companionship services definition. For 
example, the National Resource Center for Participant-Directed Services 
(NRCPDS) requested clarification regarding the use of the ``and'' in 
the phrase ``fellowship and protection'' because it suggests that it 
may be insufficient to provide either fellowship or protection alone, 
in the absence of the other. Additionally, many industry commenters 
were concerned that the Department's proposal excised the term ``care'' 
from the definitions of companionship services. These comments are 
discussed in greater detail below, in the subsection addressing Sec.  
552.6(b).
    After carefully considering the comments concerning its proposed 
definition of ``companionship services,'' the Department has decided to 
adopt proposed Sec.  552.6(a) with modifications. For the reasons 
described above, the Final Rule deletes the words ``for a person, who, 
because of advanced age or physical or mental infirmity, is unable to 
care for themselves'' found in the first sentence of proposed Sec.  
552.6(a) and uses instead ``for an elderly person or person with an 
illness, injury, or disability who requires assistance in caring for 
himself or herself.'' In addition, the adopted regulatory text defining 
fellowship and protection has been slightly edited for clarity; these 
minor adjustments to wording and punctuation do not change the meaning 
of the regulation as proposed. The second and third sentences of Sec.  
552.6(a) read: ``The provision of fellowship means to engage the person 
in social, physical, and mental activities, such as conversation, 
reading, games, crafts, or accompanying the person on walks, on 
errands, to appointments, or to social events. The provision of 
protection means to be present with the person in his or her home, or 
to accompany the person when outside of the home, to monitor the 
person's safety and well-being.''
    The Department believes this definition of companionship services 
is appropriate based on the legislative history of the 1974 FLSA 
amendments and dictionary definitions of relevant terms. The 
legislative history indicates that Congress intended to remove from the 
FLSA's minimum wage and overtime compensation protections only those 
domestic service workers for whom domestic service was not their 
vocation and whose actual purpose was to provide casual babysitting or 
companionship services. The legislative history describes a companion 
as someone who ``sits with [an elderly person],'' provides ``constant 
attendance,'' and renders services similar to a babysitter, i.e., 
``someone to be there and watch an older person,'' or an ``elder 
sitter.'' See 119 Cong. Rec. S24773, S24801 (daily ed. July 19, 1973).
    Dictionary definitions are also instructive in understanding the 
scope of an exempt companion's duties. The dictionary defines 
companionship as the ``relationship of companions; fellowship,'' and 
the term ``companion'' is defined as a ``person who associates with or 
accompanies another or others; associate; comrade.'' See Webster's New 
World Dictionary, p. 288 (2d College Ed. 1972). It further defines 
``fellowship'' as including ``a mutual sharing, as of experience, 
activity, interest, etc.'' Id. at 514. These definitions demonstrate 
that a companion is someone in the home primarily to watch over and 
care for the elderly person or person with an illness, injury, or 
disability.
    For these reasons, the Department believes it is appropriate for 
``companionship services'' to be primarily focused on the provision of 
fellowship and protection, and that this focus is consistent with the 
general principle that coverage under the FLSA is broadly construed so 
as to give effect to its remedial purposes, and exemptions are narrowly 
interpreted and limited in application to those who clearly are within 
the terms and spirit of the exemption. See, e.g., A.H. Phillips, Inc. 
v. Walling, 324 U.S. 490, 493 (1945). Examples of activities that fall 
within fellowship and protection may include: watching television 
together; visiting with friends and neighbors; taking walks; playing 
cards, or engaging in hobbies. For the reasons explained below, the 
Department's definition of ``companionship services'' also allows for 
certain ``care'' activities, as defined in Sec.  552.6(b), to be 
performed attendant to and in conjunction with fellowship and 
protection, as long as those activities comprise no more than 20 
percent of the direct care worker's time working for a particular 
person in a particular workweek.
    In response to commenters who requested clarification as to the 
Department's use of the phrase ``fellowship and protection,'' it is the 
Department's intent that the great majority of duties performed by a 
direct care worker whose duties meet the definition of companionship 
services will encompass both fellowship and protection, and that a 
caregiver would be hired to perform both duties. However, a direct care 
worker may, at times, perform certain tasks that require either 
fellowship or protection, such as sitting with a consumer while the 
individual naps (in which case, only protection would be provided) and 
still meet the definition of performing companionship services. The 
Department notes that this type of activity would not prevent 
application of the exemption, because the worker would be available to 
provide fellowship services when the consumer awakens.
Section 552.6(b) (Care)
    Proposed Sec.  552.6(b) provided that ``[t]he term `companionship 
services' may include intimate personal care services that are 
incidental to the provision of fellowship and protection for the aged 
or infirm person.'' The proposed regulatory text further provided that 
these intimate personal care services ``must be performed attendant to 
and in conjunction with fellowship and protection of the individual'' 
and ``must not exceed 20 percent of the total hours worked in the 
workweek'' in order to fall within the definition of companionship 
services. Proposed Sec.  552.6(b) next provided an illustrative, 
detailed list of intimate personal care services: (1) Dressing, (2) 
grooming, (3) toileting, (4) driving, (5) feeding, (6) laundry, and (7) 
bathing. Each listed intimate personal care service was preceded by the 
term ``occasional'' in the proposal. The Department explained in the 
preamble to the proposed rule that it was allowing for some work 
incidental to the fellowship and protection that primarily constitutes 
companionship services because the legislative history indicated that 
Congress contemplated that a direct care worker providing companionship 
services might perform tasks such as ``making lunch for the infirm 
person'' and ``some incidental household work.'' See 119 Cong. Rec. at 
S24801; see also 76 FR 81193.
    After a careful review of the comments, and for the reasons 
explained in greater detail below, the Department has retained the 
fundamental purpose of proposed paragraph (b)--to define certain 
services that, if provided to a limited extent and incidentally to the 
fellowship and protection that are the core duties of an exempt 
companion, do not defeat the exemption--but has modified the proposed 
regulatory text in order to make the additional services an exempt 
companion may perform easier for the regulated community to understand. 
Section 552.6(b) now reads: ``The term companionship services also 
includes the provision of care if the care is provided attendant to and 
in conjunction with the provision of

[[Page 60465]]

fellowship and protection and if it does not exceed 20 percent of the 
total hours worked per person and per workweek. The provision of care 
means to assist the person with activities of daily living (such as 
dressing, grooming, feeding, bathing, toileting, and transferring) and 
instrumental activities of daily living, which are tasks that enable a 
person to live independently at home (such as meal preparation, 
driving, light housework, managing finances, assistance with the 
physical taking of medications, and arranging medical care).''

Care

    Several commenters expressed concern that the proposed definition 
of companionship services did not sufficiently emphasize the provision 
of ``care.'' For example, BrightStar Healthcare of Baltimore City/
County (``BrightStar'') and the Texas Association for Home Care and 
Hospice, among others, noted that the plain language of the statutory 
exemption used the term ``care,'' and that the legislative history also 
indicated a desire by Congress to have ``care'' encompassed in the 
definition. BrightStar asserted that ``it is clear from the legislative 
history that `care' for those who are `unable to care for themselves' 
is an integral part of what was contemplated in creating the 
companionship exemption.'' Congressman Lee Terry agreed that the 
Department's proposed definition ``is altering the focus of the 
exemption in a way that Congress neither intended nor envisioned.''
    The Department does not disagree with commenters who wrote that 
``care'' should be explicitly included in the regulatory definition of 
companionship services. Indeed, the proposal did not remove ``care'' 
from the regulatory definition of companionship services; rather, 
although proposed paragraph (a) did not use the word care, the 
Department sought in paragraph (b) to define and delimit the type of 
care that falls within the exemption. In the Final Rule, Sec.  552.6(b) 
uses the term ``care'' rather than ``intimate personal care services'' 
to make more explicit that care remains part of companionship services.

Activities of Daily Living and Instrumental Activities of Daily Living

    The Department received thousands of comments concerning the 
proposed list of intimate personal care services. These comments 
demonstrated problems raised by the proposed list, and the Department 
has modified this Final Rule accordingly. Specifically, upon 
consideration of these comments, the Final Rule describes the provision 
of care as assistance with activities of daily living (ADLs) and 
instrumental activities of daily living (IADLs), with examples of each 
type of task, rather than using the term ``intimate personal care 
services'' and providing a detailed list of activities that fall into 
that category.
    Many commenters supported the proposed list of intimate personal 
care services. For example, AFSCME and AARP agreed that the definition 
of companionship services should be narrowed and that only true 
``fellowship and protection'' services, accompanied by personal care or 
household services that are incidental to those companionship services, 
should be exempt from the FLSA. Care Group, Inc., a provider of in-home 
medical services registered in the State of California, and NELP, among 
others, supported the Department's proposal but urged the Department to 
make the list of incidental services exclusive rather than 
illustrative.
    In contrast, employers and other groups, such as the Texas 
Association for Home Care and Hospice and Americans for Limited 
Government (ALG), generally expressed the view that personal care 
should not be limited to ``incidental'' activities because the 
exemption explicitly states that consumers receiving services are 
``unable to care for themselves''; these commenters suggested that 
whatever ``care'' the consumer needs should be included as part of 
unrestricted companionship services. See also The Virginia Association 
for Home Care and Hospice. The Visiting Nurse Associations of America 
(VNAA) expressed the view that the federal government should defer to 
existing state and local regulations concerning permissible duties. 
Similarly, California Association for Health Services at Home (CAHSAH) 
pointed to state guidance that makes clear that a companion must be 
allowed to perform all duties a client needs to remain independent.
    Commenters also addressed the specific care tasks that the 
Department had included in the proposed list individually. In response 
to the Department's proposal to allow assistance with toileting as an 
incidental personal care service, the National Council on Aging, NELP, 
and Workforce Solutions expressed concern about potential injury to 
workers associated with this task. These commenters recommended the 
Department not include assistance with services such as toileting and 
activities that require positioning and mobility transfer assistance. 
See also The Workplace Project. The Legal Aid Society encouraged the 
Department to consider that tasks such as toileting, assistance with 
mobility, transfers, positioning, use of toileting equipment and 
changing diapers for persons with dementia are not casual activities 
but require training to be performed in a manner that is safe for the 
worker and the consumer. They suggested that if such activities 
constitute part of the regular work performed, the worker should not be 
exempt. Direct Care Alliance (DCA) stated that the permissible exempt 
duties should not include those that require physical strength or 
specialized training. Women's Employment Rights Clinic suggested that 
allowing an exempt companion to assist with toileting should only be 
permitted when exigent circumstances arise. They indicated that this 
activity requires training or experience that a companion, as intended 
by Congress, would not have.
    Several commenters offered their views on the task of driving the 
consumer to appointments, errands, and social events as an incidental 
personal care service. ANCOR stated that driving to social events 
should not be included among the ``personal care services'' in the 20 
percent limitation, indicating that ``many people with disabilities 
enjoy drives and times away from home and we do not believe this should 
be limited.'' The Texas Association for Home Care and Hospice and PHI 
both expressed the view that this section should include not only 
driving but also ``accompanying'' the consumer. They noted that other 
modes of transportation may be utilized by the consumer. Women's 
Employment Rights Clinic agreed with the Department's proposal to 
include occasionally driving a consumer to appointments, errands, and 
social events as part of incidental personal care services defined in 
Sec.  552.6(b).
    A number of comments were received on the proposed provision 
concerning meal preparation. The Connecticut Association for Home Care 
and Hospice expressed concern about the requirement that the client 
must consume the food in the direct care worker's presence in order to 
maintain the exemption. It pointed out that the proposal failed to take 
into account the possibility that the consumer may not eat all of the 
food prepared and would create an untenable situation whereby the 
consumer is forced to eat on an imposed schedule rather than as his or 
her appetite dictates. Others, like ALG, asserted that the proposal 
would force a direct care worker to dispose of leftover

[[Page 60466]]

food rather than to store it to be eaten later. Some commenters, 
including Women's Employment Rights Clinic, specifically supported the 
Department's qualification that any food prepared must be eaten in the 
presence of the direct care worker in order for the meal preparation to 
be part of companionship services. They indicated that this would 
ensure that preparing meals for and feeding the consumer remained 
attendant to and in conjunction with providing fellowship and 
protection.
    Several commenters objected to including laundry in the list of 
personal care services. For example, Caring Across Generations and 
DAMAYAN Migrant Workers Association (DAMAYAN) both indicated that 
``laundry is neither absolutely necessary for an elderly or infirm 
person during the companion worker's shift nor does it arise out of 
exigent circumstances that justify including `occasional bathing' in 
proposed Sec.  552.6(b)(7). Laundry services fall under the type of 
household services performed by housekeepers or laundresses and thus 
should be excluded.'' Others, such as the Latino Union of Chicago, 
similarly commented that ``an individual or family hiring a companion 
worker could just as easily hire a housekeeper or laundress to 
regularly launder clothes.''
    With respect to bathing, some commenters supported the proposal's 
limitation on bathing duties to ``exigent circumstances.'' For example, 
Women's Employment Rights Clinic indicated that they thought the 
limitation to exigent circumstances was appropriate as this duty is one 
which requires the lifting, touching, and moving of a frail individual, 
and this normally requires increased training and experience.
    The Department continues to believe Congress intended fellowship 
and protection to be the primary focus of an employee exempt under the 
companionship services exemption but that flexibility to provide some 
tasks incidental to fellowship and protection is appropriate. In light 
of the comments received concerning the proposed list of intimate 
personal care services, however, the Department has not adopted the 
regulatory text as proposed. Instead, section 552.6(b) now states, in 
relevant part: ``The provision of care means to assist the person with 
activities of daily living (such as dressing, grooming, feeding, 
bathing, toileting, and transferring) and instrumental activities of 
daily living, which are tasks that enable a person to live 
independently at home (such as meal preparation, driving, light 
housework, managing finances, assistance with the physical taking of 
medications, and arranging medical care).''
    As reflected in the comments, the Department now believes that the 
proposed list of intimate personal care services raised more questions 
than it answered. See, e.g., ALG (stating that the list of proposed 
intimate personal care services created ``practical problems,'' such as 
prohibiting an exempt companion from operating a vacuum cleaner). The 
Department also agrees with commenters that the list was too specific 
and not flexible enough in its approach. The Department is persuaded by 
the view expressed by commenters such as the State of Washington's 
Department of Social and Health Services, that the ``use of `intimate 
personal care services' should be updated to reflect current service 
categories: activities of daily living and instrumental activities of 
daily living'' and thus has modified the Final Rule to reflect this 
change. Therefore, in lieu of describing the permissible care services 
an exempt companion may perform as ``intimate personal care services,'' 
the Department instead has adopted the commonly used industry terms 
``activities of daily living'' (ADLs) and ``instrumental activities of 
daily living'' (IADLs) to describe which services are allowed as part 
of ``care'' under the exemption. See 76 FR 81212. The Department has 
also replaced the detailed list of activities that appeared in proposed 
paragraph (b) with simple, illustrative lists of services that are 
commonly viewed as activities of daily living and instrumental 
activities of daily living. The Department intends that any additional 
tasks not explicitly named in the regulatory text but that fit easily 
within the spirit of the enumerated duties also qualify as ADLs or 
IADLs.
    The Department believes that by replacing the proposed detailed 
list of intimate personal care services with the more commonly used 
industry phrases ``activities of daily living'' and ``instrumental 
activities of daily living,'' transition to the new regulation will be 
simplified. The State of Tennessee and the National Association of 
Medicaid Directors (NAMD) indicated that home health aides and personal 
care attendants are focused primarily on providing hands-on care and 
assistance with ADLs that enable that consumer to continue living 
safely in the community. The Virginia Association for Home Care and 
Hospice expressed the view that individuals need assistance with their 
ADLs and IADLs to live independently, and that these activities should 
be part of the incidental duties. Additionally, hundreds of comments 
received from workers referenced these terms as a sort of shorthand for 
describing the work commonly performed by direct care workers. 
Furthermore, Medicaid and Medicare programs also use these terms to 
describe direct care work. As noted by commenters such as NELP and PHI, 
Medicaid instructs that assistance with ADLs and IADLs ``is the core 
focus of home care services provided under Medicaid.'' Accordingly, the 
Department believes the regulated community is already familiar with 
these concepts and they will be easy for consumers, workers, and 
employers alike to understand.
    The Department also believes that by broadening the base of 
services that a direct care worker may perform and still qualify for 
the companionship services exemption, consumers will have more of the 
immediate needs met that support them in living independently in their 
communities. Among the comments was a letter writing campaign by 
several hundred workers that requested that companionship services only 
include fellowship and protection, ``thereby excluding workers who 
assist clients with activities of daily living or instrumental 
activities of daily living.'' The Department is persuaded, however, by 
other comments that emphasized the critical importance of including an 
allowance for ADLs and IADLs in order for certain consumers to continue 
to live independently. See, e.g., Scott Ehrsam, owner of a home care 
business; DCA.
    The Department notes that the intimate personal care services 
proposed in the NPRM are encompassed within the categories of 
``activities of daily living'' and ``instrumental activities of daily 
living'' adopted in the Final Rule. The Department emphasizes, however, 
the provision of such services only falls within the definition of 
companionship services if it is performed attendant to and in 
conjunction with the fellowship and protection provided to the consumer 
and if it does not exceed 20 percent of the total work hours of the 
direct care worker for any particular consumer in any particular 
workweek, as discussed in greater detail below.
    This Final Rule provides flexibility within the bounds of 
Congressional intent. The FLSA grants the Secretary of Labor broad 
authority to define and delimit the scope of the exemption for 
companionship services. See 29 U.S.C. 213(a)(15). The Department 
believes its definition of the types of services that may be performed 
within the meaning of ``provision of care'' in the Final Rule is 
reasonable and consistent with Congressional intent that all other work

[[Page 60467]]

performed by an exempt companion must be incidental to the companion's 
primary purpose ``to watch over an elderly or infirm person in the same 
manner that a babysitter watches over children.'' 119 Cong. Rec. 
S24773, S24801 (daily ed. July 19, 1973).

Twenty Percent Limitation

    The Department also received a significant number of comments 
addressing the 20 percent limitation on the provision of care. Some 
commenters believed the cap was too high. See, e.g., Women's Employment 
Rights Clinic; EJC. The EJC emphasized that 20 percent is a significant 
portion of the workweek and a lower percentage would better effectuate 
the goal of ensuring that the care tasks are truly incidental. Other 
commenters, however, thought the cap was too low. See, e.g., The 
Westchester Consulting Group. Senior Helpers, among others, expressed 
doubt that the listed tasks could be accomplished in 20 percent of the 
direct care worker's workweek and expressed concern that seniors would 
be hurried through eating meals or forced to cancel appointments due to 
the amount of time allotted. Commenters including NCL and Workforce 
Solutions were concerned that the 20 percent cap would be difficult to 
administer. A few commenters expressed concern over the cost of 
monitoring the 20 percent limitation. The State of Oregon indicated 
that the 20 percent limitation should be eliminated, suggesting that 
the limitation should not be based upon tasks performed but rather 
should be based upon for whom the service is performed. CAHSAH asserted 
that the duties that fall under the 20 percent cap should be unrelated 
to the care of the client.
    Some commenters suggested alternative methods for calculating hours 
worked performing incidental care duties. The National Council on 
Aging, Workforce Solutions, NELP, and others supported elimination of 
the 20 percent cap and replacing it with a two-step assessment. They 
suggested requiring an initial assessment to determine whether the 
worker had been hired primarily to perform the duties of fellowship and 
protection and whether the worker was in fact performing those duties. 
If the worker was not primarily performing those duties, the subsequent 
listings of permissible exempt activities would not be considered. If 
the worker were found to be hired primarily to provide fellowship and 
protection, then a second step review of the listed services would be 
conducted to confirm that the services were performed occasionally and 
incidental to the provision of fellowship and protection, and not as a 
regular part of the duties performed.
    Organizations like DAMAYAN, The Workplace Project, and Houston 
Interfaith Worker Justice also proposed eliminating the 20 percent 
limitation and replacing it with a different test comprised of two 
steps: (1) If a direct care worker visits a client greater than three 
times per week and (2) performs any of the listed incidental tasks for 
any amount of time in greater than 50 percent of the visits, then the 
direct care worker would not fall within the companionship services 
exemption.
    Finally, NCL and PHI suggested that the Department modify the cap 
on incidental activities across a workweek to one that prohibits a 
worker from spending more than 20 percent of work time performing care 
tasks per individual client per workweek.
    The Department has carefully considered the variety of suggestions 
offered by commenters with respect to this issue, and it adopts the 20 
percent limitation on care services essentially as proposed, although 
it has modified the text to explicitly state that the provision of care 
is limited to no more than 20 percent of the hours worked per workweek 
per consumer. The Department's view is that failing to provide such a 
limitation would ignore Congressional intent that making meals and 
doing laundry would be incidental to the exempt companion's primary 
purpose of watching over the consumer. See 119 Cong. Rec. S24773, 
S24801 (daily ed. July 19, 1973). Indeed, during a Senate floor 
exchange, Senators Williams and Burdick indicated that ``one may even 
require throwing some diapers in the automatic washing machine for the 
baby. This would be incidental to the main purpose of employment.'' See 
119 Cong. Rec. at S24801. However, the Department also recognizes that 
a limited allowance for selected tasks, performed attendant to and in 
conjunction with fellowship and protection, is necessary as a matter of 
practicality. The Department believes that this 20 percent threshold, 
which is based on the proportion of total hours worked per workweek, 
will provide consumers and direct care workers with a needed 
flexibility in their day-to-day activities. As described below, in 
adopting the 20 percent figure, the Department is utilizing a long-
established threshold that has been used in a variety of regulations, 
including current Sec.  552.6. Employers are, thus, familiar with this 
type of time limitation, mitigating concerns that the 20 percent 
threshold would be difficult and costly to administer. In addition, the 
Department views section 552.6(b) of the Final Rule as a compromise 
designed to expand the base of allowable care while accommodating the 
concerns expressed about workplace safety for both the direct care 
worker and the consumer, as such a limitation restricts the amount of 
time spent engaged in these activities.
    As the Department indicated in the preamble to the proposed 
regulation, the home care industry has undergone a dramatic 
transformation since the Department published the implementing 
regulations in 1975. In the 1970s, many individuals with significant 
care needs were served in institutional settings rather than in their 
homes and their communities, Since that time, there has been a growing 
demand for long-term home care for persons of all ages, largely due to 
the rising cost of institutional care, the impact of the disability 
civil rights movement, and the availability of funding assistance for 
home care under Medicaid, reflecting our nation's commitment to 
accommodate the desire of individuals to remain in their homes and 
communities. As the demand for long-term home care has grown, so has 
the complexity of duties performed in the home by the direct care 
worker. It is the Department's view that the focus of the companionship 
services exemption should remain on fellowship, protection, and care as 
defined in paragraph (b). Based on the wide scope of comments received 
detailing the extent of the services provided by direct care workers, 
the Department is aware that there is a significant continuum with 
respect to the services consumers require. The Department is not 
stating that all workers providing ``care,'' as defined in paragraph 
(b), will be able to accomplish the required care in 20 percent of 
their workweek. Rather, the Department is concluding that, if the care 
that is being provided attendant to and in conjunction with the 
provision of fellowship and protection requires more time than 20 
percent of the workweek, then the worker is being called upon to 
provide services that are outside of the scope of the companionship 
services exemption. In such cases, minimum wage and overtime pay 
protections attach.
    The Department believes that a 20 percent limitation for providing 
this care, coupled with a primary focus on the provision of fellowship 
and protection, is appropriate for a worker who is not entitled to the 
minimum wage and overtime compensation protections. The Department 
notes that a 20 percent limitation has been

[[Page 60468]]

implemented in this regulation for 38 years (concerning the provision 
of general household work), as well as in other regulations in this 
chapter such as Sec.  552.5, Casual Basis (work that is incidental does 
not exceed 20 percent of hours worked in babysitting assignment); Sec.  
552.104(c), Babysitting services performed on a casual basis 
(babysitter who devotes more than 20 percent of time to household work 
is not exempt), as well as in other chapters addressing employee work 
hours in other enforcement contexts (e.g., Sec. Sec.  786.100, 786.150, 
786.200 (nonexempt work will be considered substantial if it occupies 
more than 20 percent of the time worked by the employee during the 
workweek)). See also Sec. Sec.  553.212, 783.37, 784.116, 788.17, and 
793.21.
    As previously noted, a suggested two-step test was offered by some 
as a substitute for the 20 percent limitation on intimate personal care 
services. The suggested test was comprised of examining those direct 
care workers who visit a client more than three times a week, and if 
so, making a determination whether the direct care worker has performed 
any of the incidental personal care services for any amount of time in 
greater than 50 percent of the visits. In such cases, the organizations 
suggested that the direct care worker should not fall within the 
companionship services exemption. The Department declines to adopt the 
recommended test. The Department believes that this option would have a 
negative effect on continuity of care, an issue many commenters raised 
as a significant concern. See, e.g., National Association of Area 
Agencies on Aging, New York State Association of Health Care Providers, 
Avalon Home Care, the National Association of States United for Aging 
and Disabilities (NASUAD); see also Testimony of Marie Woodard before 
the U.S. House of Representatives Committee on Education and the 
Workforce, Subcommittee on Workforce Protection (March 20, 2012). This 
two-step proposal would create an incentive to ensure that a particular 
direct care worker only visits a consumer no more than three times per 
week. As the National Association of Area Agencies on Aging points out 
in its comment, ``providing fundamental labor protections of minimum 
wage and overtime will help reduce turnover, improve continuity of care 
and help lower costs.'' The Department agrees with commenters who 
indicated that providing fundamental labor protections such as minimum 
wage and overtime compensation will improve continuity of care and 
wants to avoid offsetting those improvements to continuity of care by 
implementing a test that would create an incentive to use a direct care 
worker no more than three times per workweek.
    Finally, the Department has incorporated the suggestion of NCL and 
PHI by modifying the Final Rule text to explicitly state that the 20 
percent limitation applies to the tasks a worker performs per 
individual consumer. Further, as proposed, the 20 percent limitation 
also applies to total hours worked per workweek. The inclusion of the 
20 percent limitation on a per consumer basis is intended to assist 
consumers and direct care workers in determining whether the worker 
meets the companionship services exemption in any given workweek. Many 
direct care workers provide services to more than one consumer in a 
workweek, and the proposed text did not account for the reality that a 
consumer would not typically know what percentage of time the direct 
care worker spent performing assistance with ADLs and IADLs for any 
other consumer. For example, if a direct care worker is employed for 
five mornings a week for consumer A and employed for four afternoons a 
week for consumer B, consumer B would have no way of knowing how much 
of the total workweek had been spent providing care to consumer A. The 
Department has therefore revised the text to specify that the 20 
percent limitation applies to the work performed each workweek for a 
single consumer. Therefore, in determining whether to claim the 
companionship services exemption, a consumer need only consider the 
amount of care he or she has received during the workweek, not any 
services the direct care worker has provided to other consumers. The 
Department notes that this question only arises as to individuals, 
families, and households who employ direct care workers, because, as 
explained in the section of this preamble regarding third party 
employment, under the Final Rule, a third party employer of a direct 
care worker is not permitted to claim the companionship services 
exemption regardless of the duties performed.
Section 552.6(c) (Domestic Services Primarily for Other Members of the 
Household)
    Current Sec.  552.6 permits the companionship services exemption to 
apply to a worker who spends up to 20 percent of his or her time 
performing general household work which is unrelated to the care of the 
person receiving services. In the NPRM, the Department proposed to 
revise the current regulation by adding paragraph (c), which stated 
that ``work benefitting other members of the household, such as general 
housekeeping, making meals for other members of the household or 
laundering clothes worn or linens used by other members of the 
household'' would not fall within the definition of incidental intimate 
personal care duties that may constitute part of companionship 
services. Proposed paragraph (c) also provided that ``household 
services performed by, or ordinarily performed by, employees such as 
cooks, waiters, butlers, valets, maids, housekeepers, nannies, nurses, 
janitors, laundresses, caretakers, handymen, gardeners, home health 
aides, personal care aides, and chauffeurs of automobiles for family 
use, are not `companionship services' unless they are performed only 
incidental to the provision of fellowship and protection as described 
in paragraph (b) of this section.'' For the reasons explained below, in 
the Final Rule, the Department adopts a significantly simplified 
version of the proposed text.
    The Department received few comments on the issue of household 
work. Women's Employment Rights Clinic expressed support for the 
``Department's effort to draw a clear line between the duties of a 
companion and the duties of domestic service workers such as maids, 
cooks and laundresses,'' writing ``that general household services such 
as window washing, vacuuming and dusting, should not fall under the 
duties of a companion.'' Advocacy organizations, such as ALG and 
NRCPDS, expressed concern that a direct care worker's performance of 
household work for the consumer would not be included within the 20 
percent allowance for intimate personal care services listed in 
paragraph (b) of this section if the work includes a prohibited task, 
such as vacuuming. See also Lynn Berberich, Joni Fritz, and Georgetown 
University Law Center students. AARP agreed with the Department that 
``providing general household services such as cooking a meal or doing 
laundry for the whole family, which significantly benefit all household 
members, should not be exempt.'' However, AARP requested that the 
Department provide examples as to what household work is considered 
incidental and therefore part of companionship services. AARP asked, 
``[i]f some tuna salad is left over after the individual receiving 
companionship services has eaten lunch, and another member of the 
household eats this left over tuna salad,

[[Page 60469]]

would this be considered general household work, thereby denying the 
companionship exemption for the week?''
    After carefully considering the comments, the Department has 
decided to revise proposed paragraph (c) to avoid ambiguity and 
eliminate redundancy in light of the revisions to paragraph (b). 
Specifically, Sec.  552.6(c) of the Final Rule provides, in its 
entirety: ``The term companionship services does not include domestic 
services performed primarily for the benefit of other members of the 
household.'' This text much more simply and clearly conveys the 
Department's meaning, which is that companionship services are services 
provided specifically for the individual who requires assistance in 
caring for himself or herself rather than for other members of that 
individual's household. This limit to the definition of companionship 
services is consistent with Congress's central purpose in 1974 of 
extending FLSA coverage to domestic service workers such as maids, 
cooks, and housekeepers and excluding from that coverage only direct 
care workers who provide primarily fellowship and protection.
    The Department intends to exclude from companionship services any 
general domestic services unrelated to care of the consumer as defined 
in paragraph (b) of this section. The determination of whether a 
particular task constitutes the provision of care or is instead a 
service performed primarily for the benefit of others in the household 
is based on a common sense assessment of the facts at issue. For 
example, in response to the question posed by AARP, if a person other 
than the consumer eats the leftover tuna salad, but the direct care 
worker prepared the meal for the consumer as opposed to for other 
members of the household, the meal preparation would constitute the 
provision of care that, if done attendant to and in conjunction with 
fellowship and protection and if within the 20 percent limitation on 
care, is part of companionship services. An exempt companion may also 
vacuum up food that the consumer drops, or wash a soiled blouse for the 
consumer; such activities are part of the care discussed in paragraph 
(b). Additionally, light housework, such as dusting a bedroom the 
consumer shares with another, that only tangentially benefits others 
living in the household may constitute care if performed attendant to 
and in conjunction with the provision of fellowship and protection of 
the consumer and within the 20 percent limitation. However, washing 
only the laundry of other members of the household or cooking meals for 
an entire family is excluded from companionship services under the 
Final Rule. To provide an additional example: if a direct care worker 
performs fellowship and protection for the consumer Monday through 
Thursday, but spends Friday exclusively performing light housework for 
the household as a whole, then the exemption is lost for the workweek, 
because the direct care worker cannot perform general household 
services for the entire household and still maintain the companionship 
services exemption during that workweek.
Section 552.6(d) (Medically Related Services)
    The legislative history of the 1974 amendments makes clear that 
Congress did not intend the companionship services exemption to apply 
to domestic service employees who perform medical services, and the 
Department believed in 1975, as it does today, that the provision of 
medical care constitutes work that is not companionship services. 
Accordingly, under current Sec.  552.6, companionship services do not 
include services provided for an elderly person or person with an 
illness, injury, or disability that ``require and are performed by 
trained personnel, such as a registered or practical nurse.'' In the 
NPRM, the Department proposed to revise Sec.  552.6(d) to describe the 
medical care that is typically provided by trained personnel by 
offering examples of particular medical services rather than by naming 
occupations. Based on consideration of the comments received and for 
purposes of simplicity and clarity, the Department has decided not to 
adopt the text as proposed, but has instead adopted text closer to that 
which appears in current Sec.  552.6. For the reasons explained below, 
Sec.  552.6(d) now excludes from companionship services ``medically 
related services,'' defined as services that ``typically require and 
are performed by trained personnel such as registered nurses, licensed 
practical nurses, or certified nursing assistants.'' This section 
further provides that the determination of whether services are 
medically related ``is not based on the actual training or occupational 
title of the individual providing the services,'' so in many cases, 
direct care workers outside these named categories, particularly home 
health aides, will be excluded from the companionship services 
exemption under paragraph (d).
    Proposed Sec.  552.6(d) provided that ``[t]he term `companionship 
services' does not include medical care (that is typically provided by 
personnel with specialized training) for the person, including, but not 
limited to, catheter and ostomy care, wound care, injections, blood and 
blood pressure testing, turning and repositioning, determining the need 
for medication, tube feeding, and physical therapy.'' It further 
provided that ``reminding the aged or infirm person of a medical 
appointment or a predetermined medicinal schedule'' was part of 
intimate personal care services as that phrase was defined in proposed 
Sec.  552.6(b). The NPRM's preamble discussion of Sec.  552.6(d) set 
forth the Department's rationale for its proposed change to the 
regulatory text. 76 FR 81195. The Department explained that in addition 
to care provided by registered nurses and licensed practical nurses, 
the types of tasks performed by certified nursing assistants and 
sometimes personal care aides or home health aides were the sort of 
medically related services typically provided by personnel with 
specialized training. Id. The preamble listed examples of such 
services, including medication management, the taking of vital signs 
(pulse, respiration, blood sugar screening, and temperature), and 
assistance with physical therapy. Id. In addition to providing this 
explanation of its position, the Department sought comment on whether 
the proposal appropriately reflected the medical care tasks performed 
by home health aides and personal care aides that require training as 
well as whether the regulation should include additional examples of 
minor health-related actions that could be part of companionship 
services, such as helping an elderly person take over-the-counter 
medication. Id.
    Comments from labor organizations, non-profit and civil rights 
organizations, and worker advocacy groups generally supported the 
proposal to exclude from the definition of companionship services 
medical care that requires specialized training. See, e.g., AARP, 
AFSCME, the Center, ACLU, Jobs with Justice, SEIU. Even the many 
employers and employer representatives who were critical of proposed 
Sec.  552.6(d) recognized that medical care is beyond the scope of the 
companionship services exemption. See, e.g., Husch Blackwell (agreeing 
with the Department that direct care workers who change feeding tubes, 
perform injections, or provide ostomy care do not qualify for the 
companionship services exemption but asserting that because current 
Sec.  552.6 already excludes nurses from the exemption, there was no 
need to revise the regulation), BrightStar franchisees

[[Page 60470]]

(same), Senior Helpers (stating that home health aides who perform 
``medical tasks like checking vital signs, changing bandages, giving 
injections or providing feeding tube or ostomy care'' are not providing 
companionship services but asserting that the Department should 
withdraw the NPRM).
    Some commenters made suggestions regarding specific occupations. 
One individual commenter suggested that the Department ``expand the 
meaning of trained personnel to include Certified Nursing Assistants 
and other health care providers who have State certification.'' PHI and 
the AFL-CIO urged the Department to state that personal care aides and 
home health aides are not companions. PHI reasoned that personal care 
aides and home health aides are trained personnel rather than exempt 
companions because they provide medically related and personal care 
tasks that require specialized training, noting that home health aides 
are required, if paid with federal funds, to receive at least 75 hours 
of initial training, including at least 16 hours of supervised 
practical training, and 12 hours per year of continuing training. NAMD, 
on the other hand, wrote that unlicensed direct care workers such as 
home health aides and personal care aides should not be treated in the 
same manner as registered or licensed practical nurses.
    The Department also received comments regarding specific medical 
services. Some commenters wrote that particular tasks should fall 
outside the definition of companionship services. For example, AFSCME 
believed that ``treating bed sores and monitoring physical 
manifestations of health conditions like diabetes or seizure 
disorders'' are ``medical or quasi-medical services'' that should be 
excluded from the definition of companionship services. Women's 
Employment Rights Clinic urged the Department to add toileting and 
bathing to the medically related tasks named in Sec.  552.6(d).
    Other commenters wrote that certain tasks should fall within the 
definition of companionship services. For example, BrightStar 
franchisees wrote that because ``specialized medical training is not 
necessary to take an individual's temperature with a regular home 
thermometer, or to provide them with hand lotion for `routine skin 
care,' or to go on walks or do exercises together as recommended by a 
physical therapist,'' those tasks should not be excluded from 
companionship services. See also ANCOR (suggesting that these tasks be 
considered part of intimate personal care activities in proposed Sec.  
552.6(b)). NASDDDS wrote that tasks including wound care, injections, 
blood pressure testing, and turning and repositioning are routinely 
performed by family members and friends and thus are not necessarily 
associated with the type of professional caregiving that should be 
covered by the FLSA. The Oregon Department of Human Services, without 
providing specifics, recommended that the types of personal and medical 
services that a direct care worker may perform while still qualifying 
for the companionship services exemption be expanded.
    The Department also received comments regarding the tasks it had 
identified as intimate personal care services rather than medically 
related services. For example, ANCOR and Pennsylvania Advocacy and 
Resources for Autism and Intellectual Disabilities stated that 
reminding the consumer of medical appointments or a predetermined 
medicinal schedule should be part of fellowship and protection in 
proposed Sec.  552.6(a) because these duties are not ``intimate 
personal care services'' described in proposed Sec.  552.6(b). AFSCME 
suggested that the Final Rule distinguish ``between infrequent 
reminders provided by a person engaged in fellowship or protection and 
those duties of a more medical nature required to serve the infirm and 
provided by vocational home care workers.'' AARP and Connecticut 
Association for Home Care & Hospice, among others, stated that applying 
a bandage to a minor wound and assisting with taking over-the-counter 
medication should be part of companionship services.
    Finally, NRCPDS requested clarification regarding whether an agency 
administering a consumer-directed program may require a companion to 
undergo first aid or cardiopulmonary resuscitation (CPR) training 
without jeopardizing the applicability of the exemption, urging the 
Department to explain that training requirements that are limited and 
generally non-medical in nature should not disqualify a worker from the 
companionship services exemption.
    The Department continues to believe it is crucial to exclude from 
companionship services the provision of services that are medical in 
nature because the individuals who perform those services are doing 
work that is far beyond the scope of ``elder sitting.'' In light of the 
comments received, however, the Department has not adopted the 
regulatory text as proposed. Instead, Sec.  552.6(d) now states: ``The 
term `companionship services' does not include the performance of 
medically related services provided for the person. The determination 
of whether services are medically related is based on whether the 
services typically require and are performed by trained personnel, such 
as registered nurses, licensed practical nurses, or certified nursing 
assistants; the determination is not based on the actual training or 
occupational title of the individual performing the services.'' The 
Final Rule thus makes two substantive changes to the current rule's 
treatment of trained personnel, which excludes from companionship 
services those ``services relating to the care and protection of the 
aged or infirm which require and are performed by trained personnel, 
such as a registered or practical nurse.'' 29 CFR 552.6. First, the 
Final Rule adds certified nursing assistants as an example of ``trained 
personnel'' who perform medically related services. Second, the Final 
Rule clarifies that whether the individual who performs medical tasks 
received training is irrelevant to the determination of whether the 
tasks are medically related.\8\
---------------------------------------------------------------------------

    \8\ The Final Rule also makes two non-substantive changes to the 
current rule. First, it refers to ``licensed practical nurses'' 
instead of ``practical nurse[s].'' (The term ``registered nurses'' 
is identical to that used in the current rule.) This modification is 
meant only to update the regulation to use the more commonly used 
title for the occupation. Second, unlike the current and proposed 
rules, the Final Rule does not include a sentence stating that 
medical care performed in or about a private home, though not 
companionship services, is nevertheless within the category of 
domestic service employment. See 29 CFR 552.6; 76 FR 81244. Such 
work plainly falls within the definition of domestic services 
employment set out in Sec.  552.3, and nurses, home health aides, 
and personal care aides are included in that provision's list of 
employees whose work may constitute domestic service employment. The 
Department has therefore determined that a sentence reiterating the 
point was redundant and thus unnecessary. This deviation from the 
current rule and proposed regulatory text is not meant to indicate 
that the Department believes the statements were incorrect or that 
the Department has changed its position on this point.
---------------------------------------------------------------------------

    The Department is revising Sec.  552.6(d) differently than proposed 
in the NPRM because it believes an explanation of what constitutes 
medically related services is simpler and easier for the regulated 
community to understand when framed by occupation than when described 
with a list of tasks. The comments received in response to the proposal 
highlight that direct care workers perform numerous tasks that that 
fall on both sides of the line between medical care and other services 
that fall within the meaning of ``care'' as described in Sec.  
552.6(b). The diversity of opinions commenters expressed regarding 
which tasks should be part of companionship services and which

[[Page 60471]]

should not fall within the definition of that term revealed that an 
illustrative list of medically related services would not provide 
clarity to the regulated community. And as any list of such services 
would necessarily be illustrative; it would be nearly impossible, as 
well as beyond the scope of the Department's expertise, to name or 
describe all medically related services.
    The Department believes that the alternative approach of defining 
medically related services outside the definition of companionship 
services as those that should be and typically are performed by workers 
who have completed specialized training offers better guidance to the 
regulated community. Naming a small number of occupations to illustrate 
the general sets of duties in question is simpler and more concise than 
referring to various particular medical tasks. Furthermore, the 
regulation that has been in place since 1974 used this approach, so the 
regulated community is already familiar with it. The more significant 
deviation from the existing text contained in the proposed rule was not 
necessary to achieve the Department's goal of ensuring that all direct 
care workers who perform medically related services that constitute 
work other than companionship services are provided the protections of 
the FLSA.
    The decision to add certified nursing assistants (CNAs) to the list 
of examples of ``trained personnel'' is based on the legislative 
history of section 13(a)(15) of the Act as well as the training and 
work of CNAs. The House and Senate Reports addressing the 1974 
amendments state that ``it is not intended that trained personnel such 
as nurses, whether registered or practical, shall be excluded'' from 
the protections of the FLSA under the companionship services exemption. 
House Report No. 93-913, p. 36; Senate Report No. 93-690, p. 20. The 
Department's current regulations are modeled on this language and 
reflect that without doubt, registered nurses and licensed practical 
nurses working in private homes do not provide companionship services. 
But Congress did not mean this list to be exclusive; the Reports say 
that trained personnel ``such as'' nurses are not exempt from the FLSA. 
Id. It is plain from these words and the surrounding language in the 
House and Senate Reports that ``trained personnel'' are a category of 
those ``employees whose vocation is domestic service'' and thus are not 
exempt from the FLSA's protections. Id. Therefore, the Department's 
expressly delegated authority to define companionship services includes 
the ability to exclude from the term's meaning medically related 
occupations or other medically related work beyond, to a reasonable 
extent, those named in the Reports.
    Based on the training and duties of CNAs, the Department believes 
CNAs are properly considered outside the scope of the companionship 
services exemption. In 1987, Congress established federal requirements 
for certification of nursing assistants,\9\ and many states have 
requirements that exceed these federal minimums.\10\ Specifically, by 
federal law, CNAs (referred to in federal regulations as ``nurse 
aide[s]'') must receive at least 75 hours of training, including a 
minimum of 16 hours of clinical training, 42 CFR 483.152(a), and as of 
2009, thirty states mandated between 80 to 180 hours of training.\11\ 
The training curriculum for CNAs must include, among other things, 
``basic nursing skills'' (e.g., taking and recording vital signs), 
``personal care skills'' (e.g., skin care, transfers, positioning, and 
turning), and ``basic restorative skills'' (e.g., maintenance of range 
of motion, care and use of prosthetic and orthotic devices). 42 CFR 
483.152(b). In addition, all CNAs must pass a competency examination 
that includes a written or oral examination and skills demonstration. 
42 CFR 483.154. Each state must maintain a registry of CNAs that 
contains the names of the individuals who have fulfilled these 
requirements. 42 CFR 483.156. The standardization of the CNA training 
curriculum, the competency exam requirement, and the existence of state 
registries tracking and confirming certification are all evidence of 
the professionalization of this category of workers. It is the 
Department's view that CNAs are the sort of ``trained personnel'' who 
provide direct care services as a vocation and thus are entitled to the 
protections of the FLSA.\12\
---------------------------------------------------------------------------

    \9\ Nursing Home Reform Act, Subtitle C of Title IV of the 
Omnibus Budget Reconciliation Act of 1987, Public Law 11-203, Sec.  
4201-4214. http://assets.aarp.org/rgcenter/il/2006_08_cna.pdf.
    \10\ http://phinational.org/sites/phinational.org/files/clearinghouse/state-nurse-aide-training-requirements-2009.pdf.
    \11\ Id.
    \12\ This change to the regulation makes obsolete but does not 
conflict with a court opinion holding that CNAs were not 
categorically excluded from the companionship services exemption 
under the current regulation. Specifically, in McCune v. Oregon 
Senior Services Division, 894 F.2d 1107 (9th Cir. 1990), the Ninth 
Circuit held--based on its reading of the current regulation-- that 
CNAs were not the type of ``trained personnel'' who provide services 
that are not companionship services because the training for CNAs 
was not comparable to that required for RNs or LPNs. Id. at 1110-11. 
The Final Rule now makes clear, for the reasons explained, that the 
amount and type of training CNAs must receive is sufficiently 
significant to merit treatment as providing medically related, 
rather than companionship, services.
---------------------------------------------------------------------------

    Furthermore, CNAs perform many tasks that are indisputably medical 
services, which constitute the sort of professional, skilled duties 
that are outside the scope of companionship services. Although the 
particular duties of CNAs vary by state, CNAs' core duties include 
administering medications or treatments, applying clean dressings, 
observing patients to detect symptoms that may require medical 
attention, and recording vital signs,\13\ and typical additional duties 
include administering medications or treatments such as 
catheterizations, enemas, suppositories, and massages as directed by a 
physician or a registered nurse; turning and repositioning bedridden 
patients; and helping patients who are paralyzed or have restricted 
mobility perform exercises.\14\ Additionally, CNAs often use equipment 
such as blood pressure units, medical thermometers, stethoscopes, 
bladder ultrasounds, glucose monitors, and urinary catheterization 
kits. It is the Department's view that these tasks constitute the sort 
of work that falls appropriately within FLSA protection.
---------------------------------------------------------------------------

    \13\ O'NET, SOC 31-1014.00 (2012), http://www.onetonline.org/link/summary/31-1014.00.
    \14\ See, e.g., http://www.maine.gov/boardofnursing/OLD%20WEBSITE/CNA%20BAsic%20Curriculum%2010-2008.pdf; https://www.flrules.org/gateway/ruleno.asp?id=64B9-15.002; http://www.in.gov/isdh/files/rescare.pdf; http://www.dphhs.mt.gov/cna/SkillsChecklist.pdf; http://www.utahcna.com/forms/UTcandidatehandbook.pdf; http://www.oregon.gov/OSBN/pdfs/publications/cnabooklet.pdf.
---------------------------------------------------------------------------

    Many of the duties of today's CNAs are similar to, or even more 
technical than, tasks LPNs performed in the 1970s, when Congress 
created the companionship services exemption with the explicit notion 
that LPNs were outside its scope. At that time, LPNs took and recorded 
temperature and blood pressure, changed dressings, administered 
prescribed medications, and helped with bathing or other personal 
hygiene; in private homes, they often assisted with meal preparation 
and facilitated comfort in addition to providing nursing care.\15\ In 
contrast to today's CNAs, in the 1970s, ``nursing aides'' did not 
receive pre-employment training and did not provide services that 
required the technical training nurses received.\16\ This shift in the 
field of nursing provides additional support for the Department's 
conclusion that

[[Page 60472]]

Congress's original intent in creating the companionship services 
exemption is best fulfilled by adding CNAs to the illustrative list of 
trained personnel.
---------------------------------------------------------------------------

    \15\ U.S. Department of Labor, Bureau of Labor Statistics, 
Occupational Outlook Handbook, 1974-75 Edition (1974).
    \16\ Id.
---------------------------------------------------------------------------

    The Department does not accept the suggestion of some commenters 
that it add home health aides (HHAs) and personal care aides (PCAs) to 
its illustrative list of trained personnel. The work of practitioners 
of those occupations does not necessarily include medically related 
services. Although Federal regulations require that HHAs complete a 
minimum of 75 hours of training and must pass a competency evaluation, 
these requirements are distinguishable from those for CNAs: the topics 
the training must address are more limited than those CNAs must study, 
the evaluation requirements are less stringent than for CNAs, and 
states need not maintain registries of HHAs. Compare 42 CFR 484.36(a), 
(b) with 42 CFR 483.152(a), (b); 42 CFR 483.156. PCAs are not subject 
to any federal standards for training and certification, nor are there 
state registries of PCAs. In addition, one of the core duties of an HHA 
is to ``entertain, converse with, or read aloud to patients to keep 
them mentally healthy and alert,'' \17\ and one of the core duties of a 
personal care aide is to provide companionship.\18\ Other duties of 
HHAs and PCAs often include grooming, dressing, and meal preparation. 
Therefore, HHAs and PCAs typically do not have the medical training 
CNAs receive, those titles are not associated with an official 
licensing system that allows their clear identification as trained 
personnel, and any particular HHA or PCA may perform only fellowship 
and protection and assistance with ADLs and IADLs. If in the future the 
same sort of professionalization that has occurred in the nursing 
assistance field extends to HHAs or PCAs such that either or both of 
those occupations require the training and perform the duties of CNAs 
today, or if some future category of worker arises that performs such 
skilled duties, however, it is the Department's intent that such fields 
could properly be considered ``trained personnel.''
---------------------------------------------------------------------------

    \17\ O'NET, SOC 31-1011.00, http://www.onetonline.org/link/details/31-1011.00.
    \18\ O'NET, SOC 39-9021.00, http://www.onetonline.org/link/details/39-9021.00.
---------------------------------------------------------------------------

    The Department wishes to note two important caveats regarding its 
decision not to include HHAs or PCAs in its list of trained personnel. 
First, the list of occupations in the regulatory text is not exclusive. 
If a state or employer refers to a direct care worker by a title other 
than RN, LPN, or CNA, but his or her training requirements and services 
performed are roughly equivalent to or exceed those of any of these 
occupations, that worker does not qualify for the companionship 
services exemption. For example, according to PHI, twelve states 
require HHAs to be trained and credentialed as CNAs. Where a worker is 
a CNA and provides medically related services, regardless of any other 
job title he or she may hold, he or she is excluded from the 
companionship services exemption. See 29 CFR 541.2; FOH 22a04; Wage and 
Hour Fact Sheet 17A: Exemption for Executive, Administrative, 
Professional, Computer, and Outside Sales Employees Under the Fair 
Labor Standards Act (all explaining that job titles do not determine 
exempt status under the FLSA). Second, as explained below, any HHA or 
PCA who performs medically related services does not qualify for the 
companionship services exemption. Based on the Department's 
understanding of the typical duties of these workers, the Department 
believes that many HHAs will for this reason not be subject to the 
exemption and therefore will be entitled to the protections of the 
FLSA. Of course, in addition, any HHA or PCA who is engaged in the 
provision of care during more than 20 percent of his or her hours 
worked for a particular consumer in a given workweek also does not 
qualify for the companionship services exemption. Furthermore, as 
explained in the section of this Final Rule regarding Sec.  552.109, 
any third party that employs an HHA or PCA who works in a private home 
will not be permitted to claim the companionship services exemption. 
Given these limitations on the companionship services exemption, and 
the services HHAs and PCAs often provide, it is likely that almost all 
HHAs and many PCAs will not be exempt under the Act. Because almost all 
of these workers are providing home care as a vocation, the Department 
believes this is the appropriate result under the statute.
    The second difference between the current and newly adopted 
regulatory text--that medically related services are those that 
typically require training, not only those performed by a person who 
actually has the training--is primarily based on the FLSA's fundamental 
premise that the tasks performed rather than the job title or 
credentials of the person performing them determines coverage under the 
Act. As explained elsewhere in this Final Rule, in enacting the 1974 
amendments, Congress intended to exclude from FLSA coverage the work of 
individuals whose services did not constitute a vocation; it did not 
exclude domestic service employees who happened not to have training. 
The Department believes that any direct care worker who performs 
medical tasks that nurses or nursing assistants are trained to perform 
is the sort of employee whose work should be compensated pursuant to 
the requirements of the FLSA.\19\
---------------------------------------------------------------------------

    \19\ The Department notes that the Final Rule's instruction not 
to look to the actual training of the person providing services 
calls for a shift in the way courts approach challenges to the 
assertion of the companionship services exemption. Courts have read 
the Department's current regulation to mean that direct care workers 
without the extensive training RNs and LPNs receive are not excluded 
from the exemption regardless of the services they provide. See, 
e.g., Cox v. Acme Health Servs., 55 F.3d 1304, 1310 (7th Cir. 1995); 
McCune v. Or. Senior Servs. Div., 894 F.2d 1107, 1110-11 (9th Cir. 
1990). The Final Rule, which for the reasons explained reflects a 
reasonable reading of the statutory provision the Department has 
express authority to interpret, calls instead for a focus on the 
tasks performed.
---------------------------------------------------------------------------

    Medically related services are not within the scope of 
companionship services whether the person performing them is 
registered, licensed, or certified to do so or not. Procedures 
performed may be invasive, sterile, or otherwise require the exercise 
of medical judgment; examples include but are not limited to catheter 
care, turning and repositioning, ostomy care, tube feeding, treating 
bruising or bedsores, and physical therapy. Regardless of actual 
training, these tasks require skill and effort far beyond what is 
called for by the provision of fellowship and protection, such as 
activities like reading, walks, and playing cards. They are also 
outside the category of assistance with instrumental activities of 
daily living (IADLs), which may fall under the provision of care 
described in Sec.  522.6(b). The text of Sec.  552.6(b) notes that 
IADLs include assisting a consumer with the physical taking of 
medications or arranging a consumer's medical appointments; minor 
health-related tasks such as helping a consumer put in eye drops, 
applying a band-aid to a minor cut, or calling a doctor's office to 
schedule an appointment are distinguishable from the medically related 
services RNs, LPNs, and CNAs are trained to and do perform. 
Furthermore, focusing on the tasks assigned to, rather than the actual 
training or occupational title of, the direct care worker avoids 
disincentivizing employers from hiring workers who are not adequately 
prepared for the duties they are assigned in order to avoid minimum 
wage and overtime requirements. This outcome, which becomes 
increasingly significant as services shift from institutions to

[[Page 60473]]

homes, is not beneficial to workers or to consumers.
    Finally, the Department notes that the purpose of Sec.  552.6(d) is 
to exclude from the companionship services exemption those direct care 
workers who perform medically related tasks on more than isolated, 
emergency occasions. A direct care worker who provides companionship 
services but reacts to an unanticipated, urgent situation by, for 
example, performing cardiopulmonary resuscitation (CPR), performing the 
Heimlich maneuver, or using an epinephrine auto-injector is not 
excluded from the exemption. Furthermore, in response to NRCPDS's 
question regarding first aid or CPR training, the Department notes that 
such training is not equivalent to that which an RN, LPN, or CNA 
receives, and therefore a worker who has been taught these skills would 
not automatically be excluded from the companionship services 
exemption.
C. Section 552.102 (Live-in Domestic Service Employees) and Section 
552.110 (Recordkeeping Requirements)
Live-in Domestic Service Employees
    Section 13(b)(21) of the FLSA exempts from the overtime provision 
``any employee who is employed in domestic service in a household and 
who resides in such household.'' 29 U.S.C. 213(b)(21). The Department's 
current regulation at Sec.  552.102(a) provides that domestic service 
employees who reside in the household where they are employed are not 
entitled to overtime compensation. Section 552.102(a) also provides 
that domestic service workers who reside in the household of their 
employer are entitled to at least the minimum wage for all hours worked 
(unless they meet the companionship services exemption). Domestic 
service employees who reside in the household where they are employed 
are referred to as ``live-in domestic service employees.''
    Under Sec.  552.102(a), the Department allows the employer and 
live-in domestic service employee to enter into a voluntary agreement 
that excludes from hours worked the amount of the employee's sleeping 
time, meal time and other periods of complete freedom from all duties 
when the employee may either leave the premises or stay on the premises 
for purely personal pursuits.\20\ In order for periods of free time 
(other than those relating to meals and sleeping) to be excluded from 
hours worked, the periods must be of sufficient duration to enable the 
employee to make effective use of the time. Sec.  552.102(a). Section 
552.102(a) makes clear that if the sleep time, meal time, or other 
periods of free time are interrupted by a call to duty, the 
interruption must be counted as hours worked.
---------------------------------------------------------------------------

    \20\ This requirement is nearly identical to the requirement 
found in Sec.  785.23.
---------------------------------------------------------------------------

    The Department allows for such an agreement because it recognizes 
that live-in employees are typically not working all of the time that 
they are on the premises and that, ordinarily, the employees may engage 
in normal private pursuits, such as sleeping, eating, and other periods 
of time when they are completely relieved from duty. See also Sec.  
785.23. However, current Sec.  552.102(a) makes clear that live-in 
domestic service employees must be paid for all hours worked even when 
an agreement excludes certain hours. As an example, assume an employer 
and live-in domestic service employee enter into a voluntary agreement 
that excludes from hours worked the time between 11:00 p.m. and 7:00 
a.m. for the purposes of sleeping. If the employee is required to 
perform any work during those hours, for example, the employee is 
required to assist the individual with going to the bathroom, or is 
required to periodically turn or reposition the individual, the 
employer is then required to pay the employee for the time spent 
performing work activities despite an agreement that typically 
designates those hours as non-working time. The proposed rule did 
nothing to change this obligation.
    In the NPRM, the Department proposed changes to the recordkeeping 
requirement for live-in domestic service employees. Under proposed 
Sec.  552.102(b), the Department would no longer allow the employer of 
a live-in domestic employee to use the agreement as the basis to 
establish the actual hours of work in lieu of maintaining an actual 
record of such hours. Proposed Sec.  552.102(b) would require the 
parties to enter into a new agreement whenever there is a significant 
deviation from the existing agreement. Additionally, in the proposed 
changes to Sec.  552.110(b), the Department would no longer permit an 
employer to maintain a copy of the agreement as a substitution for 
recording actual hours worked by the live-in domestic service employee. 
Instead, the Department would require the employer to maintain a copy 
of the agreement as well as records showing the exact number of hours 
worked by the live-in domestic service employees and pay employees for 
all hours actually worked. As more fully explained in the Recordkeeping 
Requirement section below, the Department is adopting the proposed 
recordkeeping requirements with minor modifications, as discussed in 
the preamble to Sec. Sec.  552.102, 552.110.

Live-in Situations

    The Department received several comments requesting clarification 
on the definition of a live-in domestic service employee. For example, 
Women's Employment Rights Clinic stated that it is critical that the 
regulations include a definition of a live-in domestic service employee 
because live-in domestic service workers remain exempt from overtime, 
and that the Department should provide clarification of the definition 
of a ``live-in'' so households and workers clearly understand when 
overtime must be paid. Women's Employment Rights Clinic suggested that 
the Department adopt the following definition: ``A live-in employee is 
one who (1) resides on the employer's premises on a permanent basis or 
for extended periods of time and (2) for whom the employer makes 
adequate lodging available seven days per week.'' Women's Employment 
Rights Clinic stated that this definition will help draw a needed 
distinction between workers on several consecutive 24-hour shifts and 
live-in employees, as well as a distinction between short-term 
assignments and assignments for extended periods of time that might 
appropriately be deemed live-in situations. The Legal Aid Society of NY 
also requested that the Department clarify the definition of live-in 
domestic service employee and make clear that the definition does not 
include a worker who spends only one night per week at a residence or 
must pay any part of the rent or mortgage or other expenses for upkeep 
of another residence.
    In addition, the Department received comments questioning the 
continued use and viability of the overtime exemption for live-in 
domestic service employees. Students from the Georgetown University Law 
Center stated that the Department should eliminate the live-in domestic 
service employee exemption, suggesting that it is directly contrary to 
the Department's stated goals in the NPRM. The students urged the 
Department to provide overtime protections to live-in employees. On the 
other hand, one individual who hires direct care workers to provide 
services for his father requested that the Department not eliminate the 
live-in domestic service employee exemption.
    Because the live-in domestic service employee exemption is 
statutorily created, the Department cannot eliminate the exemption as 
suggested by Georgetown Law students. Only Congress could eliminate the 
overtime

[[Page 60474]]

exemption for such workers. Moreover, the Department did not propose 
any changes to the definition of live-in domestic service employee or 
otherwise discuss the requirements for meeting the live-in domestic 
service exemption in the NPRM. It is the Department's intention to 
continue to apply its existing definition of live-in domestic service 
employees. Under the Department's existing regulations and 
interpretations, an employee will be considered to be a live-in 
domestic service employee under Sec.  552.102 if the employee: (1) 
Meets the definition of domestic service employment under Sec.  552.3 
and provides services in a ``private home'' pursuant to Sec.  552.101; 
and (2) resides on his or her employer's premises on a ``permanent 
basis'' or for ``extended periods of time.'' See also Sec.  785.23; FOH 
Sec.  31b20.
    Employees who work and sleep on the employer's premises seven days 
per week and therefore have no home of their own other than the one 
provided by the employer under the employment agreement are considered 
to ``permanently reside'' on the employer's premises. See Wage and Hour 
Opinion Letter FLSA-2004-7 (July 27, 2004). Further, in accordance with 
the Department's existing policy, employees who work and sleep on the 
employer's premises for five days a week (120 hours or more) are 
considered to reside on the employer's premises for ``extended periods 
of time.'' See FOH Sec.  31b20. If less than 120 hours per week is 
spent working and sleeping on the employer's premises, five consecutive 
days or nights would also qualify as residing on the premises for 
extended periods of time. Id. For example, employees who reside on the 
employer's premises five consecutive days from 9:00 a.m. Monday until 
5:00 p.m. Friday (sleeping four straight nights on the premises) would 
be considered to reside on the employer's premises for an extended 
period of time. Similarly, employees who reside on an employer's 
premises five consecutive nights from 9:00 p.m. Monday until 9:00 a.m. 
Saturday would also be considered to reside on their employer's 
premises for an extended period of time. Id.
    Employees who work only temporarily, for example, for only a short 
period of time such as two weeks, for the given household are not 
considered live-in domestic service workers, because residing on the 
premises of such household implies more than temporary activity. In 
addition, employees who work 24-hour shifts but are not residing on the 
employer's premises ``permanently'' or for ``extended periods of time'' 
as defined above are not considered live-in domestic service workers 
and, thus, the employers are not entitled to the overtime exemption. 
The Department received many comments from employers and advocacy 
groups that serve persons with disabilities that appeared to confuse 
the issue of ``live-in'' care with 24-hour care. See, e.g., Bureau of 
TennCare, NASDDDS, Cena Hampden, Scott Witt, and Gary Webb. For 
example, one individual suggested that her mother received ``live-in'' 
care when the employee worked only a 16-hour shift. The Department 
received several comments noting that the home care industry's use of 
the term ``live-in'' is different than the Department's use. 
Specifically, John Gilliland Law Firm stated that ``the term `live-in' 
is used differently within the home care industry than how it is used 
by the Wage and Hour Division.'' The law firm noted that the home care 
industry uses the term ``live-in'' to refer to 24-hour assignments, 
often several consecutive assignments, where the client's location is 
not the employee's residence, and the Wage and Hour Division refers to 
``live-in'' employees as those residing on the client's premises. 
Similarly, Women's Employment Rights Clinic noted that, based on their 
experience representing home care workers, employees who work several 
consecutive 24-hour shifts are often confused with live-in employees.
    The fact that an individual may need 24-hour care does not make 
every employee who provides services to that individual a live-in 
domestic service employee. Rather, only those employees who are 
providing domestic services in a private home and are residing on the 
employer's premises ``permanently'' or for ``extended periods of time'' 
are considered live-in domestic service employees exempt from the 
overtime requirements of the FLSA. Employees who work 24-hour shifts 
but are not live-in domestic service employees must be paid at least 
minimum wage and overtime for all hours worked unless they are 
otherwise exempt under the companionship services exemption. (See Hours 
Worked section for a discussion of when sleep time is not hours 
worked.)
    The Department received a few comments that argued that allowing 
employers to maintain an agreement under Sec.  552.102(a) conflicts 
with the simultaneous requirement that an employer must maintain 
precise records of hours worked under proposed Sec.  552.102(b). For 
example, The Workplace Project stated that allowing an agreement of 
hours worked will create confusion and will undermine the requirement 
that employers track actual hours worked. As a result, The Workplace 
Project recommended that the Department eliminate Sec.  552.102(a) that 
allows employers of live-in domestic service workers to enter into an 
agreement. On the other hand, one individual requested that the 
Department continue to allow employers and employees to use agreements 
for live-in domestic service employees. California Foundation for 
Independent Living Centers (CFILC) also suggested that the Department 
should allow employers and employees to ``enter into mutually agreeable 
and non-coercive employment agreements to work compensated hours at a 
set hourly wage or monthly salary without triggering overtime 
compensation.'' CFILC stated that the agreements could guarantee the 
live-in domestic service employee breaks, meal periods, and 8 hours of 
uninterrupted sleep, and the agreements could be renegotiated to 
account for any changes that might arise.
    The Department disagrees with the comments that suggested that 
continuing to allow employers and live-in domestic service employees to 
enter into mutually agreeable agreements is inconsistent with the 
recordkeeping requirements for live-in domestic service employees. The 
Department's regulation allows the employer and live-in employee to 
enter into a voluntary agreement that excludes from hours worked the 
amount of the employee's sleeping time, meal time and other periods of 
complete freedom from all duties when the employee may either leave the 
premises or stay on the premises for purely personal pursuits. See 
Sec. Sec.  552.102(a), 785.23. The Department's regulation also allows 
employers and live-in employees to enter into such voluntary agreements 
(see, infra, Hours Worked section) because the Department recognizes 
that live-in employees are not necessarily working all the time that 
they are on the employer's premises. When an employee resides on the 
employer's premises it is in the employee's and the employer's interest 
to reach an agreement on the employee's work schedule so each may 
understand when the employee is expected to be working and when the 
employee is not expected to be working and is completely relieved from 
duty. The Department will accept any reasonable agreement of the 
parties, taking into consideration all of the pertinent facts. Despite 
allowing for voluntary agreements, however, the Department has always 
required that employers pay live-in domestic service

[[Page 60475]]

employees at least the minimum wage for all hours worked and that when 
sleep time, bona fide meal periods, and bona fide off-duty time are 
interrupted then employees must be compensated for such time regardless 
of whether an agreement typically designates those hours as non-working 
time. Under the new recordkeeping requirements for live-in domestic 
service employees (more fully addressed below), the Department simply 
requires the employer to maintain a copy of the agreement as well as 
records showing the exact number of hours worked by live-in domestic 
service employees and pay live-in domestic service employees for all 
hours actually worked. The requirement to record hours actually worked 
is no different than that required for other employers under the FLSA.
    The Department also received comments reflecting the belief that 
the proposed rule required live-in employees to be paid for all 24 
hours, or comments that were otherwise confused about the pay 
requirements for live-in and 24-hour shift workers. For example, a 
Senior Helper franchise owner believed that the Department's proposed 
rule required that domestic service employees scheduled for 24-hour 
shifts or deemed live-ins must be paid for the entire 24-hour period 
even when the employee is not working. The owner suggested that such an 
outcome would be unfair and that the rule should be redrafted and 
modeled after New Jersey law, which, based upon his description, 
requires that live-in employees be compensated for at least eight hours 
each day when the hours worked are irregular and intermittent. Another 
employer also believed that the Department's proposed rule required 
that agencies pay live-in employees for all 24 hours that they are on 
the clients' premises even if the employees receive six to eight hours 
of uninterrupted sleep. This employer suggested that this would double 
the cost to the clients. Several employers suggested that employees who 
live in or work 24-hour shifts should not be paid overtime because they 
are not working all the time. In addition, a few employers suggested 
that live-in or sleep-over employees should not be paid based on an 
hourly rate; rather, the employer should be allowed to pay the employee 
based on a flat overnight rate.
    The Department's existing regulations regarding when employees must 
be compensated for sleep time, meal periods, or off-duty time are 
discussed in the Hours Worked section of this Final Rule. The 
definition of hours worked and the basis for taking any deductions 
outlined in that section apply to live-in domestic service employees 
and must be followed. Generally, where an employee resides on the 
employer's premises permanently or for extended periods of time, all of 
the time spent on the premises is not necessarily working time. The 
Department recognizes that such an employee may engage in normal 
private pursuits and thus have enough time for eating, sleeping, 
entertaining, and other periods of complete freedom from work duties. 
For a live-in domestic service employee, such as a live-in roommate, 
the employer and employee may voluntarily agree to exclude sleep time 
of not more than eight hours if (1) adequate sleeping facilities are 
furnished by the employer, and (2) the employee's time spent sleeping 
is uninterrupted. Sec.  785.22-.23. In addition, meal periods may be 
excluded if the employee is completely relieved of duty for the purpose 
of eating a meal, and off-duty periods may be excluded if the employee 
is completely relieved from duty and is free to use the time 
effectively for his or her own purposes. Sec. Sec.  785.16, 785.19. 
However, an employee who is required to remain on call on the 
employer's premises or so close thereto that he or she cannot use the 
time effectively for his or her own purposes is considered to be 
working while on call and must be compensated for such time. Sec.  
785.17.
    Concerning whether employers may pay an hourly rate or a flat 
overnight or daily rate to a live-in employee, the Department notes 
that the FLSA is flexible regarding the type of rate paid and only 
requires that employers pay the live-in domestic service employee at 
least the minimum wage for all hours worked, in accordance with our 
longstanding rules. For example, an employer may have an agreement to 
pay a live-in employee $125 per day, which exceeds the minimum wage 
required for 16 hours of work (compensable time), if the employee 
receives eight hours of uninterrupted sleep time off.
    The Department also received several comments requesting 
clarification on the application and impact of the companionship 
services and live-in domestic service employee exemptions to shared 
living or roommate arrangements. The Department received many comments 
from advocacy groups that represent persons with disabilities, such as 
the NASDDDS, and third party employers, such as Community Vision, 
requesting that the Department clarify the wage and hour requirements 
on live-in arrangements provided under Medicaid-funded Home and 
Community-Based Services (HCBS) programs.
    Specifically, NASDDDS described shared living services as ``an 
arrangement in which an individual, a couple or a family in the 
community share life's experiences with a person with a disability.'' 
Shared living arrangements may also be known as mentor, host family or 
family home, foster care or family care, supported living, paid 
roommate, housemate, and life sharing. Under a shared living program, 
consumers typically live in the home of an individual, couple, or 
family where they will receive care and support services based on their 
individual needs. NASDDDS stated that shared living providers receive 
compensation typically from a third party provider agency or directly 
from the state's Medicaid program. NASDDDS requested that the 
Department conclude that shared living providers meet the definition of 
performing companionship services under the proposed rule and thus that 
those providers are not entitled to minimum wage and overtime 
compensation.
    NASDDDS also discussed Medicaid services described as ``host 
families.'' NASDDDS described a ``host family'' as a family that 
accepts the responsibilities for caring for one to three individuals 
with developmental disabilities. The host family helps the individual 
participate in family and community activities, and ensures that the 
individual's health and medical needs are met. Such services may 
include assistance with basic personal care and grooming, including 
bathing and toileting; assistance with administering medication or 
performing other health care activities; assistance with housekeeping 
and personal laundry; etc. NASDDDS noted that the provider typically 
must comply with state licensure or certification regulations. NASDDDS 
further noted that the provider is usually paid a flat monthly rate to 
meet the individual's support needs and the payment will typically be 
based on the intensity and difficulty of care. The provider may also be 
paid for room and board. NASDDDS suggested that the Department work 
with CMS and stakeholders to develop a greater understanding of the 
programs and financial structures for Medicaid HCBS waiver programs. 
One individual suggested that such living arrangements should fall 
under the Department's foster care exemption or should be exempt from 
the requirements under Sec.  785.23.
    Moreover, Arkansas Department of Human Services noted that many

[[Page 60476]]

individuals who receive supported living services under HCBS waivers 
rely on roommates or live-in scenarios where the individuals receive 
services in their own home or in that of a family member. Community 
Vision and other third party providers described live-in roommates as 
``a major component of the support system of an individual with 
significant disabilities who live independently in their own home.'' 
Home Care & Hospice stated that live-in roommate arrangements include 
college students with Medicaid paid ``roommates'' who also attend 
college or individuals who work and take a caregiver to work with them, 
but who need an overnight live-in roommate to address intermittent 
needs. Home Care & Hospice was concerned that the Department's proposed 
regulations would put these programs at risk. Community Vision stated 
that live-in roommates are available in the rare case of an emergency 
or for infrequent support needs and that these individuals receive free 
or reduced rent and utilities in exchange for being a roommate who on 
occasion can provide support to the individual at night; the type of 
services provided by live-in roommates was not discussed. Community 
Vision requested that the exemptions from minimum wage and overtime 
continue for live-in roommates. It asserted that minimum wage and 
overtime pay would make the live-in roommates fiscally unsupportable 
for agencies and their clients, resulting in increased 
institutionalization of their clients with disabilities and a loss of 
housing for their employees.
    The Department also received several comments that discussed the 
application of the companionship services and live-in domestic service 
employee exemptions to paid family caregivers. See, e.g., Joni Fritz, 
ANCOR, and NASDDDS. Paid family caregivers are described as family 
members of an aging person or an individual with a disability who 
provide care and receive some income to provide support for their 
family member, and who--without pay--could not provide the needed 
support. See Joni Fritz. Some states have established payment systems 
under Medicaid that will pay a family member to provide intimate care 
and medically related support.\21\ AARP noted that some HCBS waiver 
programs allow the individual to hire family caregivers to provide 
services and may permit them to provide more than 40 hours of 
assistance per week, assistance that is vital to keeping their loved 
one at home and out of an institution. AARP noted that family 
caregivers frequently live with the person for whom he or she provides 
services. AARP was concerned that requiring the payment of overtime in 
these cases, merely because public authorities or fiscal intermediaries 
are involved in making these programs possible, could prevent family 
caregivers from providing more than 40 hours a week in paid care and 
impact the ability of the individual to remain at home. In addition, 
AARP noted that the situation of a family caregiver who lives with the 
person for whom they provide services is analogous to the overtime 
exemption for live-in domestic service workers. AARP suggested that the 
Department not require the payment of overtime if: (1) The individual 
is receiving HCBS under a publicly financed consumer-directed program; 
(2) a third party such as a public authority or a fiscal intermediary 
is involved; and (3) a family caregiver who lives with the consumer is 
being paid under the consumer-directed program to provide services for 
the individual.
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    \21\ In some instances a family member may also be paid for time 
spent performing some housekeeping services in addition to the 
medical and personal care services provided.
---------------------------------------------------------------------------

    It appears that under these varied shared living arrangements, the 
live-in domestic service workers are living on the same premises with 
the consumer and would easily be able to meet the ``permanently 
reside'' or ``extended periods of time'' requirements and would 
therefore be exempt from overtime requirements. There is a question, 
however, whether the consumer is receiving services in a ``private 
home.'' As the determination whether domestic services are provided in 
a private home is fact-specific and is to be made on a case-by-case 
basis, the Department cannot state categorically whether a particular 
type of living arrangement involves work performed in a private home. 
In evaluating whether a residence is a private home (see, supra, 
private home discussion), the Department considers the six factors 
identified by the Tenth Circuit in Welding as well as the other factors 
identified in Johnston, Linn, and Lott. See Wage and Hour Opinion 
Letter, FLSA 2006-13NA (June 23, 2006).
    The Department cannot address all shared living arrangements raised 
in the comments because the circumstances are different under countless 
factual scenarios. However, the Department is providing, as an example, 
the following guidance regarding how these established rules will 
likely apply under the most commonly raised shared living arrangement--
live-in roommates. In the live-in roommate arrangement, the consumers 
appear to be living in their own home and a roommate moved in to the 
consumer's home in order to provide services on an as needed basis. It 
also appears that the person receiving services owns the home or leases 
the home from an independent third party. There is nothing in the 
comments to suggest that the state or agency providing the services 
maintains the residences or otherwise provides the essentials of daily 
living, such as paying the mortgage or rent, utilities, food, and house 
wares. Rather, either the service provider pays rent or the individual 
receiving services provides free lodging as part of the remuneration 
due the live-in roommate for providing services. The cost/value of the 
services does not appear to be substantial based on the comments that 
suggested that live-in roommates provide only intermittent or 
infrequent care services. Thus, the costs of the services provided 
appear to be a small portion of the total costs of maintaining the 
living unit. In addition, there is nothing to suggest that the service 
provider uses any part of the residence for its own business purposes. 
It also appears that the consumer hires the roommate and determines who 
will live in his or her home and is free to come and go as he or she 
pleases. Therefore, live-in roommate arrangements appear to be 
performed in a private home, and thus, the live-in domestic service 
employee overtime exemption will likely be available to the individual, 
family, or household using the worker's services. Any slight change in 
the specific facts of this scenario, however, may lead to a different 
result. However, as more fully discussed in the third party employment 
section below, the live-in domestic service employee exemption will not 
be available to a third party employer of the live-in roommate. 
Moreover, to the extent the live-in roommate meets the duties test for 
the companionship services exemption as outlined above (see, supra, 
companionship services section), the companionship exemption will 
likely also be available to the individual, family, or household using 
the worker's services. The overtime exemption for a live-in domestic 
service employee is a separate exemption available even when an 
employee does not meet the Department's duties test in the 
companionship services exemption. For example, an individual, household 
or family member employing a live-in nurse or a live-in direct care 
worker who provides cooking, driving, and cleaning services for more 
than 20 percent of the weekly hours worked, may still claim the live-in 
domestic

[[Page 60477]]

service employee exemption from overtime; if there is a third party 
employer involved, however, then the third party employer would be 
responsible for overtime compensation.
    For many of the same reasons discussed above, the Department 
believes that in most circumstances a paid family caregiver is 
providing services in a private home. In the circumstances where the 
paid family caregiver lives with the consumer, the overtime exemption 
will be available to the individual, family, or household. If employed, 
jointly or solely, by a third party, the paid family caregiver would be 
entitled to overtime compensation for all hours worked over 40 from the 
third party employer subject to the analysis described later in this 
preamble discussing paid family and household caregivers. However, as 
noted above, not all time spent on the premises is necessarily 
considered hours worked and there may be circumstances where the third 
party will not be considered a joint employer of the paid family 
caregiver because the third party is not engaged in the factors that 
indicate an employer-employee relationship exists (see, infra, joint 
employment section).
    The Department recognizes that people living with disabilities 
continue to explore innovative ways of eliminating segregation and 
promoting inclusion particularly through the provision of services and 
supports in home- and community-based settings. The Department 
appreciates that a number of commenters who care about the viability of 
such arrangements raised questions and concerns about the impact of the 
proposed rule on such arrangements, and the Department supports the 
progress that has allowed elderly people and persons with disabilities 
to remain in their homes and participate in their communities. As noted 
above, in the most common scenario described by commenters, the live-in 
roommate situation, depending on all of the facts of the arrangement, 
the roommate may be exempt from the overtime compensation requirements 
under the live-in domestic service employee exemption, and, depending 
on the roommate's duties, could also qualify for the companionship 
services exemption. In either case, the longstanding FLSA hours worked 
principles would apply, and time that is not work time under those 
principles would not have to be compensated.
    The Department also recognizes that it is possible that certain 
shared living arrangements may fall within the Department's exception 
for foster care parents, provided specific criteria are met. See FOH 
Sec.  10b29. In contrast to shared living arrangements that are not 
foster care situations, individuals in foster care programs are 
typically wards of the state; the state controls where the individuals 
will live, with whom they will live, the care and services that will be 
provided, and the length of the stays. For example, in Wage and Hour 
Opinion Letter WH-298, the WHD concluded that where a husband and wife 
agree to become foster parents on a voluntary basis and take a child 
into their home to be raised as one of their own, the employer-employee 
relationship would not exist between the parents and the state where 
the payment is primarily a reimbursement of expenses for rearing the 
child. See 1974 WL 38737 (Nov. 13, 1974). Of course, the Department 
recognizes that there is a continuum of shared living arrangements and 
a factual determination with respect to FLSA coverage must be made on a 
case-by-case basis.
    As stated throughout this rule, the Department believes that the 
positions taken in the Final Rule are more consistent with the 
legislative intent of the companionship services and live-in exemptions 
and that protecting domestic service workers under the Act will help 
ensure that the home care industry attracts and retains qualified, 
professional workers that the sector will need in the future.

Recordkeeping Requirements

    In the NPRM, the Department proposed to revise the recordkeeping 
requirements applicable to live-in domestic service employees, in order 
to ensure that employers maintain an accurate record of hours worked by 
such workers and pay for all hours worked in accordance with the FLSA. 
Section 13(b)(21) of the Act provides an overtime exemption for live-in 
domestic service employees; however, such workers remain subject to the 
FLSA minimum wage protections. Current Sec.  552.102 allows the 
employer and employee to enter into an agreement that excludes from 
hours worked sleeping time, meal time, and other periods of complete 
freedom from duty when the employee may either leave the premises or 
stay on the premises for purely personal pursuits, if the time is 
sufficient to be used effectively. Paragraph 552.102(a) makes clear 
that if the free time is interrupted by a call to duty, the 
interruption must be counted as hours worked. Current Sec.  552.102(b) 
allows an employer and employee who have such an agreement to rely on 
it to establish the employee's hours of work in lieu of maintaining 
precise records of the hours actually worked. The employer is to 
maintain a copy of the agreement and indicate that the employee's work 
time generally coincides with the agreement. If there is a significant 
deviation from the agreement, a separate record should be kept or a new 
agreement should be reached.
    The Department expressed concern in the NPRM that not all hours 
worked by a live-in domestic service employee are actually captured by 
such an agreement, which may result in a minimum wage violation. The 
Department stated that the current regulations do not provide a 
sufficient basis to determine whether the employee has in fact received 
at least the minimum wage for all hours worked. Therefore, the NPRM 
proposed to revise Sec.  552.102(b) to no longer allow the employer of 
a live-in domestic service employee to use the agreement as the basis 
to establish the actual hours of work in lieu of maintaining an actual 
record of such hours. Instead, the proposal required the employer to 
keep a record of the actual hours worked. Consequently, the language 
suggesting that a separate record of hours worked be kept when there is 
a significant deviation from the agreement was proposed to be deleted, 
and proposed Sec.  552.102(b) required entering into a new written 
agreement whenever there is a significant deviation from the existing 
agreement.
    The Department also proposed to amend Sec.  552.110 with respect to 
the records that must be kept for live-in domestic service employees. 
Current Sec.  552.110(b) provides that records of actual hours worked 
are not required for live-in domestic service employees; instead, the 
employer may maintain a copy of the agreement referred to in Sec.  
552.102. It also states, however, that this more limited recordkeeping 
requirement does not apply to third party employers. No records are 
required for casual babysitters. Current paragraph 552.110(c) permits, 
when a domestic service employee works a fixed schedule, the employer 
to use the schedule that the employee normally works and either provide 
some notation that such hours were actually worked or, when more or 
less hours are actually worked, show the exact number of hours worked. 
Current Sec.  552.110(d) permits an employer to require the domestic 
service employee to record the hours worked and submit the record to 
the employer.
    Because of the concern that all hours worked are not being fully 
captured, the Department proposed in Sec.  552.110(b) to no longer 
permit an employer to maintain a copy of the agreement as a 
substitution for recording actual hours

[[Page 60478]]

worked by the live-in domestic service employee. Instead, the NPRM 
proposed that the employer maintain a copy of the agreement and 
maintain records showing the exact number of hours worked by the live-
in domestic service employee. Proposed Sec.  552.110(b) expressly 
stated that the provisions of Sec.  516.2(c), pertaining to fixed-
schedule employees, do not apply to live-in domestic service employees, 
which meant that employers would no longer be permitted to maintain a 
simplified set of records for such employees. As a result, a conforming 
change was proposed in Sec.  552.110(c), based on the Department's 
belief that the frequency of schedule changes for live-in domestic 
service employees simply makes reliance on a fixed schedule, with 
exceptions noted, too unreliable to ensure an accurate record of hours 
worked by these employees. In addition, because the proposed changes to 
third party employment in Sec.  552.109 made moot the reference in 
Sec.  552.110(b) to third party employers, it was removed from proposed 
Sec.  552.110(b). The NPRM also proposed to revise Sec.  552.110(d) to 
make clear that the employer of the live-in domestic service employee 
could not require the live-in domestic service employee to record the 
hours worked and submit the record to the employer, while employers of 
other domestic service employees could continue to require the domestic 
service employee to record and submit their record of hours worked. The 
proposal required the employer to be responsible for making, keeping, 
and preserving records of hours worked and ensuring their accuracy. 
Finally, the Department proposed to move the sentence stating that 
records are not required for casual babysitters, as defined by Sec.  
552.5, to a stand-alone paragraph at Sec.  552.110(e).
    The Department received a number of comments on the proposed 
recordkeeping requirements, discussed below. Based on comments 
indicating that the proposed change prohibiting employers from 
requiring live-in domestic service employees to record and submit their 
hours could create significant difficulties, particularly for those 
employers who have Alzheimer's disease, dementia or developmental 
disabilities, the Department modified the Final Rule to allow an 
employer to require the live-in domestic service employee to record the 
hours worked and submit the record to the employer. The Final Rule 
adopts the other changes as proposed.
    The Department also received a number of comments that stated that 
the requirement for employers to keep a record of actual hours worked 
would cause problems. For example, several employers and their 
representatives, including CAHSAH, stated that it is unlikely that 
individual employers would be aware of the requirement or be able to 
comply with it, and that it would place an undue burden on an elderly 
employer receiving services to have to comply with recordkeeping 
requirements. AARP similarly stated that consumers who are ill or have 
cognitive impairments and need live-in long-term services and supports 
may not be able to monitor a worker's hours effectively or to keep 
proper records. Therefore, while AARP stated its belief that third 
party agencies could fulfill the requirement to record hours, it sought 
an adjustment where the individual or family directly hires the 
employee; AARP suggested allowing the agreement to control unless 
deviations are noted and allowing the employer to require the employee 
to record and submit hours. Other employers also expressed concern 
about the ability of consumers with Alzheimer's disease, dementia, or 
other disabilities to track hours, and they stated their preference for 
continuing to use a predetermined schedule agreement or requiring the 
employee to track hours. See, e.g., North Shore Senior Services, Gentle 
Home Services, Harrison Enterprises, Inc., and Bright Star Healthcare 
of Baltimore. Home care companies and their representatives expressed 
concern about the additional paperwork burdens, stating that a 
household employer with a live-in domestic service worker would need to 
install a time clock, and that it would be difficult for employers to 
track sleep time versus awake time, or to track time spent taking a 
break versus helping the client. See, e.g., VNAA, Visiting Nurse 
Service of New York (VNSNY), Angels Senior Home Solutions, Connecticut 
Ass'n for Home Care & Hospice, Arizona Ass'n of Providers for People 
with Disabilities, New York State Ass'n of Health Care Providers, and 
Home Care Ass'n of NY State. They indicated that the requirement will 
be burdensome to implement, particularly when consumers wake up 
frequently during the night and need assistance, because care workers 
will have to keep records of what time the person woke up, what help 
was needed, and how long their assistance was provided. They expressed 
concern that, because live-in domestic service workers are generally 
unsupervised, their third party employers have little ability to 
monitor or audit their records of meal and sleep periods versus work 
hours to determine their accuracy. One company, Elder Bridge, believed 
that using an electronic time management system was not feasible 
because such systems cannot account for the unpredictable down time of 
employees; therefore, the company suggested that caregivers should be 
allowed to document their break time manually in their care notes. A 
trade association, Home Care Alliance of Massachusetts, stated it had 
no objection to recording the exact number of hours worked, but it 
expressed confusion about how it would know that exact number if it 
could not require live-in domestic service employees to record their 
hours (see Harrison Enterprises, Inc.). An employee agreed, believing 
that employee-based reports would be more accurate. A Georgetown 
University Law Center student commented that recording deviations from 
an agreement was no more difficult than recording every hour as it 
happened and could be more accurate.
    On the other hand, the Department received a number of comments 
that emphasized the importance of the changes in the proposed 
recordkeeping requirements for live-in domestic service workers. For 
example, National Council of La Raza stated that some care workers work 
more than 60 hours in a week, and that bolstering the recordkeeping 
requirements ``is an excellent first step in ensuring that these 
hardworking caregivers are accurately compensated for time on the 
job.'' The ACLU supported the change, stating that ``[i]t is common 
that live-in workers are required to work more than the hours they have 
contracted to perform.'' Professor Valerie Francisco similarly stated 
that her research shows that employers of live-in domestic workers do 
not keep accurate records of hours worked. Numerous commenters, 
including NELP, Workforce Solutions Cameron, COWS, and DCA, agreed, 
stating that the current rule's tolerance for use of an agreement has 
resulted in underpayments for time worked by live-in workers, who are 
isolated and may fear retaliation if they complain. NELP noted that 
``experts estimate that one-third of the victims of labor trafficking 
are domestic workers.'' Other groups such as AFSCME, Women's Employment 
Rights Clinic and the Center, noted that the revised regulations will 
more effectively ensure that hours are properly recorded and that 
workers receive at least the minimum wage for all hours worked. The 
Center for Economic and Policy Research stated that the difficulties 
that arise in capturing live-in hours worked ``are not qualitatively 
different from monitoring issues that arise in other contexts.''

[[Page 60479]]

    The Legal Aid Society, The Workplace Project, Care Group, Inc., the 
Brazilian Immigrant Center and DAMAYAN, asserted that live-in domestic 
workers are subject to exploitation and that requiring employers to 
track hours will help to create a fair environment. However, several of 
these advocacy groups viewed the requirement to track hours as 
inconsistent with the ability to obtain an agreement with the worker to 
exclude sleep time and other periods of complete freedom; they thought 
that such agreements only create confusion and undermine the 
requirement to track hours. Other individuals emphasized they wanted to 
ensure that employers of live-in domestic service workers keep records 
of the employees' rate of pay, total wages, and deductions, and they 
noted that employers can keep such records using technology like 
computers, smartphones, etc. Several consumers stated that they have 
always kept records of hours worked and wages paid and that it is easy 
to do. Finally, several commenters, including Care Group, Inc., 
National Domestic Workers Alliance, and The Workplace Project, 
suggested that the regulatory requirement to have a record of the 
employee's Social Security Number should also permit the use of an 
Individual Taxpayer Identification Number (ITIN).
    In light of the comments indicating that it would be very difficult 
for many consumers of live-in services to monitor and record hours 
worked accurately, especially those who have Alzheimer's disease, 
dementia, or other conditions affecting memory, concentration, or 
cognitive ability, the Department has modified Sec.  552.110(d) of the 
Final Rule to remove the proposed rule's restriction on employers of 
live-in domestic service employees being able to require such workers 
to record their hours worked and submit that record to the employer, 
thus, expanding the application of the current rule to all employers of 
domestic service employees.\22\ Of course, even though employers may 
require their employees to create and submit time records, employers 
cannot delegate their responsibility for maintaining accurate records 
of the employee's hours and for paying at least the minimum wage for 
all hours worked. See Sec.  552.102(a). See, e.g., Kuebel v. Black & 
Decker, Inc., 643 F3d 352, 363 (2nd Cir. 2011) (employer's duty to 
maintain accurate records non-delegable); Caserta v. Home Lines Agency, 
Inc., 273 F.2d 943, 946 (2nd Cir. 1959) (rejecting as inconsistent with 
the FLSA an employer's contention that its employee was precluded from 
claiming overtime not shown on his own timesheets, because an employer 
cannot transfer its statutory burdens of accurate recordkeeping, and of 
appropriate payment, to the employee). The Department modified the 
Final Rule because it agrees that employees are, in many situations, 
the individuals with the best knowledge of when they were working, and 
they may have the best ability to track those hours.
---------------------------------------------------------------------------

    \22\ The Department also made minor edits to Sec.  552.110(b) 
and (d) to improve clarity.
---------------------------------------------------------------------------

    With regard to the comments suggesting that the Department continue 
to allow the use of a reasonable agreement reflecting the expected 
schedule to establish a live-in domestic service employee's hours of 
work, the Department does not agree that such a system is appropriate. 
First, as stated in the NPRM, the Department is concerned that not all 
hours actually worked are captured by such an agreement. Live-in 
domestic service employees, including those employed to provide care 
for the elderly or individuals with disabilities, have inherently 
variable schedules due to the often unpredictable needs of their 
employers. Therefore, reliance on the system in the current regulations 
does not provide a sufficient basis to determine whether the employee 
has in fact received at least the minimum wage for all hours worked. As 
the comments from employee representatives emphasized, live-in domestic 
service workers are in a vulnerable position due to their isolation, 
and many fear retaliation if they complain. Further, numerous 
commenters stated that live-in domestic service employees work more 
hours than they have contracted to perform. While some employer 
representatives expressed concern that tracking hours would be 
burdensome, others--such as the Home Care Alliance of Massachusetts and 
individuals who said they have tracked hours for their employees--
stated they had no objection to this requirement. AARP stated that 
third party employers should be able to fulfill the requirement. The 
Department notes that, under current Sec.  552.110(b), the simplified 
recordkeeping system does not apply to third party employers.
    The Department believes that the modification made in the Final 
Rule allowing employers to require employees to record and submit their 
hours will further simplify the process. The Department notes that 
there is no need for an electronic time management system. See 29 CFR 
516.1(a). Some employers might choose to develop their own 
recordkeeping forms that, for example, might require the employee to 
identify what tasks were performed and the hours spent in various 
activities; some employers might simply require employees to keep notes 
by hand of their hours worked; and some employers might decide to 
record the hours themselves. But whatever method is used, the 
Department believes that recording the actual hours worked will result 
in more accuracy than the current system of simply relying upon an 
agreement established months or years in the past. The recording of 
actual hours therefore will be, as many commenters stated, an effective 
tool to ensure that workers receive at least the minimum wage for all 
hours worked.
    Several employee representatives expressed the view that the 
requirement to track actual hours worked was inconsistent with the 
ability under Sec.  552.102(a) to have an employer-employee agreement 
to exclude sleep time, meal time and other periods of complete freedom 
from all duties. As discussed above, there is no inconsistency between 
these two provisions. The Department recognizes that live-in domestic 
service employees are not necessarily working all the hours that they 
are on the employer's premises and the regulations require that to 
exclude such time requires an agreement between the employer and 
employee. Therefore, the parties may agree to exclude sleep, meal and 
certain other relief periods from hours worked. See Sec.  552.102(a). 
Nevertheless, all hours actually worked must be compensated, such as 
where the normal sleeping period or the normal meal period is 
interrupted by a call to duty. Id. The Final Rule simply clarifies 
that, although the parties may have an agreement that sets forth the 
parties' expectations regarding the normal schedule of work time, and 
they may agree to exclude sleep, meal and other relief periods from 
hours worked, that agreement does not control the compensation due each 
week; rather, records must be kept of the actual hours worked in order 
to ensure that the employee is properly compensated for all hours 
worked.
    Finally, several commenters stated that the reference to Social 
Security Numbers in Sec.  552.102(a) should include, as an alternative, 
an Individual Taxpayer Identification Number (ITIN); they also wanted 
to ensure that employers of live-in domestic service workers also keep 
records of rate of pay, total wages paid and deductions made. An ITIN 
is a tax processing number issued by the Internal Revenue Service 
(IRS). IRS issues ITINs to individuals who are required to have a U.S. 
taxpayer identification number for tax reporting

[[Page 60480]]

or filing requirements but who do not have, and are not eligible to 
obtain, a Social Security Number. ITINs are issued regardless of 
immigration status, because both resident and nonresident aliens may 
have a U.S. filing or reporting requirement under the Internal Revenue 
Code. See http://www.irs.gov/individuals/article/0,,id=96287,00.html. 
The Department did not propose any changes to Sec.  552.110(a), which 
simply mentions Social Security Numbers in its summary of the 
recordkeeping requirements in 29 CFR part 516 (see, e.g., Sec.  516.2, 
which also only mentions Social Security Numbers). The Department 
therefore does not think it is necessary to include this minor 
suggested change in the Final Rule, as it does not believe the failure 
to mention ITINs will cause any confusion. The recordkeeping 
requirements in Sec.  516.2(a) and Sec.  552.110(a) already require 
employers of nonexempt employees to maintain records such as hours 
worked each workweek, total wages paid, total additions to or 
deductions from wages and the basis therefore (such as board and/or 
lodging), and the regular hourly rate of pay when overtime compensation 
is due. Therefore, no further changes to the regulations in Sec.  
552.110 are necessary or appropriate.
D. Section 552.109 (Third Party Employment)
    Section 552.109 addresses whether a third party employer, the term 
the Department uses to refer to an employer of a direct care worker 
other than the individual receiving services or his or her family or 
household, may claim the FLSA exemptions specific to the domestic 
service employment context. Current Sec.  552.109(a) permits third 
party employers to claim the companionship services exemption from 
minimum wage and overtime pay established by Sec.  13(a)(15) of the 
Act; current Sec.  552.109(c) permits third party employers to claim 
the live-in domestic service employee exemption from overtime pay 
established by Sec.  13(b)(21) of the Act. (Section 552.109(b) 
addresses third party employment in the context of casual babysitting, 
which is not a topic within the scope of this rulemaking.) In the NPRM, 
the Department proposed to exercise its expressly delegated rulemaking 
authority and bring the regulation in line with the legislative intent 
and the realities of the home care industry by revising current 
paragraphs (a) and (c) to prohibit third party employers from claiming 
these exemptions. Under the proposed regulation, only an individual, 
family, or household would be permitted to claim the exemptions in 
Sec. Sec.  13(a)(15) and 13(b)(21) of the FLSA. In other words, where a 
direct care worker is employed by a third party, the individual, family 
or household using the worker's services could claim the exemptions, 
but the third party employer would be required to pay the worker at 
least the federal minimum wage for all hours worked and overtime pay at 
one and one-half the employee's regular rate for all hours worked over 
40 in a workweek. For the reasons explained below, the Department is 
adopting Sec.  552.109 as proposed.
    Many commenters, including employees, labor organizations, worker-
advocacy organizations, and consumer representatives, expressed strong 
support for the proposed change to Sec.  552.109. See, e.g., the 
Center; SEIU Healthcare Illinois Indiana; AFSCME; Legal Aid Society. 
The National Consumer Voice for Quality Long-Term Care explained that 
``[e]ven though some individuals who hire their own workers may end up 
paying more under the proposed rules, consumers and advocates in our 
network believe that providing minimum wage, overtime, and pay for 
travel time for these crucial health care workers is the right thing to 
do.'' AARP noted that it ``strongly agrees'' with denying the 
exemptions to third party agencies and asserted that ``requiring all 
home care and home health care agencies to pay minimum wage and 
overtime to their employees is a centrally important component of the 
NPRM.''
    Numerous commenters agreed with the Department's assertion that the 
proposed changes were consistent with Congressional intent. See, e.g., 
PHI, NELP, and EJC. A comment signed by Senator Harkin and 18 other 
Senators stated that ``[a] close look at the legislative history of the 
1974 changes establishes that Congress clearly intended to include 
today's home care workforce within the FLSA's protections.'' PHI argued 
that ``employment by a home care agency strongly suggests that the 
worker is providing home care services as a vocation and is a regular 
bread-winner responsible for the support of her family. Such a formal 
employment arrangement is inconsistent with the teenage babysitters and 
casual companions for the elderly that Congress intended to exclude.''
    Additionally, many advocacy groups and others agreed with the 
Department's statements in the NPRM concerning the increased 
professionalization and standardization of the home care workforce. 
See, e.g., DCA, Bruce Vladeck, NELP. The Westchester Consulting Group 
noted that third party employers ``are in the trade and business of 
providing services to the public and experience financial profit and 
loss'' while household employers are purchasing companionship services 
``for their personal use to address their specific support needs.'' 
Similarly, PHI argued that one of the companionship services 
exemption's ``main goals'' was to ``limit application of [the] FLSA to 
workers whose vocation is domestic service (that is, not occasional 
babysitters and companions)'' and this concern is not ``relevant to 
agency-employed home care workers.'' The Legal Aid Society explained 
that ``the proposed regulations appropriately recognize that this work 
is not the kind of casual neighborly assistance that Congress had in 
mind when it created the companionship services exemption. Rather, 
these workers are professional caregivers, who work long hours for 
agencies that are businesses, whether for-profit or not-for-profit.'' 
Additionally, the ACLU and others observed that many members of this 
workforce, such as home health aides and personal care assistants, are 
now often subject to training requirements and competency evaluations.
    Employers and employer associations, however, generally opposed the 
proposed revision of Sec.  552.109. See, e.g., CAHSAH, 24Hr Home Care, 
ResCare Home Care, NASDDDS, Texas Association for Home Care & Hospice, 
Inc. Many of these commenters asserted the proposal is contrary to 
Congress's intent as well as the Department's longstanding 
interpretation of the companionship services exemption. BrightStar 
franchisees, among others, argued that the use of the words ``any 
employee'' in Sec. Sec.  13(a)(15) and 13(b)(21) of the Act 
demonstrates that Congress intended for the exemptions to apply based 
upon the activities of the employee rather than the identity of the 
employer. BrightStar franchisees wrote that ``floor debate included 
several statements related to concerns about the ability of working 
families to afford companionship services for their loved ones and keep 
them out of institutionalized nursing home care.'' A comment signed by 
Senator Alexander and 13 other Senators stated that the ``statute and 
history clearly demonstrate that Congress intended to provide a broad 
exemption from the FLSA minimum wage and overtime requirements for all 
domestic workers providing companionship services.'' Husch Blackwell 
further commented that ``Congress is certainly well aware of the 
exemption's application over these

[[Page 60481]]

last several decades, and has not taken action upon this issue during 
that time. Its failure to do so is clear evidence that the regulations 
as they currently stand appropriately state Congressional intent.'' See 
also Chamber of Commerce. CAHSAH and the National Association of Home 
Care & Hospice (NAHC), among others, questioned the propriety of the 
Department's shift in position as to this issue, especially since it 
defended the current regulation in Long Island Care at Home, Ltd. v. 
Coke, 551 U.S. 158 (2007). Additionally, NRCPDS asserted that ``wages 
should be determined based upon the value of the tasks performed'' and 
that the ``idea that the same tasks are valued differently based solely 
upon the identity of the employer seems unjustifiable.''
    Employers and employer representatives also asserted that the 
proposed revision to Sec.  552.109 would be harmful to direct care 
workers because raising the cost of services provided through home care 
agencies would incentivize employment through informal channels rather 
than through such agencies. The Virginia Association for Home Care and 
Hospice stated that the proposed change would ``encourage workers to 
leave agencies and be hired directly by the client,'' and in this 
``underground economy,'' taxes would not be withheld, Social Security 
would not be paid, and workers' compensation insurance would not be 
provided. See also CAHSAH. VNAA asserted that by discouraging joint 
employment, the proposed change could undermine Medicaid's efforts to 
expand the use of consumer-directed programs, which rely on agencies to 
assist consumers who are not capable of being solely responsible for 
managing a direct care worker's employment.
    Numerous commenters sought clarification as to which employers 
would be considered ``third party employers'' and how the proposed 
revisions would affect various types of consumer-directed programs and 
other arrangements that have developed to provide home care--including 
registries, ``agency with choice'' programs, and ``employer of record'' 
or fiscal intermediary situations--in which third parties have roles 
such as handling tax and insurance compliance. See, e.g., Private Care 
Association; Jim Small; ANCOR. Comments from these various types of 
entities requested guidance from the Department as to whether direct 
care workers under their particular programs could qualify for either 
exemption under the Final Rule. Additionally, several advocacy groups 
expressed confusion regarding whether the Department's proposed 
revision would hold consumers or their families jointly and severally 
liable for wages owed pursuant to the FLSA. For example, AARP noted 
that it ``strongly opposes the proposal to impose joint and several 
liability for FLSA compliance on consumers when the worker is supplied 
and employed by a third party employer such as an agency. When agencies 
are involved, they should be considered the sole employer.'' See also 
The National Consumer Voice for Long-Term Care.
    The Department has carefully considered comments submitted 
regarding the proposed revisions to Sec.  552.109(a) and (c) and has 
decided to adopt the regulation as proposed. The rulemaking record 
includes views from a broad and comprehensive array of interested 
parties: Academics studying this issue, advocates for the individuals 
who need home care services, home care agencies that currently claim 
the companionship services exemption, labor unions, associations 
representing direct care workers, and representatives of the disability 
community. As explained in the NPRM and for the reasons discussed 
below, the Department believes that the revised regulation is 
consistent with Congress's intent when it created these exemptions and 
reflects the dramatic transformation of the home care industry since 
this regulation was first promulgated in 1975.
    As an initial matter, the Department observes that it is exercising 
its expressly delegated rulemaking authority in promulgating this rule. 
In creating the companionship services exemption, Congress ``left a gap 
for the agency to fill'' as to the meaning and scope of the exemption 
at section 13(a)(15), explicitly giving the Secretary authority to 
define and delimit the boundaries of the exemption. Chevron U.S.A., 
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984); 
see Nat'l Cable & Telecomm Ass'n. v. Brand X Internet Servs., 545 U.S. 
967, 980 (2005) (``Filling these gaps . . . involves difficult policy 
choices that agencies are better equipped to make than courts.''). When 
Congress expressly delegates authority to the agency ``to elucidate a 
specific provision of the statute by regulation,'' any regulations 
promulgated pursuant to that grant of power and after notice and 
comment are to be given ``controlling weight unless they are arbitrary, 
capricious, or manifestly contrary to the statute.'' Chevron, 467 U.S. 
at 844; see Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 165-
68 (2007); Gonzales v. Oregon, 546 U.S. 243, 255-256 (2006) (Chevron 
deference is warranted ``when it appears that Congress delegated 
authority to the agency generally to make rules carrying the force of 
law, and that the agency interpretation claiming deference was 
promulgated in the exercise of that authority'' (internal quotation 
marks omitted)).
    Accordingly, the Department is now adopting a revised regulation 
that is, as many commenters agreed, consistent with Congress's intent 
to provide the protections of the FLSA to domestic workers while 
providing narrow exemptions for workers performing companionship 
services and live-in domestic service workers. Prior to 1974, domestic 
service employees who worked for a placement agency that met the annual 
earnings threshold for FLSA enterprise coverage, but were assigned to 
work in someone's home, were covered by the FLSA. 39 FR 35385. However, 
the Department's 1975 regulations, by allowing those covered 
enterprises to claim the exemption denied those employees the Act's 
minimum wage and overtime protections. This Final Rule reverses this 
``roll back''.
    The legislative history makes clear that in passing the 1974 
amendments to the Act, Congress intended to extend FLSA coverage to all 
employees whose ``vocation'' was domestic service, but to exempt from 
coverage casual babysitters and companions who were not regular 
breadwinners or responsible for their families' support. See House 
Report No. 93-913, p. 36. Indeed, it is apparent from the legislative 
history that the 1974 amendments were intended only to expand coverage 
to include more workers, and were not intended to roll back coverage 
for employees of third parties who already had FLSA protections (as 
employees of covered enterprises). The focus of the floor debate 
concerned the extension of coverage to categories of domestic workers 
who were not already covered by the FLSA, specifically, those employed 
by an individual or small company rather than by a covered enterprise. 
See, e.g., 119 Cong. Rec. at S24800 (``coverage of domestic employees 
is a vital step in the direction of insuring that all workers affecting 
interstate commerce are protected by the Fair Labor Standards Act''); 
see also Senate Report No. 93-690 at p. 20 (``The goal of the 
Amendments embodied in the committee bill is to update the level of the 
minimum wage and to continue the task initiated in 1961--and further 
implemented in 1966 and 1972--to extend the basic protection of the 
Fair Labor Standards Act to additional workers and to reduce to the 
extent

[[Page 60482]]

practicable at this time the remaining exemptions.'' (emphasis 
added)).\23\
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    \23\ Several comments focused on statements made during floor 
debate concerning the cost of care and preventing nursing home 
placement. See BrightStar Care of Tucson; Visiting Nurse Service of 
New York. However, the Department notes that the floor debate cited 
by these commenters took place in 1972 on earlier domestic service 
legislation not containing the exemption that was considered by a 
different Congress than the one enacting the 1974 amendments. See, 
e.g., 118 Cong. Rec. 24715 (July 20, 1972).
---------------------------------------------------------------------------

    Further, there is no indication that Congress considered limiting 
enterprise coverage for third party employers providing domestic 
services. The only expressions of concern by opponents of the amendment 
related to the new recordkeeping burdens on private households. See, 
e.g., 119 Cong. Rec. 18,155 (statement of Rep. Harrington); 119 Cong. 
Rec. 24,797 (statement of Sen. Dominick). Recognizing this intended 
expansion of the Act, the exemptions excluding employees from coverage 
must therefore be defined narrowly in the regulations to achieve the 
law's purpose of extending coverage broadly. This is consistent with 
the general principle that coverage under the FLSA is broadly construed 
so as to give effect to its remedial purposes, and exemptions are 
narrowly interpreted and limited in application to those who clearly 
are within the terms and spirit of the exemption. See, e.g., A.H. 
Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945). The Department is 
not persuaded by comments contending that because section 13(a)(15) has 
never been amended, the prior regulations were therefore consistent 
with Congressional intent. See, e.g., Husch Blackwell; U.S. Chamber of 
Commerce. As the Supreme Court has observed, Congressional inaction 
``is a notoriously poor indication of [C]ongressional intent.'' 
Schweiker v. Chilicky, 487 U.S. 412, 440 (1988); see also Minor v. 
Bostwick Labs, Inc., 669 F.3d 428, 436 (4th Cir. 2012). Therefore, the 
Department now acknowledges that the regulatory roll back of coverage 
for workers employed in private homes by covered enterprises that 
resulted from the 1975 version of Sec.  552.109 was not in accord with 
Congress's purpose of expanding coverage.
    By excluding direct care workers employed by third party covered 
enterprises from FLSA coverage, the Department's 1975 regulations 
created an inequity that has increased over time. As the home care 
workforce has grown, the impact of the Department's roll back, which is 
inconsistent with the 1974 amendments, has become even more magnified. 
As noted by many commenters, today, few direct care workers are the 
``elder sitters'' envisioned by Congress when enacting the exemption. 
See 119 Cong. Rec. at S24801. Instead, direct care workers employed by 
third parties are the sorts of domestic service employees Congress 
specifically intended the FLSA to cover: Their work is a vocation. See 
Senate Report No. 93-690, p. 20; House Report No. 93-913, pp. 36. For 
example, a direct care worker who has sought out work through a private 
home care agency is engaged in a formal, professional occupation and he 
or she may well be the primary ``bread-winner'' for his or her family. 
Thus, it is the Department's position that employees providing home 
care services who are employed by third parties should have the same 
minimum wage and overtime protections that other domestic service and 
other workers enjoy.
    Significantly, the Supreme Court explicitly affirmed the 
Department's authority to address the issue of third party employment 
in the domestic service context in Long Island Care at Home, Ltd. v. 
Coke, 551 U.S. 158 (2007). The Supreme Court acknowledged that the 
statutory text and legislative history do not provide an explicit 
answer to the ``third party employment question.'' Id. at 168. Rather, 
the Court explained that the FLSA leaves gaps as to the scope and 
definition of statutory terms such as ``domestic service employment'' 
and ``companionship services,'' and it provides the Department with the 
power to fill those gaps. Id. at 167. In particular, the Court stated 
its belief that ``Congress intended its broad grant of definitional 
authority to the Department to include the authority to answer'' 
questions including ``[s]hould the FLSA cover all companionship workers 
paid by third parties? Or should the FLSA cover some such companionship 
workers, perhaps those working for some (say, large but not small) 
private agencies . . .? How should one weigh the need for a simple, 
uniform application of the exemption against the fact that some (but 
not all) third-party employees were previously covered?'' Id. at 167-
68. Further, when the Department fills statutory gaps with any 
reasonable interpretation, and in accordance with other applicable 
requirements, the courts accept the result as legally binding and 
entitled to deference. Id. The Supreme Court explicitly recognized that 
the Department may interpret its ``regulations differently at different 
times in their history,'' and may make changes to its position, 
provided that the change creates no unfair surprise. Id. at 170-71. The 
Court also recognized that when the Department utilizes notice-and-
comment rulemaking in an attempt to codify a new regulation, as it has 
done with this Final Rule, such rulemaking makes surprise unlikely. Id. 
at 170.
    Although the commenters who noted that the Department is changing 
its position as to the proper treatment of third party employers in 
Sec.  552.109 are correct, such a change is not only permissible, but 
also reasonable. The Department did argue in Coke, as well as in Wage 
and Hour Advisory Memorandum (``WHAM'') 2005-1 (Dec. 1, 2005) (found at 
http://www.dol.gov/whd/FieldBulletins/index.htm), that the third party 
regulation as written in 1975 was the Department's best reading of 
these statutory exemptions. In the past, however, the Department 
erroneously focused on the phrase ``any employee,'' instead of focusing 
on the purpose and objective behind the 1974 amendments, which was to 
expand minimum wage and overtime protections to workers employed in 
private households that did not otherwise meet the FLSA coverage 
requirements. The Supreme Court has ``stressed that in expounding a 
statute, we must not be guided by a single sentence or member of a 
sentence, but look to the provisions of the whole law, and to its 
object and policy.'' U.S. Nat'l Bank of Oregon v. Indep. Ins. Agents of 
Am., Inc., 508 U.S. 439, 455 (1993) (internal quotation marks omitted). 
Moreover, in view of the Supreme Court's conclusion that the text of 
the FLSA does not expressly answer the third party employment question, 
the statutory phrase ``any employee'' cannot, standing alone, answer 
the question definitively. Moreover, the WHAM failed to consider the 
industry changes that have taken place over the decades since the 
statutory amendment was enacted. After considering the purpose and 
objectives of the amendments as a whole, reviewing the legislative 
history, and evaluating the state of the home care industry, the 
Department believes that the companionship services exemption was not 
intended to apply to third party employers.
    In addition, the Department does not believe commenters' concerns 
about the harmful effect of the change to Sec.  552.109 are warranted 
because the Department did not identify or receive any information 
suggesting that such effects have occurred in the 15 states that 
already provide minimum wage and overtime protections to all or most 
third party-employed home care workers who may otherwise fall under the 
federal companionship services exemption.

[[Page 60483]]

These states are Colorado, Hawaii, Illinois,\24\ Maryland, 
Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New 
York, Pennsylvania, Washington, and Wisconsin. In addition, Maine 
extends minimum wage and overtime protections to all companions 
employed by for-profit agencies. Some, but not all, privately employed 
home care workers in California are exempt from overtime requirements 
as ``personal attendants;'' all receive at least the minimum wage. Five 
more states (Arizona, Nebraska, North Dakota, Ohio, and South Dakota) 
and the District of Columbia provide minimum wage coverage to home care 
workers, including companions, employed by third parties. 
Significantly, several of the states, such as Colorado and Michigan, 
have instituted these protections in the last several years. The 
existence of these state protections diminishes the force of objections 
regarding the feasibility and expense of prohibiting third parties from 
claiming the companionship services and live-in domestic service worker 
exemptions. Indeed, the comments received did not point to any reliable 
data indicating that state minimum wage or overtime laws had led to 
increased institutionalization or stagnant growth in the home care 
industry in any state. Rather, the Michigan Olmstead Coalition reported 
``we have seen no evidence that access to or the quality of home care 
services are diminished by the extension of minimum wage and overtime 
protection to home care aides in this state almost six years ago.'' PHI 
noted that the growth of home care establishments in Michigan ``is 
actually higher in the period after implementing wage and hour 
protections than before--41 percent compared to 32 percent.'' See PHI; 
see also Workforce Solutions (``There is no data showing that states 
with minimum wage and overtime protections for home care workers have 
higher rates of institutionalization.''). Indeed, as summarized by 
AARP, there is no strong correlation between states that have minimum 
wage and overtime protections with expenditures on HCBS versus 
institutionalized care.
---------------------------------------------------------------------------

    \24\ In Illinois, 30,000 workers in the Home Services Program 
under the Illinois Department of Human Services are considered 
jointly employed by the state and the consumer and do not receive 
overtime pay.
---------------------------------------------------------------------------

    Moreover, the Department does not believe that this rule will 
create or significantly expand an underground economy where workers 
hired directly by a consumer or a third party are not treated as 
employees and thus are not paid proper wages, income and FICA taxes are 
not withheld, and unemployment and worker's compensation insurance are 
not provided. Although difficult to predict, the Department anticipates 
that rather than significantly expanding any underground economy, this 
rule will bring more workers under the FLSA's protections, which in 
turn will create a more stable workforce by equalizing wage protections 
with other health care workers and reducing turnover. A more stable 
home care workforce also dilutes arguments that continuity of care 
would be negatively affected by the rule. This industry is currently 
marked by high turnover, which can be very disruptive to consumers. The 
Department believes that consumers would benefit from reduced turnover 
among direct care workers and the accompanying improvement in quality 
of care.

Joint Employment

    The Department wishes to clarify how the third party regulation may 
apply in evaluating instances of joint employment, what constitutes a 
``third party employer,'' independent contractors, and joint and 
several liability. Direct care workers and consumers explained that a 
variety of care arrangements have been developed in order to provide 
home care, many involving potential joint employment relationships. The 
Department notes that this regulation does not change any of the 
Department's regulations or guidance concerning the employment 
relationship and joint employment. In evaluating what constitutes a 
``third party employer,'' a ``third party'' will be considered any 
entity that is not the individual, member of the family, or household 
retaining the services. However, what entity constitutes an 
``employer'' is governed by long-standing case law from the U.S. 
Supreme Court and other federal appellate courts interpreting the 
language of the FLSA and applying the ``economic realities'' test 
discussed in greater detail below.
    As the Department has previously explained, a single individual may 
be considered an employee of more than one employer under the FLSA. See 
29 CFR Part 791. Joint employment is employment by one employer that is 
not completely disassociated from employment by other employers. 
Whether joint employment exists is to be determined based upon all the 
facts of the particular case. As an example, an individual who hires a 
direct care worker or live-in domestic service worker to provide 
services pursuant to a Medicaid-funded consumer directed program may be 
a joint employer with the state agency that administers the program. 
Generally, where a joint employment relationship exists, ``all joint 
employers are responsible, both individually and jointly, for 
compliance with all of the applicable provisions of the act.'' Sec.  
791.2(a). However, under the revised regulation, in joint employment 
situations the individual, member of the family or household employing 
the direct care worker or live-in domestic service worker will be able 
to claim an exemption provided that the employee meets the duties 
requirements for the companionship services exemption or the residence 
requirements for a ``live-in'' domestic service worker exemption. The 
third party employer will not be able to claim that exemption.
    Determinations about the existence of an employment or joint 
employment relationship are made by examining all the facts in a 
particular case and assessing the ``economic realities'' of the work 
relationship. See, e.g., Goldberg v. Whitaker House Cooperative, Inc., 
366 U.S. 28, 33 (1961). Factors to consider may include whether an 
employer has the power to direct, control, or supervise the worker(s) 
or the work performed; whether an employer has the power to hire or 
fire, modify the employment conditions or determine the pay rates or 
the methods of wage payment for the worker(s); the degree of permanency 
and duration of the relationship; where the work is performed and 
whether the tasks performed require special skills; whether the work 
performed is an integral part of the overall business operation; 
whether an employer undertakes responsibilities in relation to the 
worker(s) which are commonly performed by employers; whose equipment is 
used; and who performs payroll and similar functions. An economic 
realities test does not depend on ``isolated factors but rather upon 
the circumstances of the whole activity.'' Rutherford Food Corp. v. 
McComb, 331 U.S. 722, 730 (1947). In the past, the Department has 
applied this economic realities principle when it promulgated 
regulations to clarify the definition of ``joint employment'' under the 
Migrant and Seasonal Agricultural Worker Protection Act, 29 CFR 
500.20(h), and the Family and Medical Leave Act, 29 CFR 825.106, both 
of which incorporate the FLSA definition of ``employ.''
    To illustrate how a home care services scenario may be assessed 
utilizing the economic realities test, consider the following example:

    Example: Mary contacts her state government about receiving home 
care services. The state has a ``self-direction program'' that 
allows Mary to hire a direct

[[Page 60484]]

care worker through an entity that has contracted with the state to 
serve as the ``fiscal/employer agent'' for program participants who 
employ direct care workers. The ``fiscal/employer agent'' performs 
tasks similar to those that commercial payroll agents perform for 
businesses, such as maintaining records, issuing payments, 
addressing tax withholdings, and ensuring that workers' compensation 
insurance is maintained for the worker, but is not involved in any 
way in the daily supervision, scheduling, or direction of the 
employee. Mary has complete budget authority over how to allocate 
the funds she receives under the Medicaid self-direction program, 
negotiates the wage rate with the direct care worker, is wholly 
responsible for day-to-day duty assignments, and has the sole power 
to hire and fire her direct care worker.

    In the above scenario, the fiscal/employer agent is likely not an 
employer of the direct care worker, and the consumer is likely the sole 
employer. The fiscal/employer agent has no power to hire or fire, 
direct, control, or supervise the worker and cannot modify the pay rate 
or modify the employment conditions. The work is not performed on the 
fiscal/employer agent's premises, and the fiscal/employer agent has 
provided no tools or materials required for the tasks performed. 
However, any change in the specific facts of this scenario, such as if 
direct care workers are required to obtain approval from the fiscal/
employer agent in order to arrive late or be absent from work or if the 
fiscal/employer agent sets the direct care workers' specific hours 
worked, may lead to a different conclusion regarding the employer 
status of the fiscal/employer agent.
    The decision on joint employment would likely be different under 
the following scenario:

    Example: Mary contacts her state government about receiving home 
care services. The state has a ``public authority model'' under 
which the state or county agency exercises control over the direct 
care workers' conditions of employment by deciding the method of 
payment, reviewing worker time sheets and determining what tasks 
each worker may perform. The agency also exercises control over the 
wage rate either by setting the wage rate.

    In the above scenario, the state or county agency is likely an 
employer of the direct care workers under the FLSA. See, e.g., Bonnette 
v. California Health & Welfare Agency, 704 F.2d 1465, 1470 (9th Cir. 
1983). The state or county agency directs, controls, and supervises the 
workers, and can modify the pay rate and other employment conditions 
such as the number of hours worked and the tasks performed. In 
addition, the agency may be an employer of the direct care workers even 
if a private third party agency is also found to be an employer; such 
joint employment arrangements would result in the state or county 
agency and the private third party agency being jointly and severally 
liable for the direct care workers' wages.
    It is critical to note that this fact-specific economic realities 
test will be applied to all situations when assessing an employment 
relationship or potential joint employment, regardless of the name used 
by the third party (e.g., ``fiscal/employer agent,'' ``Agency with 
Choice,'' ``fiscal intermediary,'' ``employer of record'') or worker 
(e.g., ``registry worker,'' ``independent provider,'' ``independent 
contractor''). As the Department has repeatedly noted, with respect to 
exemption status, job titles are not determinative. See, e.g., Sec.  
541.2; FOH 22a04; Wage and Hour Fact Sheet 17A: Executive, 
Administrative, Professional, Computer and Outside Sales Employees 
Under the Fair Labor Standards Act. This principle holds true for 
determining employment status as well.
    With regard to potential misclassification of employees as 
independent contractors or other non-employees, the Department will 
continue its efforts to combat such misclassification. As the 
Department has explained, there is no single test for determining 
whether an individual is an independent contractor or an employee for 
purposes of the FLSA. Rather, a number of factors must be considered, 
including the extent to which the services rendered are an integral 
part of the principal's business; the permanency of the relationship; 
the amount of the alleged contractor's investment in facilities and 
equipment; the nature and degree of control exerted by the principal; 
the alleged contractor's opportunities for profit and loss; the amount 
of initiative or judgment required for the success of the contractor; 
and the degree of independent business organization and operation. See, 
e.g., Donovan v. Sureway Cleaners, 656 F.2d 1368, 1370 (9th Cir. 1981).
    To further illustrate the economic realities test, consider this 
example:

    Example: ABC Company advertises as a ``registry'' that provides 
potential direct care workers. The registry conducts a background 
screening and verifies credentials of potential workers, and assists 
clients by locating direct care workers who may be able to meet a 
client's needs. ABC Company informs Ann, a direct care worker, of 
the opportunity to work for a potential client. If Ann is interested 
in the opportunity, she is responsible for contacting the client for 
more information. Ann is not obligated to pursue this or any other 
opportunity presented, and she is not prohibited from registering 
with other referral services or from working directly with clients 
independent of ABC Company. The registry does not provide any 
equipment to Ann, and does not supervise or monitor any work Ann 
performs. ABC Company has no power to terminate Ann's employment 
with a client. ABC Company processes Ann's payroll checks according 
to information provided by clients, but does not set the pay rate.

    In this scenario, Ann is likely not an employee of ABC Company. 
There is no permanency in the relationship between the registry and 
Ann. The registry does not provide any equipment or facilities, 
exercises no control over daily activities, and has no power to hire or 
fire. Ann is able to accept as many or as few clients as she wishes. 
The client sets the rate of pay and negotiates directly with Ann about 
which services will be provided. However, this does not mean that every 
``registry'' will not be an employer. Rather, a fact-specific 
assessment must be conducted. Indeed, the Department has found 
registries to be employers under different facts. See, e.g., Wage and 
Hour Opinion Letter, 1975 WL 40973 (July 31, 1975) (finding a nursing 
registry to be an employer when the registry maintained a log of 
assignments showing the shifts worked, established the rate which would 
be charged, and exercised control over the nurse's behavior and the 
work schedule).
    Some of the comments demonstrated confusion about when a family or 
household employing a direct care worker may be jointly and severally 
liable for wages owed. See, e.g., AARP; National Consumer Voice for 
Long-Term Care. The NPRM stated that ``if the employee fails to qualify 
as an exempt companion, such as if the employee performs incidental 
duties that exceed the 20 percent tolerance allowed under the proposed 
Sec.  552.6(b), or the employee provides medical care for which 
training is a prerequisite, the individual, family or household member 
cannot assert the exemption and is jointly and severally liable for the 
violation.'' 76 FR 81198. There appeared to be a misperception that 
joint and several liability would attach in any joint employment 
relationship. However, as stated in the NPRM, an individual, family, or 
household would be jointly and severally liable for a violation only in 
instances when an employee fails to meet the ``duties'' requirement for 
the companionship services exemption or the residence requirements for 
the live-in domestic service worker exemption. This rulemaking is not 
altering the state of the law under such circumstances; if a domestic 
service employee is not providing companionship services or

[[Page 60485]]

does not meet the residence requirements for the live-in domestic 
service worker exemption, then the family and any third party employer 
are both responsible for complying with the FLSA's minimum wage, 
overtime, and recordkeeping requirements.\25\ For example, under both 
the current regulations and this Final Rule, if a family and an agency 
jointly employ a home care worker, and that worker is required to spend 
50 percent of her time cleaning the house, that worker is not exempt 
under the companionship services exemption and the family and the third 
party are jointly and severally liable for any back wages due. However, 
under this Final Rule, in those situations where an employee satisfies 
the duties test for the companionship services exemption, the 
individual, family or household member may claim the exemption, but the 
third party joint employer cannot. In those instances, the family or 
household member would not be subject to joint and several liability.
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    \25\ The Department notes that it is a good practice for 
individuals, family members or household members to keep a record of 
work performed in the household whether or not the individual, 
family or household member is an employer of the person performing 
the work.
---------------------------------------------------------------------------

    Similarly, under the Final Rule, if a family and an agency jointly 
employ a live-in domestic service employee, the family would be able to 
claim the overtime pay exemption under Sec.  13(b)(21), but the third 
party employer could not. If there is overtime pay due,\26\ the third 
party employer would be liable for overtime pay; however, the family 
would not be subject to joint and several liability, provided the 
worker satisfies the live-in worker requirements (namely, resides in 
the home the requisite amount of time).
---------------------------------------------------------------------------

    \26\ When an employee resides on his or her employer's premises, 
not all of the time spent on the premises is considered working 
time. See the Hours Worked section of this preamble for guidance on 
determining compensable hours worked.
---------------------------------------------------------------------------

    Finally, the revised regulation refers to ``the individual or 
member of the family or household'' who employs the direct care worker 
or live-in domestic worker. It is the Department's intent that the 
phrase ``member of the family or household'' be construed broadly, and 
no specific familial relationship is necessary. For example, a ``member 
of the family or household'' may include an individual who is a child, 
niece, guardian or authorized representative, housemate, or person 
acting in loco parentis to the individual needing companionship or 
live-in services.
    The Department will work closely with stakeholders and the 
Department of Health and Human Services to provide additional guidance 
and technical assistance during the period before the rule becomes 
effective, in order to ensure a transition that minimizes potential 
disruption in services and supports the progress that has allowed 
elderly people and persons with disabilities to remain in their homes 
and participate in their communities.
E. Other Comments
    As noted in various sections of this preamble, the Department 
received a number of comments raising concerns about topics that are 
related to this rulemaking but are not within the scope of the 
revisions to the regulatory text. These issues are discussed below. 
First, the Department addresses comments expressing concern that the 
rulemaking will cause increased institutionalization. Second, the 
Department addresses comments raising questions about paid family 
caregivers. Finally, the Department responds to commenters' questions 
regarding FLSA principles that are relevant in determining the hours 
for which a non-exempt direct care worker must be paid but which are 
not changed by this Final Rule.

Community Integration and Olmstead

    The Department received several comments from groups that advocate 
for persons with disabilities and employers that raised concerns that 
requiring the payment of minimum wage and overtime to direct care 
workers would increase the cost of home and community based services 
(HCBS) funded under Medicaid, which in turn would result in a reduction 
of services under those programs and increased institutionalization of 
the elderly or persons with disabilities. See, e.g., ADAPT, National 
Disability Leadership Alliance (NDLA), Toolworks, Inc., National 
Council on Aging, and VNSNY. Specifically, ADAPT expressed concern that 
Medicaid reimbursement rates under HCBS programs will not increase to 
account for the additional costs for personal care services as a result 
of the Department's proposed rule, resulting in individuals going 
without essential assistance and eventually being forced into 
facilities. As a result, ADAPT asserted that the Department's proposed 
rule would promote institutionalization of such individuals.
    These views were shared by NDLA, which stated that the Department's 
proposal would promote institutionalization because it would increase 
the cost of HCBS programs without a concurrent increase in Medicaid 
reimbursement rates or the Medicaid caps for available funding. As a 
result, NDLA expressed concern that persons with disabilities ``will be 
left with the choice of forgoing needed assistance or subjecting 
themselves to unwanted institutionalization and loss of community 
connection.'' In addition, VNSNY, without providing specifics, stated 
that the Department's proposed rule would be ``inconsistent with the 
efforts undertaken around the country by public agencies to comply with 
the Supreme Court's decision in Olmstead v. L.C. ex rel. Zimring, 527 
U.S. 581 (1999).''
    The Michigan Olmstead Coalition similarly stated that under the 
Americans with Disabilities Act (ADA) and the U.S. Supreme Court's 
decision in Olmstead, ``governmental policies must now support and 
promote inclusion, not segregation, of people living with 
disabilities'' and that ``[p]eople who need long-term supports and 
services should not be forced to receive those services in institutions 
rather than their own homes and apartments.'' However, the Michigan 
Olmstead Coalition stated that many direct care workers do the same 
work as workers in nursing homes and both should receive minimum wage 
and overtime protections. ``Without similar workplace compensation 
protections applied to institutions and home care, the home care 
industry faces another governmental policy that creates a disadvantage 
relative to nursing homes.'' In addition, the Michigan Olmstead 
Coalition stated that without minimum wage and overtime protections for 
direct care workers, ``nursing homes are better able to attract and 
retain staff creating additional burdens or competitive challenges on 
home care agencies.'' The Michigan Olmstead Coalition asserted that the 
proposal ``will help end another `institutional bias' that favors 
nursing homes.''
    Citing Olmstead, the SEIU similarly stated that the Department's 
proposed rule was unlikely to result in increased institutionalization 
of individuals because ``there has been a decisive policy shift toward 
home- and community-based long-term care in this country that is 
extremely unlikely to be reversed.'' The SEIU noted that it is 
``difficult to imagine'' that publicly funded programs would reverse 
course from home and community based services to institutionalization 
simply because ``labor standards are brought up to those prevailing 
virtually everywhere else.'' The SEIU also noted that one of the 
reasons for the shift to home and community based services is due to 
the substantial cost savings associated with

[[Page 60486]]

non-institutional care. SEIU explained that these cost savings are not 
``simply a difference in hourly labor costs, as is demonstrated by the 
fact that many of the states that are leaders in `rebalancing' away 
from institutions are also leaders in setting adequate homecare labor 
standards.'' The advantages of home and community based services 
include that the services can be tailored to each individual's level of 
need and home and community based services do not include the overhead 
costs of maintaining a care facility.
    The Department in no way meant to convey in the proposal that some 
increased levels of institutionalization would be considered 
acceptable. The Department fully supports the ADA's and Olmstead's 
requirement that government programs provide needed services and care 
in the most integrated setting appropriate to an individual, and 
recognizes the important role that home and community based services 
have played in making that possible. The Department agrees with the 
Michigan Olmstead Coalition's assertion that protecting direct care 
workers under the FLSA will benefit home and community based services 
by ensuring that the home care industry can attract and retain 
qualified workers, which will improve overall quality of care. As 
discussed in more detail below, in order to comply with the ADA and 
Olmstead, public entities must have in place an individualized 
process--available to any person whose service hours would be reduced 
as a result of the Final Rule--to examine if the service reduction 
would place the person at serious risk of institutionalization and, if 
so, what additional or alternative services would allow the individual 
to remain in the community.
    Congress enacted the ADA in 1990 ``to provide a clear and 
comprehensive national mandate for the elimination of discrimination 
against individuals with disabilities.'' 42 U.S.C. 12101(b)(1). 
Congress found that ``historically, society has tended to isolate and 
segregate individuals with disabilities, and, despite some 
improvements, such forms of discrimination against individuals with 
disabilities continue to be a serious and pervasive social problem.'' 
42 U.S.C. 12101(a)(2). For those reasons, Congress prohibited 
discrimination against individuals with disabilities by public entities 
under Title II of the ADA:

    [N]o qualified individual with a disability shall, by reason of 
such disability, be excluded from participation in or be denied the 
benefits of the services, programs, or activities of a public 
entity, or be subjected to discrimination by any such entity.

42 U.S.C. 12132.

    Pursuant to Congressional authority, the Attorney General issued 
regulations implementing Title II of the ADA, which are based on 
regulations issued under section 504 of the Rehabilitation Act of 1973. 
See 42 U.S.C. 12134(a); 28 CFR 35.190(a); Executive Order 12250, 45 FR 
72995 (1980), reprinted in 42 U.S.C. 2000d-1. The Title II regulations 
require public entities to ``administer services, programs, and 
activities in the most integrated setting appropriate to the needs of 
qualified individuals with disabilities.'' 28 CFR 35.130(d). The 
preamble discussion to Title II explains that ``the most integrated 
setting'' is one that ``enables individuals with disabilities to 
interact with non-disabled persons to the fullest extent possible.'' 28 
CFR part 35, app. A (2010) (addressing Sec.  35.130); see also 
Statement of the Dep't of Justice on Enforcement of the Integration 
Mandate of Title II of the Americans with Disabilities Act and Olmstead 
v. L.C., at 2 (June 22, 2011) (Olmstead Enforcement Statement), 
available at http://www.ada.gov/olmstead/q&a_olmstead.htm. Moreover, 
``integrated settings'' are described as ``those that provide 
individuals with disabilities opportunities to live, work, and receive 
services in the greater community, like individuals without 
disabilities.'' Olmstead Enforcement Statement, at 3.
    Giving deference to the Attorney General's regulations and 
interpretation of the ADA, the Supreme Court in Olmstead v. L.C., 527 
U.S. 581 (1999), held that Title II prohibits the unjustified 
segregation of individuals with disabilities. Id. at 597-98. The 
Supreme Court concluded that public entities are required to provide 
community-based services to persons with disabilities when (a) such 
services are appropriate; (b) the affected persons do not oppose 
community-based treatment; and (c) community-based services can be 
reasonably accommodated, taking into account the resources available to 
the entity and the needs of others who are receiving disability 
services from the entity. Id. at 607. The Court explained that this 
holding ``reflects two evident judgments.'' Id. at 600. ``First, 
institutional placement of persons who can handle and benefit from 
community settings perpetuates unwarranted assumptions that persons so 
isolated are incapable or unworthy of participating in community 
life.'' Id. ``Second, confinement in an institution severely diminishes 
the everyday life activities of individuals, including family 
relations, social contacts, work options, economic independence, 
educational advancement, and cultural enrichment.'' Id. at 601.
    The Department of Justice has issued guidance further clarifying 
the scope of a public entity's Olmstead obligations. Public entities 
may be in violation of the ADA's integration requirement when they: (1) 
Directly or indirectly operate facilities and/or programs that 
segregate individuals with disabilities; (2) finance the segregation of 
individuals with disabilities in private facilities; or (3) through 
planning service system design, funding choices, or service 
implementation practices, promote or rely upon the segregation of 
individuals with disabilities in private facilities or programs. 
Olmstead Enforcement Statement, at 3. ``[B]udget cuts can violate the 
ADA and Olmstead when significant funding cuts to community services 
creates a risk of institutionalization or segregation.'' Id. at 5. If 
budget cuts require the elimination or reduction of community services 
for individuals who would be at serious risk for institutionalization 
without such services, such cuts or reductions in services can violate 
the ADA's integration requirement. Id. at 6. Institutionalization need 
not be imminent or inevitable for a violation of the ADA's integration 
mandate to be found. See M.R. v. Dreyfus, 663 F.3d 1100, 1116-17 (9th 
Cir. 2011); accord Pashby v. Delia, 709 F.3d 307, 322 (4th Cir. 2013). 
Rather, an Olmstead violation can result when a public entity fails to 
provide community services or cuts services that ``will likely cause a 
decline in health, safety, or welfare that would lead to the 
individual's eventual placement in an institution.'' Olmstead 
Enforcement Statement, at 5.
    To comply with the ADA's integration requirement, public entities 
must reasonably modify their policies, procedures or practices when 
necessary to avoid discrimination or unjustified institutionalization. 
28 CFR 35.130(b)(7); accord Pashby, 709 F.3d at 322. The obligation to 
make reasonable modifications may be excused only where a public entity 
demonstrates that the modifications would ``fundamentally alter'' the 
programs or services at issue. Id.; see also Olmstead, 527 U.S. at 604-
07. ``A `fundamental alteration' requires the public entity to prove 
`that, in the allocation of available resources, immediate relief for 
plaintiffs would be inequitable, given the responsibility the State [or 
local government] has taken for the care and treatment of a large and 
diverse population of persons with disabilities.' '' Olmstead 
Enforcement Statement, at 6 (citing Olmstead, 527

[[Page 60487]]

U.S. at 604). DOJ has further indicated that in order to raise a 
fundamental alteration defense, a public entity must show that it has 
developed a comprehensive, effectively working Olmstead plan and is 
implementing that plan accordingly. Id. at 7.
    Several appellate courts have concluded that a fundamental 
alteration defense based solely on budgetary concerns is insufficient. 
See, e.g., Pashby, 709 F.3d at 323-24; M.R., 663 F.3d at 1118-19; Pa. 
Prot. & Advocacy, Inc. v. Pa. Dep't of Pub. Welfare, 402 F.3d 374, 380 
(3d Cir. 2005); Radaszewski v. Maram, 383 F.3d 599, 614 (7th Cir. 
2004); Fisher v. Oklahoma, 335 F.3d 1175, 1181 (10th Cir. 2003). ``Even 
in times of budgetary constraints, public entities can often reasonably 
modify their programs by re-allocating funding from expensive 
segregated settings to cost effective integrated settings.'' Olmstead 
Enforcement Statement, at 7.
    As previously noted, a public entity has an affirmative obligation 
to ensure its compliance with the ADA's integration mandate and take 
necessary steps to ensure its policies do not place individuals at risk 
of institutionalization. See, e.g., Fisher, 335 F.3d at 1181-84. The 
Department of Justice (DOJ) and the Office for Civil Rights (OCR) at 
the Department of Health and Human Services have taken the position 
that in order to comply with the ADA and the Supreme Court's decision 
in Olmstead, public entities must have in place an individualized 
process--available to any person whose service hours would be reduced 
as a result of the Final Rule--to examine if the service reduction 
would place the person at serious risk of institutionalization and, if 
so, what additional or alternative services would allow the individual 
to remain in the community. See October 22, 2012 Letter from DOJ and 
OCR available at http://www.ada.gov/olmstead/olmstead_cases_list2.htm#mr. It will be important for public entities to work closely 
with advocates and persons with disabilities to ensure that these 
processes address critical elements for determining whether a person is 
at risk and that persons with disabilities are aware of these 
processes.
    For these reasons, the Department agrees with those commenters who 
argued that the proposed rule will further the goals of Olmstead and 
will not create needless institutionalization. However, we will monitor 
implementation of the rule and its impact on consumers.

Family or Household Care Providers

Paid Family or Household Members in Certain Medicaid-Funded and Certain 
Other Publicly Funded Programs Offering Home Care Services
    The Department received a number of comments discussing the 
potential impact of the proposed rule on paid family care providers. 
See, e.g., Joni Fritz, ANCOR, ADAPT and the National Council on 
Independent Living, NASDDDS, Foothills Gateway, Inc. Arrangements in 
which a family member of the consumer is paid to provide home care 
services arise in certain Medicaid-funded and certain other publicly 
funded programs that allow the consumer (or the consumer's 
representative) to select and supervise the care provider, and further 
permit the consumer to choose a family member as a paid direct care 
worker. Family or household members may also be hired as paid direct 
care workers through other types of Medicaid-funded programs. The 
Department recognizes that consumers need not be homebound in order to 
qualify for home care services. Under these programs, the particular 
services to be provided and the number of hours of paid work are 
described in a written agreement, usually called a ``plan of care,'' 
developed and approved by the program after an assessment of the 
services the consumer requires and the consumer's existing supports, 
such as unpaid assistance provided by family or household members.
    Some commenters expressed concern that the services paid family 
care providers typically perform, such as household work, meal 
preparation, assistance with bathing and dressing, etc., would not fall 
within the definition of companionship services under the proposed 
rule. See, e.g., National Association of States United for Aging and 
Disabilities, ANCOR, NASDDDS. If paid family care providers are not 
performing exempt companionship services under the FLSA, these 
commenters wrote, the services they provide would become more 
expensive, and consequently, the options for employing family members 
through Medicaid-funded programs or for more than 40 hours per week 
would be severely limited. Id. Additionally, Foothills Gateway, Inc., a 
non-profit agency that provides Medicaid-funded services to individuals 
with developmental disabilities in Colorado, expressed concern that if 
paid family care providers are entitled to minimum wage and overtime 
for all hours during which they provide services to the consumer, 
including those that were previously unpaid, the costs of care would 
far exceed those Medicaid will reimburse, making the paid family 
caregiving model unsustainable.
    The Department is aware of and sensitive to the importance and 
value of family caregiving to those in need of assistance in caring for 
themselves to avoid institutional care. It recognizes that paid family 
caregiving, in particular through certain Medicaid-funded and certain 
other publicly funded programs, is increasing across the country, and 
that such programs play a critical role in allowing individuals to 
remain in their homes. The Department also recognizes that some paid or 
unpaid caregivers who are not family but are household members, meaning 
they live with the person in need of care based on a close, personal 
relationship that existed before the caregiving began--for example, a 
domestic partner to whom the person is not married--are the equivalent 
of family caregivers.
    The Department cannot adopt the suggestion of several commenters 
that the services paid family care providers typically perform be 
categorically considered exempt companionship services. Although as 
commenters stated, family care providers may often spend a significant 
amount of time providing assistance with ADLs and IADLs, the Department 
is defining companionship services to include only a limited amount of 
such assistance for the reasons described in the section of this Final 
Rule explaining the revisions to Sec.  552.6. Furthermore, there is no 
basis in the FLSA for treating domestic service employees who are 
family members of their employers differently than other workers in 
that category. Congress explicitly exempts family members when it is 
its intention to do so. See 29 U.S.C. 203(e)(3); 203(s)(2); 
213(c)(1)(A), (B). The provisions of the statute regarding domestic 
service and companionship services do not indicate intention to exempt 
family members. See 29 U.S.C. 206(f), 207(l), 213(a)(15).

Interpretation of ``Employ'' With Regard to Family or Household Care 
Providers

    The Department recognizes the significance and unique nature of 
paid family and household caregiving in certain Medicaid-funded and 
certain other publicly funded programs as described above. In 
interpreting the economic realities test to determine when someone is 
employed (i.e., suffered or permitted to work, 29 U.S.C. 203(g)), the 
Department has determined that the FLSA does not necessarily require 
that once a family or household member is paid to provide some home 
care services, all care provided by that

[[Page 60488]]

family or household member is part of the employment relationship. In 
such programs, as described above, the Department will not consider a 
family or household member with a pre-existing close, personal 
relationship with the consumer, to be employed beyond a written 
agreement developed with the involvement and approval of the program 
and the consumer (or the consumer's representative), usually called a 
plan of care, that reasonably defines and limits the hours for which 
paid home care services will be provided. The determination of whether 
such an agreement is reasonable includes consideration of whether it 
would have included the same number of paid hours if the care provider 
had not been a family or household member of the consumer.
    The Department believes this interpretation follows from the 
application of the FLSA ``economic realities'' test to the unique 
circumstances of home care provided by a family or household member. 
Ordinarily, a family or household member who provides unpaid home care 
to another family or household member would not be in an employment 
relationship with the recipient of the support. But under the FLSA, 
family members can be hired to be domestic service employees of other 
family members, in which case, unless a statutory exemption applies, 
they are entitled to minimum wage and overtime for hours worked. See 29 
U.S.C. 206(f), 207(l) (requiring the payment of minimum wage and 
overtime compensation to ``any employee engaged in domestic service'' 
without creating any exception for family members); Velez v. Sanchez, 
693 F.3d 308, 327-28 (2d Cir. 2012) (explaining that a familial 
relationship does not preclude the possibility that the economic 
realities of the situation show that an individual is a domestic 
service employee). The decision to select a family or household member 
as a paid direct care worker through a Medicaid-funded or certain other 
publicly funded program creates an employment relationship under the 
FLSA, and the services paid family or household care providers perform 
in those circumstances likely will not, because of the nature of the 
paid duties and possibly also the involvement of a third party 
employer, be exempt companionship services. Ordinarily, under the FLSA, 
including in the domestic service employment context, if an employment 
relationship exists, all hours worked by an employee for an employer, 
as defined at 29 CFR part 785 and Sec.  552.102 and discussed elsewhere 
in this Final Rule, are compensable. But in the case of certain 
Medicaid-funded and certain other publicly funded programs, different 
considerations apply where a prior familial or household relationship 
exists which is separate and apart from the creation of any employment 
relationship and where the relevant paid services are the provision of 
home care services. Specifically, in the context of direct care 
services under a Medicaid-funded or certain other publicly funded home 
care program, the FLSA ``economic realities'' test does not require 
that the decision to select a family or household member as a paid 
direct care worker means that all care provided by that person is 
compensable. In other words, in these circumstances, the Department 
does not interpret the law as transforming, and does not intend 
anything in this Final Rule to transform, all care by a family or 
household member into compensable work.
    For example, a familial relationship, but not an employment 
relationship, would exist where a father assists his adult, physically 
disabled son with activities of daily living in the evenings. If the 
son enrolled in a Medicaid-funded or certain other publicly funded 
program and the father decides to become his son's paid care provider 
under a program-approved plan of care that funds eight hours per day of 
services that consist of assistance with ADLs and IADLs, the father 
would then be in an employment relationship with his son (and perhaps 
the state-funded entity) for purposes of the FLSA. As explained in the 
sections of this Final Rule addressing Sec.  552.6 and Sec.  552.109, 
based on the nature of the paid services and possibly also the 
involvement of a third-party employer, the father's paid work would not 
fall under the companionship services exemption. If the relevant 
requirements (described below) are met, including that the hours of 
paid work described in a plan of care or similar document are 
reasonable as described above, the father's employment relationship 
with his son (and, if a joint employment relationship exists, the state 
or certain other publicly funded employer administering the program) 
extends only to the eight hours per day of paid work contemplated in 
the plan of care; the assistance he provides at other times is not part 
of that employment relationship (or those employment relationships) and 
therefore need not be paid.
    The limits on the employment relationship between a consumer and a 
family or household care provider and a third-party entity and that 
care provider arise from the application of the ``economic realities'' 
test, described in more detail in the section of this Final Rule 
discussing joint employment. Specifically, where a prior familial or 
prior household relationship exists separate and apart from any paid 
arrangement for home care services, the economic realities test applies 
differently to the two roles played by the family or household member. 
The Second Circuit has identified a number of useful factors for 
applying the economic realities test in the family domestic service 
employment context, calling for consideration of: ``(1) The employer's 
ability to hire and fire the employee; (2) the method of recruiting or 
soliciting the employee; (3) the employer's ability to control the 
terms of employment, such as hours and duration; (4) the presence of 
employment records; (5) the expectations or promises of compensation; 
(6) the flow of benefits from the relationship; and (7) the history and 
nature of the parties' relationship aside from the domestic labor.'' 
Velez, 693 F.3d at 330. Based on an analysis of these factors in the 
special situation of paid family or household care providers, an 
employment relationship would exist only as defined and limited by a 
written agreement developed with the involvement and approval of a 
Medicaid-funded or similar publicly funded program, usually called a 
plan of care, that reasonably sets forth the number of hours for which 
paid home care services will be provided.
    Under an analysis of the economic realities of the work compensated 
under a plan of care or similar written agreement, the consumer or the 
entity administering the Medicaid-funded or similar publicly funded 
home care program (or perhaps both) are employers of the family or 
household care provider. (Again, whether the entity administering a 
program is a third party employer of the care provider is determined as 
described in the section of this preamble discussing joint employment.) 
The consumer, and/or the entity, recruit and hire the family or 
household member to provide the services described in the plan of care, 
may fire the family or household member from the paid position, and 
control the number of hours of work and the type of work the family or 
household member must perform. There is a clear expectation and promise 
of compensation, and employment records must be kept in order to 
receive payment. During the hours for which a family or household care 
provider is

[[Page 60489]]

compensated under a plan of care, the care provider is obligated to 
perform the services he or she was hired to provide. In addition, a 
paid family or household care provider is not permitted to substitute 
someone else to receive payment from Medicaid for services provided 
pursuant to the plan of care without employer approval.
    On the other hand, during the time when the family or household 
care provider may perform similar services beyond the hours that he or 
she has been hired to work under the plan of care, an analysis of the 
economic realities of the situation leads to the conclusion that the 
caregiver is not employed, and that the consumer and any entity 
administering the Medicaid-funded or similar publicly funded program 
are not employers. The family or household member has not been hired to 
perform this additional care, nor was he or she recruited for a paid 
position performing them. The family or household member has no 
expectation of compensation, nor has any been promised, and there will 
not be employment records regarding any unpaid services. During this 
time, the family or household member's activities are not restricted by 
an agreement to provide certain services, and the family or household 
member can choose to come and go from the home and have other family 
members or other people provide the supports. Importantly, the unpaid 
support stems from a prior familial or household relationship that is 
separate and apart from the initiation of any employment relationship.
    The discussion above addresses only the unique circumstances that 
exist in the context of domestic service employment by paid family and 
household member caregivers. The Department believes this bifurcated 
analysis is warranted because of the special relationships between 
family and household members and the special environment of the home. 
It does not apply outside the home care service context; the Department 
views work for a family business, for example, as subject to the 
typical FLSA law and regulations regarding the employment relationship 
and hours worked. This analysis also does not generally apply to 
relationships that do not involve preexisting family ties or a 
preexisting shared household. Therefore, except as noted below, it 
would not apply to a direct care worker who did not have a family or a 
household relationship with the individual in need of services prior to 
the individual's need arising or the creation of the plan of care. In 
other words, a direct care worker who becomes so close to the consumer 
as to be ``like family,'' or a direct care worker who becomes part of 
the consumer's household when hired to be a live-in employee, does not 
have a bifurcated relationship with the consumer. In those 
circumstances, all services the direct care worker provides fall within 
the employment relationship between the consumer and worker and between 
any third party employer and the worker; therefore, if those direct 
care services do not fall under the companionship services exemption, 
they must be compensated as required under the FLSA. By contrast, if 
the consumer and caregiver enter into a new family relationship during 
the course of an employment relationship (e.g., through marriage or 
civil union), then, although the family relationship did not predate 
the employment relationship, the bifurcated analysis described above 
would apply.
    Additionally, the discussion above applies to third party employers 
that administer or facilitate the administration of certain Medicaid-
funded or certain other publicly funded home care programs. These 
entities may be public agencies that run such programs or private 
organizations that have been designated to play a role in the 
functioning of the programs. These entities may benefit from this 
unique analysis only because of the entanglement with the special 
relationships between family and household members that necessarily 
result from the selection of family and household members as paid care 
providers through certain Medicaid-funded or certain other publicly 
funded programs.
    Furthermore, the Department emphasizes that under this bifurcated 
analysis, the employment relationship is limited to the paid hours 
contemplated in the plan of care or other written agreement developed 
and approved by certain Medicaid-funded or certain other publicly 
funded home care programs only if that agreement is reasonable. As 
noted above, a determination of reasonableness will take into account 
whether the plan of care would have included the same number of paid 
hours if the care provider had not been a family or household member of 
the consumer. In other words, a plan of care that reflects unequal 
treatment of a care provider because of his or her familial or 
household relationship with the consumer is not reasonable. For 
instance, the program may not reduce the number of paid hours in a plan 
of care because the selected care provider is a family or household 
member. For example, an older woman who can no longer care for herself 
may enroll in a Medicaid-funded program. The program is administered by 
the county in which she lives and she has been assessed to need paid 
services for 30 hours per week beyond the existing unpaid assistance 
she receives from her daughter and other relatives. If the hours in the 
plan of care are reduced by the county to 15 hours per week because the 
woman's daughter is hired as the paid care provider, the paid hours in 
the plan of care do not reflect the economic reality of the employment 
relationship and therefore will not determine the number of hours that 
must be paid under the FLSA. In addition, a program may not require an 
increase in the hours of unpaid services performed by the family or 
household care provider in order to reduce the number of hours of paid 
services. See 42 CFR 441.540(b)(5) (mandating that as to certain types 
of Medicaid-funded home care programs, unpaid services provided by a 
family or household member ``cannot supplant needed paid services 
unless the . . . unpaid [services] . . . are provided voluntarily to 
the individual in lieu of an attendant''); Final Rule, Medicaid 
Program; Community Choice First Option, Centers for Medicare and 
Medicaid Services, 77 FR 26828, 26864 (May 7, 2012) (explaining that 
unpaid services ``should not be used to reduce the level of [paid] 
services provided to an individual unless the individual chooses to 
receive, and the identified person providing the support agrees to 
provide, these unpaid [services] to the individual in lieu of a paid 
attendant''). Although the Department distinguishes between an unpaid 
familial or household relationship and a paid employment relationship 
between family and household members, it does not condone or intend to 
overlook subterfuges that may seek to treat family members less 
equally. This interpretation may not be used in a manner that 
interferes with the ability of all direct care workers to enjoy the 
full protections of the FLSA.
    The ``economic realities'' analysis also applies to certain private 
pay home care situations, such as those funded by long-term care 
insurance, where a family or household member is paid for home care 
services. Specifically, where a program permits the selection of a 
family or household member as a paid home care provider, if a familial 
or household relationship existed prior to and separate and apart from 
any employment relationship, use of the bifurcated application of the 
economic realities test would be appropriate. Application of the 
factors for applying

[[Page 60490]]

the economic realities test in the family domestic service employment 
context described earlier in this section could lead to the conclusion 
that some of the hours of caregiving are part of an employment 
relationship and some hours are part of a familial or household 
relationship. How the divide between the two relationships is 
determined may vary depending on the structure of each program but, as 
in certain Medicaid and certain other publicly funded programs 
described above, the Department would look to a written agreement that 
reasonably sets forth the number of hours for which paid home care 
services will be provided.

FLSA ``Hours Worked'' Principles

    Although the Department did not propose any changes to its existing 
rules defining what are considered hours worked under the FLSA, many 
commenters asked how the hours worked principles under the FLSA apply 
to domestic service employment. For instance, many commenters raised 
questions about when domestic service employees are considered to be 
working even though some of their time is spent sleeping, traveling, 
eating, or engaging in personal pursuits. The Department emphasizes 
that its regulations regarding when employees must be compensated for 
sleep time, travel time, meal periods or on-call time were not a part 
of this rulemaking, and they are unchanged by this Final Rule. Domestic 
service employees who do not qualify for the companionship services 
exemption or the live-in domestic service employee exemption are 
subject to existing rules on how to calculate hours worked, like any 
other employee covered under the FLSA. To address commenters' 
questions, however, the Department is providing the following guidance 
regarding the Department's established rules on compensable hours 
worked.
    The Department received several comments requesting clarification 
on when sleep time, meal periods, or other off-duty periods would be 
compensable as hours worked under the FLSA. For example, a direct care 
worker requested that the Department define hours worked and 
differentiate between sleep time and other periods when the employee is 
awake. Another individual wanted to know whether a direct care worker 
who is on the job for a 24-hour period must be paid overtime while 
sleeping, eating a meal, watching television or making a personal 
telephone call. Other commenters suggested that the Department make 
clear that the final rules on companionship services and live-in 
domestic service employees do not alter the Department's longstanding 
regulations concerning the compensability of sleep time and meal 
periods.
    The Department also received a number of comments expressing 
concerns about domestic service employees being paid for sleep time or 
meal periods. Several employers suggested that their direct care 
workers should not be paid overtime for sleep periods or for other 
periods when the employee is engaged in personal activities and is not 
actively working. See, e.g., Husky Senior Care; Scott Shaw Enterprises; 
and Stephen McCollum. One individual, who was starting a home care 
business, stated that such companies should not be required to pay 
direct care workers for any time they are sleeping, eating, or 
attending to their own personal needs. Access Living stated that a 
direct care worker who stays overnight or is a live-in employee and 
assists the consumer by taking him or her to the bathroom or 
repositioning the client at night should only be paid for such 
activities and should not be compensated for the entire night or for 
periods when the direct care worker is asleep. Access Living requested 
clarification on the sleep time rules. VNAA stated that direct care 
workers who sleep over should not be paid overtime during periods when 
they are essentially ``standing by'' and not actively providing support 
services. VNAA urged the Department to provide greater flexibility in 
the rule for paying overtime to live-in or sleep-over employees.
    Similarly, the Department received numerous comments from 
employers, non-profits, and advocacy organizations that serve persons 
with disabilities requesting that live-in roommates not be required to 
receive minimum wage and overtime pay for periods of sleep time. See, 
e.g., Community Vision; TASH; Community Link; and Friends of 
Broomfield. Community Vision, a non-profit organization that provides 
support services for many adults with developmental disabilities, and 
many others stated that ``[r]equiring live-in roommates to be paid for 
sleep time puts solid agreements between individuals with significant 
disabilities and their live-in roommates at grave risk, and 
unintentionally results in an unnecessary burden for all interested 
parties.''
    Both NELP and AARP recognized that the Department has regulations 
that address the compensability of waiting time, on-call time, and 
sleep time. AARP noted that for shifts of less than 24 hours, all hours 
are considered work hours even though the employee may sleep and engage 
in other personal activities (see discussion below of off-duty hours). 
AARP further noted that for a shift of 24 hours or more, the parties 
may agree to exclude a sleep period of eight hours, unless the sleep is 
interrupted to such an extent that the employee cannot get five hours 
of sleep during the night. In addition, NELP noted that live-in 
domestic service employees and their employers are permitted to come to 
an agreement to exclude sleep time, time spent on meals and rest 
breaks, and other periods when the employee is completely relieved of 
duty.
    AARP stated that ``[s]ome slight modification [to the Department's 
rules] to account for the fact that both consumer and the worker may be 
asleep for most of the shift might make the new regulations more 
workable for both the employers and employees.'' AARP suggested that 
the Department allow employers to pay only the regular rate for sleep 
time even for overtime hours if the sleep time is largely uninterrupted 
or allow the parties to agree to an overnight flat rate of sufficient 
size to ensure that the worker is paid at least the minimum wage for 
all shift hours.

Sleep Time

    While the Department carefully considered all of the comments 
received on when sleep time should be compensable, the Department notes 
that no changes were proposed to its longstanding interpretation 
regarding the compensability of sleep time discussed in 29 CFR 
785.21-.23. The sleep time rules have been in effect for many decades 
and reflect case law, including Supreme Court decisions, that govern 
when time spent sleeping is work time. Under the Department's 
regulations, an employee who is required to be on duty for less than 24 
hours is working even though he or she is permitted to sleep or engage 
in other personal activities when not busy. See Sec.  785.21. Thus, an 
employee on duty for less than 24 hours, such as a security guard 
assigned to a hospital, would need to be paid for the entire period 
even though there may be times of inactivity when the employee may, for 
example, read a magazine. This general rule applies in the same way to 
domestic service employees who are on duty for less than 24 hours.
    Where an employee is required to be on duty for 24 hours or more, 
the employer and employee may agree to exclude a bona fide meal period 
or a bona fide regularly scheduled sleeping period of not more than 
eight hours from the employee's hours worked

[[Page 60491]]

under certain conditions. See Sec.  785.22. The conditions for the 
exclusion of such a sleeping period from hours worked are (1) that 
adequate sleeping facilities are furnished by the employer, and (2) 
that the employee's time spent sleeping is usually uninterrupted. When 
an employee must return to duty during a sleeping period, the length of 
the interruption must be counted as hours worked. If the interruptions 
are so frequent that the employee cannot get at least five hours of 
sleep during the scheduled sleeping period, the entire period must be 
counted as hours worked. Id.; see also Wage and Hour Opinion Letter, 
1999 WL 1002352 (Jan. 7, 1999). Where no expressed or implied agreement 
exists between the employer and employee, sleeping time is compensable.
    Where an employee resides on the employer's premises permanently or 
for extended periods of time, not all of the time spent on the premises 
is considered working time. See Sec. Sec.  552.102, 785.23. Such an 
employee may engage in normal private pursuits and thus have enough 
time for eating, sleeping, entertaining, and other periods of complete 
freedom from all duties where he or she may leave the premises for his 
or her own purposes. For a live-in domestic service employee, such as a 
live-in roommate, the employer and employee also may agree to exclude 
the amount of time spent during a bona fide meal period, sleep period 
and off-duty time. See Sec. Sec.  552.102, 785.22, 785.23. However, if 
the meal periods, sleep time, or other periods of free time are 
interrupted by a call to duty, the interruption must be counted as 
hours worked. In these circumstances, the Department will accept any 
reasonable agreement of the parties taking into consideration all of 
the pertinent facts. However, as more fully discussed above, the 
employer must track and record all hours worked by domestic service 
employees, including live-in employees, and the employee must be 
compensated for all hours actually worked notwithstanding the existence 
of an agreement.
    It is not necessary to create a special exemption for live-in 
roommates. Both AARP and NELP recognized the Department's longstanding 
position on when employees who work 24 hours or more or are live-in 
employees. The Department believes that its existing sleep time rules 
discussed above address the concerns raised in the comments regarding 
when sleep time must be compensated. The Department's longstanding 
rules make clear that live-in roommates need only be compensated for 
hours worked and those hours exclude sleep time, meal-time, as well as 
other off-duty time if there is an agreement to exclude such time and 
the employees are not performing work.
    The Department received a few comments expressing concern that if 
there is no express or implied agreement with respect to sleep time, 
all hours must be counted as work time. Under the existing sleep time 
rules, uninterrupted time spent sleeping need not be counted as work 
time so long as an agreement exists between the employer and employee. 
29 CFR 785.22. Bright Star Healthcare of Baltimore, for example, 
expressed concern that it would not be allowed to enter into agreements 
with its current employees to exclude sleep time. Bright Star feared 
that it would be required to fire all of its employees before asking 
whether they will agree to enter into such arrangements voluntarily, 
and then rehire them on that condition. Bright Star stated that 
terminating current employees in order to enter into agreements to 
exclude sleep time would be a ridiculous hurdle for employers and 
employees, and would not be in the best interest of those parties.
    The Department agrees that terminating employees and then 
requesting that they sign voluntary agreements to exclude sleep time 
would be a burdensome and unnecessary hurdle for employers and 
employees. Because many direct care workers may not have been 
previously subject to the sleep time rules due to application of the 
companionship services exemption, the Department recognizes that many 
employers may currently exclude sleep time, or wish to exclude sleep 
time, but do not have an agreement with their employees that would meet 
the regulatory requirements. The Department believes that sufficient 
time exists before the effective date of this Final Rule for the 
employer and employee to enter into an agreement to exclude a scheduled 
sleeping period of not more than 8 hours from the employee's hours 
worked (subject to the rules regarding interruptions to sleep described 
above) if adequate sleeping facilities are furnished by the employer 
and the employee's time spent sleeping usually is uninterrupted.
    The general rule is where there was previously an express or 
implied agreement to exclude sleep time from compensable hours worked, 
the employee can unilaterally withdraw his or her consent, and the 
employer would then be required to compensate the employee for any 
future sleep time that may occur. See Wage and Hour Opinion Letter 
FLSA-1303, 1995 WL 1032483 (Apr. 7, 1995). While the employer may not 
terminate an employee for refusing to enter into an agreement or for 
otherwise withdrawing their consent, see Cunningham v. Gibson County, 
Tenn., 108 F.3d 1376, 1997 WL 123750 (6th Cir. Mar. 18, 1997) 
(unpublished), the employer would not be required to agree to a 
continuation of the same terms and conditions of employment. The 
employer and employee are free to establish new conditions of 
employment such as rate of pay, hours of work, or reassignment. See 
Wage and Hour Opinion Letter FLSA-1303 (April 7, 1995). For example, if 
an employee refuses to enter into an agreement regarding the exclusion 
of sleep time, an employer might decide to assign that employee only to 
shifts of less than 24 hours.
    With regard to AARP's suggestion that the Department allow 
employers to pay only the regular rate for sleep time even for overtime 
hours, assuming such time is otherwise compensable, the statute 
precludes the Department from adopting this proposal. Section 7 of the 
FLSA requires the employer to pay overtime compensation for hours 
worked over 40 in a workweek ``at a rate not less than one and one-half 
times the regular rate at which [the employee] is employed.'' 29 U.S.C. 
207(a). Thus, allowing the employer to pay the regular rate or straight 
time pay instead of time and one-half of the regular rate of pay for 
sleep time that is otherwise compensable during overtime hours would 
require amending the FLSA.
    AARP also suggested that the Department allow the employee and 
employer to agree to a flat rate for overnight hours so long as the 
employee receives at least the FLSA minimum wage for all shift hours. 
The FLSA already allows an employer to pay an employee a flat rate for 
work performed during overnight hours so long as the employee's regular 
rate of pay during the workweek is at least the FLSA minimum wage and 
any overtime pay is calculated at not less than time and one-half of 
the regular rate of pay for all hours worked over 40 in a workweek. The 
employer may also pay a domestic service employee a per diem rate 
(i.e., a day rate) under the FLSA, provided the employee's regular rate 
of pay is at least the FLSA minimum wage for all hours worked during 
the workweek and overtime is paid at not less than time and one-half of 
the regular rate of pay for all hours worked over 40 in a workweek. 
Sec.  778.112.

Meal Periods

    The Department carefully considered all of the comments received on

[[Page 60492]]

whether meal or eating periods should be compensable and reiterates 
that no changes were proposed to the Department's longstanding 
interpretation on the compensability of meal periods discussed in 29 
CFR 785.19. An employer may exclude ``bona fide meal periods'' from a 
domestic service employee's hours worked. Sec.  785.19. Bona fide meal 
periods are periods where the employee is completely relieved from duty 
for the purposes of eating a regular meal. Id. Meal periods are not 
considered hours worked if employees are completely relieved from their 
duties, are allowed to take their meals uninterrupted by the employer, 
and are provided sufficient time to eat their meal. It is not necessary 
that an employee be permitted to leave the premises during meal 
periods. See Wage and Hour Opinion Letter, FLSA 2004-7NA, 2004 WL 
5303035 (Aug. 6, 2004).
    Bona fide meal periods do not include coffee breaks or time for 
snacks; such short rest periods are compensable. Further, the employee 
is not relieved from duty if he or she is required to perform any 
duties while eating. For instance, a domestic service employee is not 
relieved from duty if he or she is eating with the consumer and is 
required to feed or otherwise assist that individual with eating. 
Generally, 30 minutes is considered sufficient time for a bona fide 
meal period; however, a shorter period may be sufficient under special 
circumstances. Section 31b23 of the Wage and Hour Field Operations 
Handbook (FOH) enumerates the factors considered on a case-by-case 
basis in determining whether a meal period of less than 30 minutes is 
bona fide including, for example, whether the employees have sufficient 
time to eat a regular meal, whether there are work-related 
interruptions to the meal period, and whether the employees have agreed 
to the shorter period. The FOH provides that periods less than 20 
minutes will be specially scrutinized by Wage and Hour Investigators to 
ensure that the time is sufficient to eat a regular meal under the 
circumstances presented.

Off-Duty Time

    While the Department did not receive any comments specifically 
addressing when employees are engaged in off-duty time, the Department 
is describing its current regulations in order to address any confusion 
about the definition of hours worked.
    Under the Department's longstanding regulations, if an employee is 
completely relieved from duty and is free to use the time effectively 
for his or her own purposes, such time periods are not hours worked. 
Sec.  785.16. Typically, the employee must be told in advance that he 
or she may leave the premises and will not have to resume work until a 
definite time. Whether the time is long enough to enable the employee 
to use the time effectively for his or her own purposes depends upon 
all of the facts and circumstances of each case. For example, a 
domestic service employee who is completely relieved of his or her 
duties from 1:00 p.m. to 5:00 p.m. and chooses to watch television or 
run personal errands is not performing compensable work and need not be 
paid for these hours. However, an employee who is required to remain on 
call on the employer's premises or so close thereto that he or she 
cannot use the time effectively for his or her own purposes is working 
while on call and must be compensated for such time. In contrast, an 
employee who is not required to remain on the employer's premises but 
is merely required to leave word where he or she may be reached is not 
working while on call. Sec.  785.17.
    Further, an employer and a live-in domestic service employee may 
exclude by agreement periods of complete freedom from all duties when 
the employee may either leave the premises or stay on the premises for 
purely personal pursuits. Sec.  552.102(a). These periods must be of 
sufficient duration to enable the employee to make effective use of the 
time. For example, a live-in direct care worker who assists her 
roommate in the morning for three hours, then goes to class at the 
local university, returns home to study, watches television, and does 
her own laundry before assisting the roommate for two hours in the 
evening, has only worked five hours; the hours spent engaged in 
personal pursuits are considered bona fide off-duty time and are not 
compensable hours worked.

Rest and Waiting Periods

    As described above, the Department received a few comments 
suggesting that employees should not be paid unless actively engaged in 
providing services. The Department is not creating a special set of 
rules for determining compensable hours worked for domestic service 
employees, but will continue to determine work time in accordance with 
longstanding administrative and judicial interpretations of the FLSA. 
The FLSA generally requires compensation for ``all time during which an 
employee is necessarily required to be on the employer's premises, on 
duty or at a prescribed work place.'' Anderson v. Mt. Clemens Pottery 
Co., 328 U.S. 680, 690-91 (1946); see Sec.  785.7 (compensable time 
ordinarily includes all the time during which an employee is 
necessarily required to be on the employer's premises, on duty or at a 
prescribed work place). Employers must typically pay for all time 
during the workday ``whether or not the employee engages in work 
throughout all of that period.'' 29 CFR 790.6(b). For example, a nurse 
who must watch over an ill patient and be available to assist the 
individual is on duty and must be paid for this time. Thus, an employee 
who reads a book, knits, or works a puzzle while awaiting assignments 
is working during the period of inactivity, because the employee must 
be on the premises and could be summoned to work at any moment. In such 
cases, the employee is ``engaged to wait.'' See Sec.  785.14; Skidmore 
v. Swift, 323 U.S. 134 (1944).
    As discussed above, there are exceptions to this principle for bona 
fide meal and sleep periods and off-duty time. However, rest periods of 
short duration, running from 5 to about 20 minutes, are counted as 
hours worked. See Sec.  785.18; FOH Sec.  31a01; see also Wage and Hour 
Opinion Letter, 1996 WL 1005233 (Dec. 2, 1996). Such periods promote 
the efficiency of the employee and are common in industry. Thus, when a 
domestic service employee--in the same manner as an office or hospital 
employee--takes a 10-minute rest break to drink coffee or make a phone 
call, such time must be counted as hours worked.

Travel Time

    The Department also did not propose any changes to its longstanding 
travel time rules in the NPRM. Under the travel time rules, normal 
home-to-work travel is not compensable hours worked whether the 
employee works at a fixed location or at different job sites. Sec.  
785.36. On the other hand, travel time from job site to job site during 
the workday must be counted as hours worked. Sec.  785.38. These 
existing rules apply to all employees, including domestic service 
employees, who are not otherwise exempt from the minimum wage and 
overtime requirements of the FLSA.
    The Department received a number of comments about the requirement 
to pay direct care workers for travel time, exclusive of commuting 
time. Many worker advocacy organizations and individuals supported the 
requirement to pay direct care workers for travel time. See, e.g., NELP 
and Worksafe. For example, The National Consumer Voice for Quality 
Long-Term Care and several individuals stated that direct care workers 
deserve FLSA protections, including compensation for travel time. 
Moreover, NELP recognized that the

[[Page 60493]]

``failure to pay for travel time suppresses workers' already low 
earnings and not infrequently drives their real hourly wages below the 
minimum wage.'' Worksafe similarly noted that when direct care workers 
are not paid for travel time, the employees are working more hours than 
they are paid for, which in turn drives down their wages and increases 
the length of their shifts. In addition, the IHS's Global Insight 
Survey (Survey) of home care franchisees concluded that 50 percent of 
the responding home care employers are already paying for the time 
spent by direct care workers traveling between clients. The Survey 
further found that many of these franchisees are paying for travel time 
between clients, even in states with no minimum wage and overtime 
requirements for these workers. The Department also received comments 
from employers stating that they were paying direct care workers for 
travel time. See Comfort Keepers and Home Care Partners. Further, AARP 
and Senator Tom Harkin and 18 other Senators stated that employers may 
be able to minimize travel costs through efficient scheduling.
    Some third party employers as well as the Consumer Directed 
Personal Assistance Association of New York State (CDPAANYS) objected 
to added costs of paying employees for travel time between clients. For 
example, A-1 Health Care, Inc., a third party home care provider, 
indicated that over half of its employees spend an average of three 
hours per day traveling between clients for which they are not 
currently paid. This employer noted that if the Department's travel 
time rules applied to its employees, it would likely schedule these 
workers to avoid travel time. CDPAANYS suggested that because an 
employee working for two distinct employers, such as Macy's and the 
GAP, would not be compensated for travel time between the two jobs, a 
home care employee working for multiple clients of the same employer 
should not be compensated for time traveling between clients. CDPAANYS 
further speculated that the requirement to pay for travel time between 
clients may violate Medicaid or federal tax requirements, and other 
comments from advocacy groups that serve persons with disabilities and 
third party employers asked that the requirement to pay for travel time 
be re-evaluated because Medicaid may currently not pay for such time. 
See, e.g., A-1 Health Care, Inc. and National Disability Leadership 
Alliance.
    In addition, some employers, coalitions of employers, individuals 
with disabilities, and advocacy groups that serve persons with 
disabilities objected to compensation for travel time because they 
worried that potential increased costs may make travel for persons with 
disabilities who need the assistance of a direct care worker in order 
to travel--particularly overnight--for vacation or work, to visit 
family, or to attend conferences or medical appointments, cost-
prohibitive. See, e.g., S.T.E.P., California Foundation for Independent 
Living Centers (CFILC), and NDLA.
    While the Department did not propose any changes to its 
longstanding travel time rules in the NPRM, all comments received 
concerning when direct care workers should be paid for travel time were 
considered. The general FLSA principles applicable to all employers on 
the compensability of travel time continue to be applicable under this 
rule and are discussed in Sec. Sec.  785.33-.41.
    Although the comment from CDPAANYS characterized time spent 
traveling between multiple clients of a single employer as ``commuting 
time'' for which compensation is not required, the Department has long 
distinguished between normal commuting time from home to work and 
travel time between worksites during the workday. Compare Sec.  785.35, 
with Sec.  785.38. CDPAANYS speculated that the requirement to pay for 
travel time between clients may violate federal tax requirements; 
however Internal Revenue Service regulations regarding the 
deductibility of the daily transportation expenses incurred by the 
individual during different commuting scenarios have no bearing on 
whether such commute time is compensable under the FLSA. IRS 
Publication 463 (2012). Under the Department's longstanding 
regulations, normal home-to-work travel is not hours worked regardless 
of whether the employee works at a fixed location or at different job 
sites. Sec.  785.35; see Wage and Hour Opinion Letter, W-454, 1978 WL 
51446 (Feb. 9, 1978). Thus, if a direct care worker travels to the 
first consumer site directly from home, and returns directly home from 
the final consumer site, this commuting travel time generally does not 
need to be paid. Sec.  785.35; see Wage and Hour Opinion Letter, W-454, 
1978 WL 51446 (Feb. 9, 1978). On the other hand, employees who travel 
to more than one worksite for an employer during the workday must be 
paid for travel time between each worksite. Sec.  785.38; see Wage and 
Hour Opinion Letter, W-454, 1978 WL 51446 (Feb. 9, 1978). Travel that 
is ``all in the day's work'' must be compensated. Sec.  785.38. For 
example, if a domestic service employee drives a consumer to a doctor's 
appointment or to the grocery store, that time is ``all in the day's 
work'' and must be compensated.
    Thus, while an employee working for two different employers need 
not be compensated for time spent traveling between the two employers, 
an employee working for multiple consumers of a single employer must be 
compensated for the time spent traveling between those consumers 
because such travel is undertaken for the benefit of the employer. 
Sec.  785.38. This Final Rule does nothing to alter this longstanding 
policy.

    Example: Jeff is a direct care worker employed by a home care 
agency. At 8:00 a.m. he drives from his home to the home of his 
first client, Sue. Jeff arrives at Sue's home at 8:45 a.m. He works 
at Sue's home until 12:15 p.m. From 12:15 p.m. until 12:45 p.m., 
Jeff drives directly to the home of his second client, Gertrude. 
Jeff works for Gertrude until 4:45 p.m., the end of his shift. From 
4:45 until 5:45 p.m. Jeff drives to his home. The home care agency 
must compensate Jeff for the time he spent driving from Sue's home 
to Gertrude's home. The agency need not compensate Jeff for the time 
spent traveling from his home to Sue's home in the morning or from 
Gertrude's home to his home at night because this time is spent in 
ordinary home-to-work commute.

    Neither federal tax requirements nor Medicaid rules counsel a 
departure from normal FLSA travel rules for direct care workers. The 
FLSA requirement that employees be paid for time spent traveling 
between multiple clients of a single employer is longstanding and does 
not conflict with these laws. Though Medicaid may not provide 
reimbursement for time that an employee spends traveling between 
clients, nothing in the Medicaid law prevents a third party employer 
from paying for that time. Medicaid, however, may reimburse for the 
costs of travel, including the costs of overnight travel with an 
attendant when ``necessary . . . to secure medical examinations and 
treatment for a recipient.'' 42 CFR 440.170. Likewise, whether travel 
expenses may be deducted for tax purposes has no bearing on whether 
time spent traveling between clients is hours worked under the FLSA.
    Further, the Department agrees with commenters, such as AARP and 
Senator Harkin, who wrote that employers may be able to minimize some 
of the cost of travel between clients through scheduling and thus have 
some control over the amount of travel costs incurred. Indeed, A-1 
Health Care, Inc. stated that it will likely adjust its workers' 
schedules to avoid paying for travel

[[Page 60494]]

time. This issue is more fully discussed in the economic analysis.
    Of particular concern to individuals with disabilities, their 
advocates, and employers was the requirement to pay for travel time for 
periods of extended travel. The Department fully supports the right of 
individuals with disabilities to participate in their communities and 
to travel for various personal and work-related purposes. The comments 
received demonstrate that, while traveling, direct care workers provide 
valuable personal care and related services to ensure the comfort, 
safety, and health of individuals with disabilities. For example, one 
direct care worker commented:

    I even traveled with my client after her stroke so she could 
visit her friends. This was much harder because we had to have 
oxygen, get a hospital bed, and had to make sure the hotels would 
accept a hospital bed. I also had to be sure to have all her 
medications so we wouldn't run out. I ordered all of her personal 
care items, too. On one occasion we arrived late at night at the 
hotel [, and] the hospital bed was not set up. My client was tired 
after nine hours of travel and we had to get the bed set up fairly 
quickly.

    The Department considers all travel ``that keeps an employee away 
from home overnight'' to be a special class of ``travel away from 
home.'' See Sec.  785.39; see also Wage and Hour Opinion Letter (Dec. 
14, 1979). ``Travel away from home is clearly work time when it cuts 
across the employee's workday. The employee is simply substituting 
travel for other duties.'' Sec.  785.39. Thus, if a direct care worker 
accompanies a consumer on travel away from home, the employee must be 
paid for all time spent traveling during the employee's normal work 
hours. On the other hand, the Department has adopted a non-enforcement 
policy for travel away from home as a passenger on an airplane, train, 
boat, bus or automobile if the travel occurs outside of the employee's 
normal work hours. Sec.  785.39; see Wage and Hour Opinion Letter (Dec. 
14, 1979). However, a direct care worker who is required to travel as a 
passenger with the consumer ``as an assistant or helper'' and is 
expected to perform services as needed is working even though traveling 
outside of the employee's regular work hours. See Sec.  785.41.

    Example: Steve, a direct care worker, ordinarily provides 
assistance to Beth on Monday-Friday from 8:00 a.m. to 5:00 p.m., his 
normal work hours. Steve agrees to provide home care services to 
Beth on a trip to Phoenix to visit her family for a week. Steve 
meets Beth at the airport at 11:00 a.m. on Sunday for a three hour 
flight. The time spent traveling is hours worked because it occurs 
during Steve's normal work hours of 8:00 a.m. to 5 p.m., even though 
the travel occurs on a Sunday, and Steve ordinarily works only 
Monday-Friday.
    Example: Gina, a direct care worker, ordinarily works Monday-
Friday from 8:00 a.m. to 5:00 p.m. providing services for Daren. 
Gina agrees to provide home care services on a weekend trip Daren 
takes to Tulsa for his college reunion. Gina meets Daren at the 
airport at 7:00 p.m. on Saturday and is expected to provide care 
services to Daren as needed throughout the four hour flight. During 
the flight, Gina is on duty for the entire trip and assists Daren 
with feeding and toileting and gives him an insulin shot; she spends 
the remainder of the flight time reading a book. Because Daren has 
asked Gina to accompany him on the flight to be on duty and assist 
or help as needed, Gina must be compensated for the entire flight, 
although she was able to spend some of the time reading. However, if 
Gina is completely relieved of duties for the entire flight and is 
able to use the time effectively for her own purposes, such as 
taking a nap or watching a movie, those hours would not be 
compensable.

    Moreover, direct care workers must be compensated for all hours 
they work while traveling for the benefit of consumers in accordance 
with existing FLSA rules. See Sec.  785.41 (``Any work which an 
employee is required to perform while traveling must, of course, be 
counted as hours worked.''). However, it is clear that not all time 
spent while away on travel is hours worked under the FLSA, and there 
may be significant periods of time while on travel that a direct care 
worker is not providing services to an elderly person or individual 
with disabilities and is not ``engaged to wait'' and need not be 
compensated. For example, periods when the direct care worker is 
completely relieved from duty and which are long enough to enable the 
employee to use the time effectively for his or her own purposes are 
excluded from hours worked as off-duty time, as are bona fide meal and 
sleep periods, as discussed previously in this section. See Wage and 
Hour Opinion Letter (May 7, 1981).

    Example: Horatio works as a direct care worker and accompanies 
his client, Jamie, to Washington, DC, where Jamie will attend a 
conference. In the morning, Horatio assists Jamie with toileting, 
bathing, and wound care. At 8:30 a.m., Horatio drives Jamie to the 
conference site, arriving at 9:00 a.m. From 9:00 a.m. until noon, 
Horatio is relieved of all duty and uses the time to go to a museum. 
At noon, Horatio meets Jamie at the site of the conference and 
resumes work. The time from 9:00 a.m. until noon is not hours worked 
under the FLSA, and Horatio need not be paid for that time.

As described above, not all time spent by an employee in travel is 
compensable hours work. Therefore, the Department believes that the 
comments received may overestimate the costs associated with overnight 
travel by a consumer with a direct care worker.

IV. Effective Date

    The Department has set an effective date for this Final Rule of 
January 1, 2015. As discussed below, the Department believes that this 
effective date takes into account the complexity of the federal and 
state systems that are a significant source of funding for home care 
work and the needs of the diverse parties affected by this Final Rule 
(including consumers, their families, home care agencies, direct care 
workers, and local, state and federal Medicaid programs) by providing 
such parties, programs and systems time to adjust.
    A number of commenters requested an extended phase-in period in 
order to allow for systemic changes at the state and local levels, to 
ensure that there is no adverse impact on access to home care services, 
and to accommodate the hiring of new workers and scheduling changes for 
the existing workforce. See, e.g., VNAA, DCA, AARP, and NRCPDS. 
Specifically, the AARP noted that the changes to the Department's 
regulations would be new to direct care workers and consumers, as well 
as many third party employers, state Medicaid programs, consumer-
directed programs, and other publicly financed programs. ``Because it 
may take some time for consumers and family caregivers to learn about 
what the changes would mean for them, take providers some time to 
prepare to comply (for instance by hiring additional staff), and take 
public programs some time to determine what the changes mean for them 
and implement them, AARP urges DOL to consider whether a reasonable 
transition period (e.g., a phase-in period or a grace period during 
which no penalties for noncompliance are assessed) might be 
advisable.'' See AARP; see also Small Business Administration's Office 
of Advocacy (Advocacy) (requesting a delayed effective date in order to 
``allow small business to change their business practices'').
    The length of time requested by commenters for any phase-in period 
varied significantly. For example, the VNAA requested an 18-month 
phase-in period ``to allow agencies to undertake an orderly process for 
adding new workers and that an accurate assessment of the costs 
involved be provided.'' The Direct Care Alliance cited similar reasons 
for a phase-in period, but recommended a time period of only 90 days, 
``to allow time for consumers, workers and employers to make any 
adjustments that are necessary to comply with the overtime pay

[[Page 60495]]

requirements.'' See also PHI (requesting a 90-day phase-in period 
generally, and a 180-day phase-in period for publicly funded consumer-
directed programs). Other commenters requested that the Final Rule 
become effective ``immediately'' or ``without delay.'' See, e.g., 9to5, 
National Association of Working Women; Catherine Joaquin, Filipino 
Advocates for Justice; individual family caregiver Annette Heldeca.
    Several commenters explicitly noted the rule's potential impact on 
consumer-directed programs and requested an extended phase-in period 
``particularly for publicly-funded consumer-directed programs.'' See, 
e.g., PHI. CDPAANYS asked that the Department carve out consumer-
directed services from the scope of the regulations. In the 
alternative, CDPAANYS stated, ``[b]arring this, we urge you to delay 
implementation so that the numerous technical issues that were raised 
can be reexamined and worked through individually. This will prevent 
long-term damage to [consumer-directed programs] that ha[ve] 
successfully improved the quality of life for millions of Americans.'' 
Similarly, Disability Rights California asked the Department to delay 
the implementation of the change of regulations for consumer-directed 
programs so that states, such as California, can review and assess the 
impact of this Final Rule. Noting that state and program administrators 
will need to update service codes and definitions and establish new 
operations and monitoring systems to comply with the new regulations, 
NRCPDS recommended a 12-month period of non-enforcement, in order to 
allow ``states and program participants to identify solutions that 
minimize a negative impact on existing service delivery.''
    The Department believes that because this Final Rule will extend 
the FLSA's basic minimum wage, overtime and recordkeeping protections 
to more workers, the rule should become effective as quickly as 
practicable. This position is consistent with the broad goals of the 
FLSA, a remedial statute designed to correct ``labor conditions 
detrimental to the maintenance of the minimum standard of living 
necessary for health, efficiency and the general well-being of 
workers.'' 29 U.S.C. 202(a). The statute requires that these 
corrections be made ``as rapidly as practicable . . . without 
substantially curtailing employment or earning power.'' 29 U.S.C. 
202(b). The Department has determined that the regulations issued in 
1975 no longer reflect Congress's intent in enacting the 1974 FLSA 
amendments given the changes in the home care industry that have taken 
place in the past 38 years.
    Because of the unique circumstances surrounding this rule, however, 
the Department believes that a January 1, 2015 effective date is most 
appropriate. Specifically, this extended effective date is reasonable 
due to the integral role played by complex federal and state systems 
that are a significant source of funding for home care work, and the 
needs of the diverse parties affected by this Final Rule. The 
Department recognizes that the multiple federal and state programs that 
often fund, administer, and oversee direct care for consumers will 
require a period of time to adjust to the new regulations. Federal, 
state, and local agencies, as well as private entities, may need to 
implement new protocols, apply for changes to their Medicaid programs, 
adjust funding streams, and legislatively address budgetary and 
programmatic changes. States will need time to work with the Department 
of Health and Human Services (HHS) to review consumer-directed 
programs, make any needed programmatic changes, and prepare any 
necessary budget allocations, in order to maintain the important and 
growing role that consumer-directed programs fulfill. State and local 
entities will also need to work with consumers and their families to 
ensure they understand any adjustments that may occur on the provision 
of services. Furthermore, employers will have to make many of the usual 
adjustments associated with revised FLSA regulations--such as 
scheduling changes, hiring and training additional workers, and 
modifying service agreements--in conjunction with any adjustments made 
by federal, state and local agencies under the new regulations. In view 
of the unique nature of the publicly funded programs that support a 
significant portion of home care, the Department believes an extended 
effective date allows time for the regulated community to avoid 
disruptions to home care services because of the restrictions of 
federal or state budget processes or the need to comply with the HHS 
process for modifying Medicaid programs. Although not all home care is 
funded by these complex public systems, the Department is setting a 
single effective date for the entire regulated community to avoid the 
administrative burdens for employers, confusion amongst employees, and 
complications for enforcement that would result from accepting some 
commenters' suggestion that the rule's effect be delayed only as it 
applies to consumer-directed programs.
    Additionally, the Final Rule's impact falls on populations that 
depend on home care services to remain in their communities and the 
Department anticipates that this effective date will allow time for 
state budgets and other components of the public funding systems that 
support home care to adjust. The Department also recognizes that there 
will be individuals, families and households who as employers will have 
new obligations under this Final Rule; an extended effective date will 
allow families additional time to become familiar with their 
responsibilities under the FLSA and evaluate scheduling or staffing 
needs in order to comply with the regulations.
    Thus, a January 1, 2015 effective date provides time for these 
systemic changes to take place, and for employers to fully implement 
the Final Rule. This effective date exceeds the 30-day minimum delayed 
effective date required under the Administrative Procedure Act, 5 
U.S.C. 553(d), and the 60-day delayed effective date for ``major 
rules'' under the Congressional Review Act, 5 U.S.C. 801(a)(3)(A). 
Although the Department typically utilizes the legislatively required 
effective dates, as applicable, the Department has in the past, in 
response to comments, extended the effective date for a significant 
FLSA rule. For example, the 2004 update to 29 CFR part 541, the 
regulations that govern whether employees are executives, 
administrative personnel, professionals, outside sales or computer 
employees exempt from minimum wage and overtime requirements, adopted a 
delayed effective date of 120 days in response to public comments in 
that rulemaking, including one seeking a 180-day delayed effective 
date. See 69 FR 22126 (Apr. 23, 2004). For this Final Rule, the 
comments received concerning a proposed effective date ranged from a 
typical effective date to at least 18 months. The Department believes 
that an effective date of January 1, 2015, which falls well within the 
range suggested by commenters, is reasonable under these unique 
circumstances and responsive to the comments received from 
stakeholders, including employee and employer advocacy groups, as well 
as state agencies.
    The Department will work closely with stakeholders and HHS to 
provide additional guidance and technical assistance during the period 
before the rule becomes effective, in order to ensure a successful 
transition for all involved parties.

[[Page 60496]]

V. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., 
and its attendant regulations, 5 CFR part 1320, requires that the 
Department consider the impact of paperwork and other information 
collection burdens imposed on the public. Under the PRA, an agency may 
not collect or sponsor the collection of information, nor may it impose 
an information collection requirement unless it displays a currently 
valid Office of Management and Budget (OMB) control number. See 5 CFR 
1320.8(b)(3)(vi).
    The Office of Management and Budget (OMB) has assigned control 
number 1235-0018 to the FLSA information collections. In accordance 
with the PRA, the December 27, 2011 NPRM solicited comments on the FLSA 
information collections as they were proposed to be changed. 44 U.S.C. 
3506(c)(2). The Department also submitted a contemporaneous request for 
OMB review of the proposed revisions to the FLSA information 
collections, in accordance with 44 U.S.C. 3507(d). On February 29, 
2012, the OMB issued a notice that continued the previous approval of 
the FLSA information collections under the existing terms of clearance. 
The OMB asked the Department to resubmit the information collection 
request upon promulgation of the Final Rule and after considering 
public comments on the FLSA NPRM dated December 27, 2011. OMB has pre-
approved the information collections and will take effect on the same 
date as this Final Rule.
    Circumstances Necessitating Collection: The Fair Labor Standards 
Act (FLSA), 29 U.S.C. 201 et seq., sets the federal minimum wage, 
overtime pay, recordkeeping and youth employment standards of most 
general application. Section 11(c) of the FLSA requires all employers 
covered by the FLSA to make, keep, and preserve records or employees 
and of wages, hours, and other conditions and practices of employment. 
An FLSA covered employer must maintain the records for such period of 
time and make such reports as prescribed by regulations issued by the 
Secretary of Labor. The Department has promulgated regulations at 29 
CFR part 516 to establish the basic FLSA recordkeeping requirements. 
The Department has also issued specific recordkeeping requirements in 
29 CFR part 552 which is the subject of this collection. The Department 
has amended recordkeeping requirements in Sec.  552.102 and Sec.  
552.110 regarding agreements for live-in domestic workers. The 
Department also notes that the amendments to the definition of 
companionship services results in fewer employees being exempt from the 
minimum wage and overtime requirements of the FLSA.
    Public Comments: In addition to soliciting comments on the 
substantive recordkeeping provisions discussed above, the Department 
sought public comments regarding the burdens imposed by information 
collections contained in the proposed rule. As previously discussed, 
the Department received some general comments offering support for 
change to the regulations addressing recordkeeping requirements. 
Organizations such as EJC, Jobs with Justice, DCA and others expressed 
support for the revised recordkeeping rules.
    The Department also received some general comments voicing 
opposition to recordkeeping requirements. Organizations such as the 
Visiting Nurse Service of New York, and Home Care Association of New 
York State expressed concern about burdens associated with the new 
recordkeeping requirements identified in the NPRM.
    The National Federation of Independent Business (NFIB), for 
instance, asserted that the Department estimated that paperwork and 
recordkeeping associated with the proposed rule would cost in excess of 
$22.5 million per year. They expressed their view that this is a 
substantial burden that will disproportionately impact small 
businesses. The Department seeks to clarify the estimated $22,580,605 
cost listed in the NPRM; this amount reflected the cost associated with 
the entire information collection that is required of all employers in 
the United States that are subject to the FLSA minimum wage and 
overtime requirements. As noted below, the cost associated with the 
changes resulting from this Final Rule is estimated to be approximately 
$8.96 million. The PRA, in order to reduce redundancy, requires a 
federal agency to view any given information collection requirement of 
a rule in light of other existing information collections that might 
meet the same purpose. The regulations implementing the PRA also 
require an agency to notify the public of the full burden of an 
information collection, including the burden imposed by unchanged 
information collections. 5 CFR 1320.5(a)(1)(iv)(B)(5). The PRA 
discussion in a regulatory preamble, therefore, will often include 
burdens that are unaffected by changes to the rule. This differs from 
how the overall regulatory impact analysis is summarized. The 
regulatory impact analysis calculates the burden only for the marginal 
changes of a rule. This rule addresses only employees who will newly be 
subject to the minimum wage and overtime requirements of the FLSA. The 
rulemaking also coincides with the periodic renewal required by the PRA 
of the entire information collection under the FLSA. The amount cited 
by NFIB reflects the estimated cost to the wider universe of all 
employers subject to the FLSA recordkeeping requirements, of which the 
overwhelming majority are not impacted by this rule but are included in 
the same information collection as other employers since the 
requirements are the same for those employers.
    VNAA makes the general statement that the ``rule does not 
accurately reflect costs'' in recordkeeping. The organization indicates 
that the requirement to make, keep, and preserve a record showing the 
exact hours worked by each employee will increase recordkeeping 
responsibilities dramatically. The organization, however, does not 
provide alternate methodologies or explain how or why the recordkeeping 
requirements will impact their organization so significantly. Without 
alternative data, the Department believes it is appropriate to assign 
the same level of recordkeeping burden as experienced by other FLSA-
covered employers to those employers that will newly be required to 
make, keep, and maintain records of hours worked and those employers 
that now must make, keep, and maintain records for previously exempt 
workers.
    The National Association for Homecare & Hospice expressed concern 
that the Department of Labor fell short of the analysis required under 
the PRA but failed to identify in what way the methodology presented in 
the PRA section of the proposed rule did not address information 
collection requirements or burdens. Further, the commenter did not 
identify an alternative methodology with which to examine the burden 
associated with this rule.
    In addition, the Department received a number of form letters that 
addressed the recordkeeping requirements. Some form letters made 
general comments in support of the recordkeeping requirements. Other 
form letters expressed concern about the additional costs associated 
with recordkeeping. No comments, however, directly addressed the 
methodology for estimating the public burdens under the PRA or offered 
alternative methods for calculating burden under the PRA. With respect 
to the concerns addressed about cost of recordkeeping regulations, the 
requirements to maintain records are no

[[Page 60497]]

different for the employers who are the subject of this rule than for 
other employers in the United States that are subject to the minimum 
wage and overtime pay requirements under the FLSA. Further, as noted in 
the economic analysis, most of the agencies that employ domestic 
workers have at least one employee who is already subject to FLSA 
recordkeeping requirements. As explained in the PRA materials submitted 
to OMB, the Department utilized a 1979 study of domestic service 
employees on the number of live-in workers and assumed for purposes of 
the PRA that a similar percentage of the current domestic service 
worker population is employed in live-in service today. The Department 
estimates that the total costs to employers of the Final Rule's 
information collection requirements is approximately $8.96 million of 
the total of $29.78 million in information collection costs of all 
employers subject to the FLSA.
    An agency may not conduct an information collection unless it has a 
currently valid OMB approval, and the Department submitted the 
identified information collection contained in the proposed rule to OMB 
for review in accordance with the PRA under Control Number 1235-0018. 
See 44 U.S.C. 3507(d); 5 CFR 1320.11. The Department has resubmitted 
the revised FLSA information collection to OMB for approval, and the 
Department intends to publish a notice announcing OMB's decision 
regarding this information collection request. A copy of the 
information collection request can be obtained at http://www.reginfo.gov or by contacting the Wage and Hour Division as shown in 
the FOR FURTHER INFORMATION CONTACT section of this preamble. A summary 
of the number of respondents, annual responses, burden hours and costs 
of all of the recordkeeping provisions of the FLSA follow.
    OMB Control Number: 1235-0018.
    Affected Public: Businesses or other for profit, Not-for-profit 
institutions
    Total Respondents: 3,911,600 (272,000 affected by this Final Rule).
    Total Annual Responses: 40,998,533 (710,240 from this Final Rule).
    Estimated Burden Hours: 1,250,164 (376,008 from this Final Rule)
    Estimated Time per Response: various, with an average of 1.8 
minutes.
    Frequency: various with an average of 10.54.
    Total Burden Cost (capital/startup): 0.
    Total Burden Costs (operation/maintenance): $29,778,906 ($3,755,997 
from this Final Rule) ($8,956,511 in Year 1 from this Final Rule which 
drops substantially in Year 2 due to decrease in regulatory 
familiarization).

VI. Executive Orders 12866 (Regulatory Planning and Review) and 13563 
(Improving Regulation and Regulatory Review)

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if the 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule is economically significant within the meaning 
of Executive Order 12866, or a ``major rule'' under the Small Business 
Regulatory Flexibility Act. Therefore, the Office of Management and 
Budget has reviewed this rule. The Department believes that this rule 
will have a significant economic impact on a substantial number of 
small entities; therefore this Final Rule contains a final regulatory 
flexibility analysis.

A. Regulatory Impact Analysis of the Revisions to the Companionship 
Regulations

Background
    The provisions of the FLSA apply to all enterprises that have 
employees engaged in commerce or in the production of goods for 
commerce and have an annual gross volume of sales made or business done 
of at least $500,000 (exclusive of excise taxes at the retail level 
that are separately stated); or, are engaged in the operation of a 
hospital, an institution primarily engaged in the care of the sick, the 
aged, or the mentally ill who reside on the premises; a school for 
mentally or physically disabled or gifted children; a preschool, 
elementary or secondary school, or an institution of higher education 
(regardless whether such hospital, institution or school is public or 
private, or operated for profit or not); or, are engaged in an activity 
of a public agency.
    There are two ways an employee may be covered by the provisions of 
the FLSA: (1) enterprise coverage, where any employee of an enterprise 
covered by the FLSA is covered by the provisions of the FLSA, and (2) 
individual coverage, where even if the enterprise is not covered, 
individual employees whose work engages the employee in interstate 
commerce or in the production of goods for commerce or in domestic 
service is covered by the provisions of the FLSA. Covered employers are 
required by the provisions of the FLSA to: (1) pay employees who are 
covered and not exempt from the Act's requirements not less than the 
Federal minimum wage for all hours worked and overtime premium pay at a 
rate of not less than one and one-half times the employee's regular 
rate of pay for all hours worked over 40 in a workweek, and (2) make, 
keep, and preserve records of the persons employed by the employer and 
of the wages, hours, and other conditions and practices of employment.
    In 1974, Congress expressly extended FLSA coverage to ``domestic 
service'' workers performing services of a household nature in private 
homes not previously subject to minimum wage and overtime requirements. 
While domestic service workers are covered by the FLSA even if they 
work for a private household and not a covered enterprise, Congress 
created an exemption from the minimum wage and overtime compensation 
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,'' 
and an exemption from the overtime compensation requirement for live-in 
domestic service employees.\27\
---------------------------------------------------------------------------

    \27\ 29 U.S.C. 202(a), 206(f), 207(l), 213(a)(15), and 
213(b)(21).
---------------------------------------------------------------------------

Need for Regulation and Why the Department Is Considering Action
    In 1974, Congress extended coverage of the FLSA to many domestic 
service employees performing services of a household nature in private 
homes not previously subject to minimum wage and overtime compensation 
requirements. Section 13(a)(15) of the Act exempts from its minimum 
wage and overtime compensation provisions 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).'' Section 13(b)(21) of the FLSA exempts from the overtime 
compensation provision any employee employed ``in domestic service in a 
household and who resides in such household.''
    The Department issued regulations in 1975 to implement these 
exemptions. Since the 1975 regulations were promulgated, the home care 
industry has evolved and expanded in response

[[Page 60498]]

to the increasing size of the population in need of such services, the 
growing demand for home- and community-based care instead of 
institutional care for persons of all ages, and the availability of 
public funding assistance for such services through public payers 
(including Medicare, Medicaid, and other federal programs such as the 
Veterans Health Administration, and other state and local 
programs).\28\ As the industry has expanded, so has the range of tasks 
performed by workers providing home care services. The range now 
includes assistance with activities of daily living (ADLs), 
instrumental activities of daily living (IADLs), and paramedical tasks 
(such as catheter hygiene or changing of aseptic dressings).\29\ Public 
funding programs do not typically cover services such as social 
support, fellowship or protection.\30\ According to the U.S. Department 
of Health and Human Services (HHS), ``[s]imple companionship or 
custodial observation of an individual, absent hands-on or cueing 
assistance that is necessary and directly related to ADLs and IADLs, is 
not a Medicaid personal care service.'' \31\
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    \28\ Congressional Research Service. Memorandum dated February 
21, 2012, titled ``Extending Federal Minimum Wage and Overtime 
Protections to Home Care Workers under the Fair Labor Standards Act: 
Impact on Medicare and Medicaid,'' p. 3, WHD-2011-0003-5683.
    \29\ Seavey and Marquand, 2011, p. 7. WHD-2011-0003-3514. 
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
    \30\ Seavey and Marquand, 2011, p. 8. WHD-2011-0003-3514. 
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
    \31\ Smith, G., O'Keefe, J., et al. (2000). Understanding 
Medicaid Home and Community Services: A Primer, George Washington 
University, Center for Health Policy Research.
---------------------------------------------------------------------------

    The Department believes that the current application of the 
companionship services exemption in the home care industry is not 
consistent with the original Congressional intent. The scope of 
services provided to individuals in their homes has expanded beyond 
those provided in 1975 when the regulations were first promulgated. In 
addition, courts have interpreted the definition of ``companionship 
services'' to include a broad range of workers. For example, in McCune 
v. Oregon Senior Services Division, 894 F.2d 1107 (9th Cir. 1990), the 
Ninth Circuit held that certified nursing assistants were not ``trained 
personnel'' excluded from the regulatory definition of companionship 
services because, unlike registered nurses and licensed practical 
nurses, certified nursing assistants received only 60 hours of 
training. Comparably, the Seventh Circuit in Cox v. Acme Health Servs, 
Inc., 55 F.3d 1304 (7th Cir. 1995), held that a home health aide who 
completed 75 hours of required training did not qualify as ``trained 
personnel'' subject to the Act's minimum wage and overtime compensation 
provisions and instead performed ``companionship services'' within the 
meaning of the term as defined in the Department's regulations.
    Therefore, in the NPRM the Department proposed to modify, and the 
Final Rule does modify, the definition of companionship services to 
exclude personnel who perform medically related services that typically 
require and are performed by trained personnel, and to provide a 20 
percent tolerance for care (assistance with ADLs and IADLs). As a 
result, to qualify for the companionship services exemption, workers 
must spend at least 80 percent of their time in activities that 
constitute fellowship or protection. Those workers who provide services 
that exceed the 20 percent tolerance for the provision of care 
(assistance with ADLs and IADLs) must be paid in accordance with 
federal minimum wage and overtime requirements.
Objectives and Legal Basis for Rule
    Section 13(a)(15) of the FLSA exempts from its minimum wage and 
overtime compensation provisions domestic service employees who perform 
companionship services. Due to significant changes in the home care 
industry over the last 38 years, workers who today provide home care 
services to individuals often are performing duties and working in 
circumstances that were not envisioned when the companionship services 
regulations were promulgated. During the 1970s when the exemption was 
enacted such work was generally performed in institutional settings and 
not in the service recipient's private home.
    Section 13(b)(21) provides an exemption from the Act's overtime 
compensation requirements for live-in domestic service workers. The 
current regulations allow an employer of a live-in domestic service 
worker to maintain a copy of the agreement of hours to be worked and to 
indicate that the employee's work time generally coincides with that 
agreement, instead of requiring the employer to maintain an accurate 
record of hours actually worked by the live-in domestic service worker. 
The Department is concerned that not all hours worked are actually 
captured by such agreement and paid, which may result in a minimum wage 
violation. The current regulations do not provide a sufficient basis to 
determine whether the employee has in fact received at least the 
minimum wage for all hours worked.
    The Department has re-examined the regulations and determined that 
the regulations, as currently written, have expanded the scope of the 
companionship services exemption beyond those employees whom Congress 
intended to exempt when it enacted Sec.  13(a)(15) of the Act, and do 
not provide a sufficient basis for determining whether live-in domestic 
service workers subject to Sec.  13(b)(21) of the Act have been paid at 
least the minimum wage for all hours worked. Therefore, the 
Department's Final Rule amends the regulations to revise the 
definitions of ``domestic service employment'' and ``companionship 
services,'' and to require employers of live-in domestic service 
workers to maintain an accurate record of hours worked by such 
employees. In addition, the Final Rule limits the scope of duties that 
may be performed under the companionship services exemption, and 
prohibits third party employers from claiming the exemption for 
employees performing companionship services. The Final Rule also 
prohibits third party employers from claiming the overtime compensation 
exemption for live-in domestic service employees. The effective date 
for this Final Rule is January 1, 2015.
Summary of Public Comments on the Preliminary Regulatory Impact 
Analysis
    A number of commenters, including Americans for Limited Government, 
International Franchise Association (IFA), the Private Care Association 
(PCA), the Private Duty Home Care Association (PDHCA) and the National 
Private Duty Association (NPDA),\32\ submitted comments on the economic 
analysis included in the proposed rule. The comments focused on seven 
major topics: the terminology used to describe the market; the number 
of affected workers; the characterization of the home care services 
market, including the number of overtime hours worked; the price 
elasticity of demand used in the dead-weight loss analysis; the quasi-
fixed costs associated with worker turnover and hiring; the managerial 
costs of regulatory familiarization and scheduling; and possible 
scenarios for management of overtime compensation costs.
---------------------------------------------------------------------------

    \32\ Since the submission of the comments the NPDA has changed 
its name to the Home Care Association of America. This Final Rule 
will refer to the organization as the NPDA.
---------------------------------------------------------------------------

    This section will describe each of these concerns raised in the 
comments,

[[Page 60499]]

the Department's analysis and response to the comment, and any 
revisions made to the economic analysis.
Terminology
    Several commenters, including AARP, California Association for 
Health Services at Home, and private citizens such as Sue Ostrowski, 
Robert Melcher, and Laurie Edwards-Tate, noted that the terms used in 
the Department's economic analysis are not consistent with industry 
usage and may be misinterpreted. The Department agrees and has revised 
the language in the economic analysis to be more precise. Specifically, 
the analysis uses the following terms:
    ``Home care:'' The economic impact analysis has been revised to 
refer to the broader ``home care'' industry rather than ``home health 
care,'' which specifically covers medical assistance performed by 
certified personnel. Thus, the term home care industry includes the 
home health care industry. The current exemption has been applied to 
both types of services and, therefore, this Final Rule impacts both the 
home health care industry and the home care industry.
    ``Direct care worker:'' The NPRM used a variety of terms to refer 
to the workers potentially affected by the rule change; commenters 
found this confusing. For example, AARP pointed out that the term 
``caregiver'' is often used to refer specifically to ``family 
caregivers'' rather than other types of workers and recommended that 
the Department use the term ``direct care worker'' instead. Therefore 
the terminology has been refined to use direct care worker to refer to 
those workers who may be affected by the rule change because they may 
be currently treated as exempt companions. The term ``direct care 
worker'' will be used unless the Department is referring to a specific 
occupation (e.g., home health aide or personal care aide) as defined by 
our data sources or directly quoting from a comment.
    ``Independent providers:'' Independent providers are direct care 
workers who may be hired directly by the consumer to provide home care 
services. Consumers may identify the direct care worker through a 
registry, referral service, advertising, or word of mouth. Employment 
arrangements may range from formal agreements with administrative, 
liability, and payroll services provided by a registry to informal 
agreements between the direct care worker and the consumer. Numerous 
commenters, including Members of Congress (Senator Lamar Alexander, 
Congressman Lee Terry), employers (Matched Caregivers Continuous Care, 
Angels Senior Home Solutions), and members of the public (Brandi 
Johnson, Lauren Reynolds, A. Miller, Ryan Heideman, Kimberly Flair and 
others) made it clear that the term ``grey market'' was easily 
misinterpreted to mean possibly illegal arrangements. Although 
difficult to predict, the Department anticipates this rule will bring 
more workers under the FLSA's protections, which in turn will create a 
more stable workforce by equalizing wage protections with other health 
care workers and reducing turnover. The Department has no basis for 
estimating the percentage of such arrangements where proper income and 
payroll taxes are paid versus those where they are not. In light of 
this, the analysis has abandoned the term ``grey market'' and now 
refers solely to independent providers.
    ``Consumer:'' Several commenters objected to the use of the terms 
``client,'' ``patient,'' and ``care recipient'' to describe individuals 
who purchase home care services. In particular, AARP noted that the 
term ``patient'' is inappropriate because not all consumers of home 
care services are receiving medical care. To be consistent with the 
terminology in the field, the analysis now refers to all such 
individuals as ``consumers.''
Number of Affected Workers
    The Department also received comments concerning the estimated 
number of affected workers in two particular states.
    The Illinois Department of Human Services explained that ``home 
health aide'' and ``personal care'' employees are exempt under state 
law if they are jointly employed by the state (for the purposes of 
collective bargaining) and the consumer. These exempt employees are 
currently covered by a collective bargaining agreement that does not 
include overtime. Other direct care workers in the state are covered by 
both minimum wage and overtime compensation requirements. They note 
that for the 30,000 workers in the program ``overtime pay, however, is 
not mandated by Illinois statute and has not been a benefit for these 
providers, as allowed by the exemption for FLSA, because of its cost to 
the state.''
    The Department incorporated the 30,000 jointly-employed Illinois 
workers into the overtime analysis. The Department estimates national-
level transfer payments based on national-level averages of wages and 
hours worked, not for particular states or subgroups of workers within 
states. Although Illinois data indicates that more than 12 percent of 
these 30,000 direct care workers exceed 40 hours, within any state or 
region, some direct care workers or groups of workers will exceed the 
national average while others will work less than the national average. 
At the national level, however, the average will accurately represent 
the burden of the rule despite this variance at the state and local 
level.
    Finally, review of the data submitted by Illinois showed the data 
might not be completely reliable. For example, Illinois states that 
10,000 HHAs and PCAs worked close to 3 million hours of overtime, and 
the cost of overtime compensation would exceed $32 million.\33\ These 
figures suggest that the overtime compensation differential would be 
$10.67 per hour, which implies the underlying straight-time wage rate 
is approximately $21.34. However, the comment stated that the workers 
are paid $11.55 per hour or more. As a result of these ambiguities and 
inconsistencies, the Department chose to add these workers to the 
national overtime projection, but did not use Illinois' additional 
data.
---------------------------------------------------------------------------

    \33\ State of Illinois DHS, WHD-2011-0003-7904.
---------------------------------------------------------------------------

    A joint comment from the California Association of Counties (CSAC), 
County Welfare Directors Association of California (CWDA), California 
Association of Public Authorities for In-Home Supportive Services 
(CAPA), and California In-Home Supportive Services (IHSS) Consumers 
Alliance (CICA) points out that California provides overtime for some 
workers under the contract-agency mode, ``but it is not the case for 
individual providers who are paid by the IHSS Program. Out of 
approximately 440,000 IHSS cases in California, less than 2,000 are 
under the contract mode and the vast majority of IHSS workers are 
individual providers.'' Further, out of the 380,000 IHSS direct care 
workers, ``there are approximately 50,000 IHSS providers who routinely 
submit timesheets who work more than 40 hours a week.'' The comment 
further noted that a 1983 ``landmark ruling established that IHSS 
providers were employees of the state and counties for the purposes of 
the minimum wage provisions of the FLSA''.\34\ Legal Aid Society-
Employment Law Center and NELP also noted that most workers in 
California do not receive overtime. Based on the information received 
from the commenters, the Department adjusted the economic analysis to 
include California and add 380,000 IHSS workers to the analysis in the 
category of states not covered by

[[Page 60500]]

overtime provisions, as it appears that these workers were not included 
in BLS Occupational Employment Statistics data (as discussed in more 
detail in the Costs and Transfers section).
---------------------------------------------------------------------------

    \34\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420, pg. 2.
---------------------------------------------------------------------------

Characterization of the Home Care Services Market
    The principal concerns about the definition of the home care market 
were related to the sources of funding used to pay for home care 
services, and the size of the non-medical, private pay market. More 
specifically, NPDA references the Navigant analysis of the NPRM which 
comments that the assessment of funding sources was made based on 
limited information, and that the private pay market is larger than 
estimated in the NPRM. Note, the industry describes this part of the 
home care market as both ``private duty'' and ``private pay,'' using 
the terms synonymously.\35\ For the purposes of this discussion, the 
Department uses the term ``private pay'' to refer to the market for 
non-medical services that are paid for privately (i.e., out-of-pocket 
payment or payment by long-term care insurance).
---------------------------------------------------------------------------

    \35\ See NPDA Web site, http://www.privatedutyhomecare.org/sections/consumers/whatisprivate.php (note: this Web site no longer 
exists, however, WHD has the archived version, which can be found at 
http://web.archive.org/web/20120624032530/http://www.privatedutyhomecare.org/sections/consumers/whatisprivate.php).
---------------------------------------------------------------------------

    Several industry organizations (IFA, National Association for Home 
Care and Hospice (NAHC), PDHCA, and NPDA) administered two surveys in 
response to the NPRM that suggest the existence of a larger private pay 
market, but these surveys failed to provide any conclusive empirical 
evidence in support of this claim. These surveys were fielded to IFA 
members; the overall response rates were fairly low, and respondents 
self-selected into the survey. This can lead to selection bias; in 
other words, the respondents who chose to participate in the survey may 
be different from the overall population in a way that shifts the 
results of the survey. For example, the IFA members that responded to 
the survey may have been particularly motivated to participate due to 
campaigns to raise awareness of the NPRM in specific states, and that 
would lead the results to include a greater proportion of members from 
those states than a random sample would include. As a result, it is not 
clear if the results are representative of IFA members or the industry 
as a whole.
    In response to the comments on the characterization of the home 
care market in the NPRM, the Department examined alternative data 
sources. The Department reviewed the nationally representative source 
Medical Expenditure Panel Survey (MEPS), published by the Department of 
Health and Human Services, Agency for Healthcare Research and Quality, 
which addresses the home care market. The MEPS is intended to capture 
the use of long-term non-medical care (e.g., companionship and 
homemaker services) and short-term acute medical home care.
    MEPS data offered little in terms of support for the premise that a 
large private pay market for home care services exists. Private pay 
appears to be more frequently used with independent providers, whereas 
Medicare and Medicaid pay for the majority of agency services. The data 
also showed only a relatively small percentage of consumers pay out-of-
pocket for agency care. Therefore, the assertion that the Department 
underestimated the impact of increased overall costs on the purchase of 
home care services is generally not warranted.
    Closely related to the previous issue, commenters also pointed out 
that Medicare and Medicaid programs will cover only home health care, 
but not home care services. The Department believes it is appropriate 
to include Medicare and Medicaid as funding sources for services 
potentially impacted by this Final Rule.
    Medicare provides eligible individuals with skilled nursing 
services when the services are provided on a part-time or intermittent 
basis. Skilled nursing services are provided either by a registered 
nurse or a licensed practical nurse. Home health aide services may be 
Medicare-covered when given on a part-time or intermittent basis if 
needed as support services for skilled nursing care. Home health aide 
services must be part of the care for the identified illness or injury. 
Medicare does not cover home health aide services unless the individual 
is also receiving skilled care such as nursing care or other physical 
therapy, occupational therapy, or speech-language pathology services 
from the home health agency. Medicare does not pay for personal care 
services when that is the only care the individual needs.\36\ The 
Department does not have data regarding the extent to which Medicare-
certified agencies have availed themselves of the current companionship 
services exemption for home health aide or other services they provide; 
however, to the extent that such agencies have used the current 
exemption, the Department expects those agencies to be impacted by this 
Final Rule.
---------------------------------------------------------------------------

    \36\ Medicare and Home Health Care, pgs 8-10, Available at: 
http://www.medicare.gov/Pubs/pdf/10969.pdf.
---------------------------------------------------------------------------

    Medicaid is a federal-state partnership providing health coverage 
to identified populations, including seniors and persons with 
disabilities. States are required to cover home health benefits and may 
offer to cover personal care services, through Medicaid-funded 
programs. Such services may be provided through home and community-
based services (HCBS) programs, including HCBS waivers, self-directed 
personal assistance services programs, Money Follows the Person 
programs and Community First Choice programs. The Department also 
expects this Final Rule to impact Medicaid-funded home health and 
personal care service providers.
    A report by the Congressional Research Service states:

    ``Neither the Medicare nor the Medicaid program explicitly 
covers services termed `companionship services'. However, to some 
extent these programs provide certain home care services to eligible 
beneficiaries through home health services (under Medicare and 
Medicaid) and personal care services (under Medicaid). Furthermore, 
federal statute, regulations, and guidance do not specify or 
regulate wage and employee benefit levels in Medicare (Title XVIII 
of the Social Security Act) or Medicaid (Title XVIX of the Social 
Security Act).'' \37\
---------------------------------------------------------------------------

    \37\ Congressional Research Service. Memorandum dated February 
21, 2012, titled ``Extending Federal Minimum Wage and Overtime 
Protections to Home Care Workers under the Fair Labor Standards Act: 
Impact on Medicare and Medicaid,'' WHD-2011-0003-5683.

    Medicare and Medicaid directly reimburse the service provider a 
specified dollar amount to cover a specified quantity of services or 
defined episode of care. The agency uses this revenue to pay the direct 
care worker's wages (which may include straight time, overtime, and 
benefits), as well as to cover other costs of doing business (such as 
overhead and administrative fees). Medicare and Medicaid rates do not 
explicitly cover agency overhead, nor do they dictate that the entire 
amount must go to the direct care worker's wages. Thus, agencies are 
able to use Medicare and Medicaid reimbursement to cover training and 
overtime costs.
    Industry commenters (IFA, NAHC, NPDA, and PCA) also stated that 
direct care workers work considerably more overtime than the impact 
analysis suggested, thereby underestimating the costs and impact of the 
rule. The centerpiece of this argument was the assertion that 24-hour 
care consumers

[[Page 60501]]

are a principal component of the market and, because they prefer a 
single direct care worker, using multiple direct care workers to manage 
overtime costs may be difficult and result in reduced quality of care. 
These commenters asserted that paying overtime in this situation may 
make home care unaffordable, forcing consumers into nursing homes.
    In these comments, industry groups appear to use the terms ``24-
hour care'' and ``live-in care'' synonymously. These terms are not 
identical and make interpretation of at least some comments, 
statements, and reported survey results problematic. While 24-hour care 
implies a single direct care worker scheduled to cover a 24-hour 
period, the Department defines a ``live-in'' worker as one who resides 
on his or her employer's premises permanently or for an extended period 
of time (e.g., for at least five consecutive days or nights). Thus, 
while a live-in worker might provide 24-hour care, 24-hour care does 
not require a live-in direct care worker. The rules governing the 
determination of overtime differ significantly between the two types of 
direct care worker schedules, as will be discussed in more detail 
below. These differences may also have implications for projecting 
industry response to the rule.
    For the NPRM, the Department calculated that 10 percent of affected 
direct care workers are employed 45 hours per week (5 hours of 
overtime), and an additional 2 percent are employed 52.5 hours per week 
(12.5 hours of overtime). These estimates are derived from the PHI 
analysis of National Home Health Aide Survey (NHHAS) and U.S. Census 
Bureau's Annual Social and Economic Supplement (ASEC) data on overtime 
worked in this industry. The NHHAS is a multistage probability sample 
survey sponsored by the Department of Health and Human Services' Office 
of the Assistant Secretary for Planning and Evaluation (ASPE) that was 
designed to provide nationally representative estimates of agency-
employed direct care workers who assist with ADLs. The two-stage 
sampling process first randomly selected agencies with probability 
proportionate to size, then randomly sampled up to six direct care 
workers from each agency selected; a total of 3,377 workers were 
interviewed.\38\
---------------------------------------------------------------------------

    \38\ Bercovitz, A, Moss, AJ, et al. (2010). Design and Operation 
of the National Home Health Aide Survey: 2007-2008. National Center 
for Health Statistics. Vital Health Statistics. 1(49). Available at: 
http://www.cdc.gov/nchs/data/series/sr_01/sr01_049.pdf.
---------------------------------------------------------------------------

    As a result of comments on overtime estimates, the Department 
reviewed hours worked by direct care workers as reported in the 2007 
NHHAS. When calculating overtime directly instead of using estimates 
based on summaries reported in publicly available analyses of the 
NHHAS, the Department found that those direct care workers who work for 
a single employer more than 40 hours, but less than 50 hours per week, 
average 6.4 hours of overtime, while those who work for a single 
employer 50 hours or more per week average 21.0 hours of overtime per 
week. Therefore, the Department made appropriate changes, described 
below, in the analysis.
Price Elasticity
    Price elasticity represents the percentage change in quantity 
demanded induced by a percentage point change in labor cost, i.e., how 
responsive the home care services market is to changes in workers' 
wages. Price elasticity of demand for labor is composed of two separate 
effects: the substitution effect, driven by the change in the cost of 
labor relative to its substitutes holding output constant, and the 
scale effect, driven by making labor more expensive relative to agency 
budget. PCA suggested that the NPRM's deadweight loss analysis for home 
care services only included the substitution effect. The Department 
reviewed this assertion and found that it was accurate, i.e., the cited 
elasticity does not incorporate the industry scale effects. PCA also 
provided an alternative estimate that used aggregated state-level data 
on the average wages and employment of home health aides and personal 
care aides for the period between 2001 and 2009. While PCA's 
econometric estimate suggested that demand is price elastic \39\ 
(responsive to changes in price), their estimate's validity is 
questionable. For example, the estimate did not pass a basic set of 
robustness checks designed to control for state-level differences in 
variation. Accounting for these differences rendered PCA's estimate 
statistically indistinguishable from zero. The Department attempted to 
use PCA's analysis with improved data and methods, but the analysis did 
not return a valid result.
---------------------------------------------------------------------------

    \39\ By convention, if the price elasticity of demand lies 
between 0 and -1.0, economists call demand ``inelastic;'' if the 
price elasticity of demand lies between -1.0 and -[infin], demand is 
``elastic.'' When demand is inelastic, a given change in supply, 
resulting from increased labor costs for example, will have 
relatively little impact on how much of the product or service is 
purchased, but will result in a relatively large increase in price. 
Conversely, if demand is elastic, then the equivalent change in 
supply will have a much larger impact on the quantity purchased, but 
a much smaller impact on price. Thus, the significance of PCA's 
estimated price elasticity of demand is that, if correct, it would 
result in a much larger decrease in home care services and a much 
larger deadweight loss as a result of the rule.
---------------------------------------------------------------------------

    In the absence of a reliable method to estimate the price 
elasticity of demand from existing data, the Department surveyed 
academic literature to find suitable substitutes. The Department 
accepts PCA's point that the market contains a private pay sector and a 
public-funds-reimbursed sector that might differ substantially in terms 
of consumer response to price changes. More specifically, the price 
elasticity of demand is considerably greater (in absolute terms) for 
consumers who pay for home care services predominantly out of pocket, 
though this segment is small relative to the overall home care market. 
Likewise, the Department believes that the demand for home care 
services reimbursed by a third party is highly inelastic.
    The Department used the market for health care services, where the 
final consumer is only responsible for a relatively small fraction of 
the cost, to approximate the consumer response to changes in the price 
of home care services that are reimbursed by public funds. The RAND 
Health Insurance Experiment (HIE), which took place between 1974 and 
1975 and covered 7,791 individuals in 6 U.S. cities, is still 
considered the ``gold standard'' in the estimation of demand for health 
care services because it remains to date the only large-scale study 
based on a randomized controlled trial. A study using HIE data 
estimated a -0.17 price elasticity of the demand for outpatient medical 
care for those paying for 0 to 25 percent of care out-of-pocket.\40\ 
Similar non-experimental studies return comparable price elasticity 
values.\41\
---------------------------------------------------------------------------

    \40\ Manning, W. et al. (1992). Health Insurance and the Demand 
for Medical Care: Evidence from a Randomized Experiment. The 
American Economic Review, 77(3), pp. 251-277.
    \41\ Mueller, C. and A. Monheit (1988), Insurance Coverage and 
the Demand for Dental Care: Results for Non-Aged White Adults, 
Journal of Health Economics, 7(1), pp. 59-72.
    Smith, D. (1993). The Effects of Copayments and Generic 
Substitution on the Use and Costs of Prescription Drugs. Inquiry, 
30(2), pp. 189-198.
    Contoyannis, P. et al. (2005). Estimating the Price Elasticity 
of Expenditure for Prescription Drugs in the Presence of Non-Linear 
Price Schedules: An Illustration from Quebec, Canada, Health 
Economics, 14(9), pp. 909-923.
---------------------------------------------------------------------------

    The Department used the market for non-reimbursed nursing home 
care, where there are often considerable out-of-pocket costs, to 
approximate consumer response in the private pay sector. Long-term home 
care and nursing homes can be considered substitutes in the sense that 
long-term

[[Page 60502]]

home care provides assistance with activities of daily living (ADLs) 
and instrumental activities of daily living (IADLs) to those who would 
be unable to live independently in the absence of support services. 
Many elderly individuals and people with disabilities, often given 
limited options, have entered facilities such as a nursing home or 
assisted living community where those services are provided along with 
room and board. Some home care appears to be priced accordingly; the 
Department's calculations of flat fee home care (i.e., 24-hour care) 
rates charged to consumers show they are quite similar to published 
average daily nursing home rates.\42\
---------------------------------------------------------------------------

    \42\ See discussion of private pay pricing structure in the 
``Tasks, Wages, and Hours'' section of the analysis; agencies charge 
approximately $250 per day for 24-hour care while the average 
private nursing home rate in 2011 was about $240 per day according 
to the MetLife market Survey of Long-term Care Costs. However, the 
IHS Global Insight survey, Economic Impact of Eliminating the FLSA 
Exemption for Companionship Services, 2012, WHD-2011-0003-8952, 
shows that less than 10 percent of consumers cared for by survey 
respondents receive 24-hour home care, while 65 percent require less 
than 40 hours of care per week. Thus, for the vast majority of 
consumers, home care is less expensive than institutional care, and 
for the 10 percent (or less) of consumers receiving 24-hour home 
care, the cost is about the same as institutional care.
---------------------------------------------------------------------------

    The National Long Term Care Survey, a nationally representative 
sample of elderly persons with disabilities living in community-based 
and institutional settings, has served as the basis for multiple 
analyses of the demand for nursing home care. In 1993, a study of 
survey data estimated a price elasticity of the hazard of nursing home 
entry of -0.7, and another study from 1998 found that the price 
elasticity of demand for institutionalized care is -0.98. Estimates of 
the price elasticity of demand for nursing home care based on state-
specific data range from -0.69 to -3.85.\43\ Although the range of 
estimated elasticities is large, three of the four studies found 
elasticities in the range -0.69 to -0.98. Therefore the Department 
judged that a value of -1.0 best represented the overall evidence on 
the price elasticity of demand for nursing home care, and thus the best 
proxy for private pay home care as well.
---------------------------------------------------------------------------

    \43\ Headen, A. (1993). Economic Disability and Health 
Determinants of the Hazard of Nursing Home Entry, Journal of Human 
Resources, 28(1), pp. 81-110.
    Rechovsky, J. (1998). The Roles of Medicaid and Economic Factors 
in the Demand for Nursing Home Care, Health Services Research, 33(4 
Pt 1), pp. 787-813.
    Knox, K., E. Blankmeyer and J. Stutzman. (2006). Private Pay 
Demand for Nursing Facilities in a Market with Excess Capacity. 
Atlantic Economic Journal. 34(1), pp. 75-83.
    Mukamel and Spector (2002).The Competitive Nature of the Nursing 
Home Industry: Price Mark Ups and Demand Elasticities.'' Applied 
Economics, 34(4), pp. 413-420.
---------------------------------------------------------------------------

    The use of proxies for the price elasticities of demand for 
reimbursed and unreimbursed home care services due to the lack of 
direct estimates creates uncertainty concerning their true value and 
the subsequent impacts of the rule on the market for these services. 
The numerical value of an elasticity is a function of the availability 
of reasonable substitutes for the product or service, amongst other 
things. Thus, to the extent that unpaid services provided by family 
members and/or the use of inferior quality caregivers are considered 
good substitutes for agency caregivers, the demand for reimbursed home 
care services might be more elastic than -0.17. Similarly, the extent 
to which a nursing home is an unacceptable substitute for unreimbursed 
home care services might make the demand for those services less 
elastic than -1.0.
    Although both these statements concerning these elasticities may be 
true, the Department believes this will have relatively little effect 
on the results of the model. First, the specified elasticities create 
natural limits: although demand for reimbursed services might be larger 
than -0.17, it is unlikely to be larger than the demand for 
unreimbursed services, while the converse is true concerning the demand 
for unreimbursed services. Thus it is likely that the true values lie 
between -0.17 and -1.0. Second, if the demand for reimbursed home care 
services is more elastic, it will increase the impact of the rule 
(e.g., greater reduction in services utilized; larger deadweight loss); 
conversely, a less elastic demand for unreimbursed services will 
decrease the impact of the rule. Thus, if both statements are true, the 
impacts will be to some extent offsetting. Third, the total impact of 
the rule is essentially a weighted average of the two market components 
(reimbursed and unreimbursed home care services); increasing the 
elasticity of the reimbursed market segment and reducing it for the 
unreimbursed market segment is likely to result in a small change in 
the weighted average, and therefore would have a small effect on 
impacts.
    In the NPRM, the Department stated that the overwhelming majority 
of home care (75 percent) is paid with public funds. Commenters such as 
NPDA, IFA, and the Small Business Administration's Office of Advocacy 
(Advocacy) expressed concern that the size of the non-medical, private 
pay market may be larger than the impact analysis suggests. More 
specifically, they argued there are a large number of small home care 
businesses in the private pay sector that are not adequately reflected 
in the economic analysis.\44\ The Department surveyed several academic 
and industry sources in an attempt to gain a better understanding of 
the private pay market. However, we find no representative, national-
level data that suggests that there exists a larger private pay market 
for which the Final Rule does not account.
---------------------------------------------------------------------------

    \44\ Small Business Administration (SBA) Office of Advocacy, 
WHD-2011-0003-7756.
---------------------------------------------------------------------------

    To reflect the findings discussed about the price elasticity of 
demand and the market share of the private pay sector, the Department 
agrees that it is necessary to revise the method it used to project the 
deadweight loss caused by the Final Rule. The Department calculated 
separately the impacts for the market in which care is primarily 
reimbursed through public funds, which accounts for 75 percent of all 
direct care workers, and has a price elasticity of demand of -0.17, and 
the private pay market, which accounts for 25 percent of all direct 
care workers, and has a price elasticity of demand of -1.0.
    The changes that the Department made in response to PCA's comments 
concerning the price elasticity of demand for home care services had a 
relatively small effect on the results of the analysis. First, the 
price elasticity for reimbursed services (-0.17) used in the final 
analysis is of a very similar magnitude to that used in the NPRM (-
0.15); indeed the conceptual basis for selecting reimbursed medical 
care as a proxy is the same concept used in the NPRM, although in 
practice the derivation of the NPRM value was flawed. Second, although 
we use a price elasticity of demand for private pay home care that is 
close to the value found by PCA (-1.0 compared to PCA's estimate of -
1.18), again the impact of using this value in the final analysis is 
relatively small because it applies to only 25 percent of the total 
market for home care services.
Quasi-Fixed Costs
    According to PCA, the quasi-fixed costs are non-trivial and may 
account for up to 19 percent of annual wages.\45\ Quasi-fixed costs are 
those that change with the number of workers hired rather than with the 
number of hours worked. Examples include hiring costs, training costs, 
social insurance and other private benefits.
---------------------------------------------------------------------------

    \45\ William Dombi, WHD-2011-0003-9595, pg. 25.

---------------------------------------------------------------------------

[[Page 60503]]

    The Department believes that although this figure might be accurate 
for the home care industry in general, it is too large for 
companionship services. Recruiting and training costs appear to be 
small for direct care workers. For example, evidence from the 2011 
Annual Private Duty Home Care Benchmarking Study indicates that the 
median initial training is between 4 and 9 hours, and less than 25 
percent of establishments provide more than 9 hours. In the same 
source, employee referrals and listings on the Internet were cited as 
the two most popular recruiting methods. In addition, reductions in 
employee turnover rates may result in lower net costs associated with 
hiring and turnover, as discussed below in an analysis of turnover and 
hiring costs. However, the Department accepts that hiring costs 
constitute a direct cost, rather than a transfer from employers to 
employees, and includes these costs in determining the impacts of the 
Final Rule.
Managerial Costs of Scheduling
    NPDA and others argued that the NPRM underestimated the cost of 
regulatory familiarization and the managerial cost of scheduling 
complications due to overtime. The Department assumed industry would 
incur minimal regulatory familiarization costs because most of the 
affected firms already have employees covered by the FLSA. For example, 
the BLS National Employment Matrix data report for Home Health Care 
Services (62-1600) in 2010 includes over 200 occupations including 
nursing aides, therapists, and health practitioners who provide 
services other than companionship services to consumers in their 
homes.\46\ Therefore, the Department believes most agencies will 
already be well acquainted with the minimum wage and overtime 
compensation requirements of the FLSA, and will only need to 
familiarize themselves with the regulations that apply to one distinct 
group of workers. The regulatory text is quite limited in scope and 
length, and because agencies are third party employers and will not be 
eligible to claim the exemption, the time required for familiarization 
will be quite limited. Furthermore, the Department expects that many 
firms will rely on guidance and educational materials from the 
Department and industry to familiarize themselves with changes to the 
rule. Similarly, the Department believes that most firms already employ 
staff entitled to overtime compensation and must therefore manage these 
workers accordingly. In the NPRM, the Department requested information 
on the incremental time and cost of managing workers subject to the 
FLSA's overtime compensation requirement, but none was provided. In the 
absence of new evidence, the Department did not change its estimate.
---------------------------------------------------------------------------

    \46\ BLS National Employment Matrix, Home Health Care Services 
(62-1600) 2010. Available at: http://www.bls.gov/emp/ep_table_109.htm.
---------------------------------------------------------------------------

Overtime Scenarios
    Industry groups such as IFA and NPDA, and private citizens such as 
Martin Hayes, Henri Chazaud, and Melina Cowan expressed concern over 
the Department's handling of overtime. These comments typically focused 
on two aspects of overtime. First, many agencies stated they would 
engage in at least some form of overtime management to avoid paying for 
overtime. Second, while overtime management would typically involve 
scheduling additional direct care workers, industry group criticism 
also appears to rely on the implicit assumption that using multiple 
direct care workers is often not a realistic alternative because of the 
need for continuity of care.
    However, continuity of care does not necessarily require a single 
direct care worker, but rather can involve a small group of direct care 
workers intimately familiar with the consumer and his or her needs. In 
this way care will not be disrupted if one of those direct care workers 
is no longer willing or able to provide the needed services. Moreover, 
although consumers may prefer single direct care workers, with an 
industry turnover rate apparently exceeding 40 percent, it is likely 
that many consumers already receive care from more than one worker or a 
combination of direct care workers and family members when other 
workers are unavailable. As previously discussed, 24-hour care is not 
necessarily synonymous with having a live-in direct care worker. 
Assuming at least two direct care workers are currently used to provide 
24-hour care, 7 days per week, adding a third direct care worker may 
allow effective management of overtime while introducing relatively 
little disruption to continuity of care. For example, if one of the 
three direct care workers can get from 5 to 8 hours of non-compensable 
sleep time per 24-hour period, hours entitled to overtime compensation 
might vary from zero to 15 hours per week, compared to 18 to 46 
overtime hours per week with two direct care workers.\47\ Modifying 
work patterns to increase the number of direct care workers (and 
therefore reduce the need for overtime compensation) does not preclude 
the industry from offering consumers the option to pay a higher rate in 
return for fewer direct care workers.
---------------------------------------------------------------------------

    \47\ With two direct care workers, one working three 24-hour 
shifts a week and the other working four 24-hour shifts a week, 
weekly overtime ranges from 18 to 46 hours. Each day, 24-hours are 
spent on site but between 6 and 10 hours are not compensated (for 
bona fide sleep and meal periods), resulting in between 14 and 18 
hours worked per day. For the worker employed three days, weekly 
hours are between 42 and 54 hours. The worker employed four days a 
week works between 56 and 72 hours. Overtime ranges from 18 ((42-40) 
+(56-40)) to 46 hours ((54-40) + (72-40)). With three direct care 
workers, each works two 24-hour shifts a week, and two of the three 
split the remaining day into two 12-hour shifts. This results in one 
direct care worker being on site 48 hours a week, but once sleeping 
and eating time is deducted (between 12 and 20 hours) this worker is 
paid for between 28 and 36 hours per week, resulting in no overtime. 
The other two workers have the same schedule, plus one 12-hour 
shift. Shifts less than 24 hours are not entitled to deducted sleep 
time, but 0.5-1 hour is assumed to be deducted for meal breaks. 
Therefore, these two workers will work between 39 and 47.5 hours a 
week, resulting in between no overtime and 15 hours of overtime per 
week.
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    Survey results submitted by the NAHC \48\ distinguished whether 
respondents are currently required to pay overtime, i.e., are located 
in ``overtime states.'' These reports provide some support for the 
position that the rule will not be as onerous to the private pay market 
as claimed. For example, 15 to 20 percent of agencies that responded to 
the industry's surveys that operate in non-overtime states already pay 
overtime voluntarily. Moreover, firms operating in overtime and non-
overtime states already have very similar characteristics. Firms 
operating in states requiring overtime compensation not only have a 
similar percentage of consumers receiving 24-hour care as firms 
operating in states without overtime compensation requirements, but 
actually have higher rates of overtime worked per employee than firms 
that do not have to pay the overtime wage differential.
---------------------------------------------------------------------------

    \48\ WHD-2011-0003-9496.
---------------------------------------------------------------------------

    In addition, firms in states without a state overtime compensation 
requirement anticipate considerably worse impacts than those actually 
experienced by firms in states with a state overtime compensation 
requirement. It is possible that state-specific conditions might result 
in different impacts in the states that have not yet implemented 
overtime compensation requirements than in those states that have 
already implemented such requirements. However, the 15 percent of 
survey respondents that voluntarily pay overtime compensation reported

[[Page 60504]]

impacts similar to those reported by agencies that were required to pay 
overtime. For example, 86 percent of firms in non-overtime states 
report they intend to limit overtime, but only 62 percent of firms in 
overtime states and 60 percent of voluntary overtime compensation 
payers found it necessary to do so. Likewise, 76 percent of firms in 
non-overtime states anticipate a significant increase in cost due to 
overtime requirements, but only 40 percent of firms in states that 
already require overtime compensation, and 34 percent of voluntary 
payers reported experiencing a significant increase in cost. 
Unfortunately, the term ``significant increase'' is not defined in the 
survey and therefore this experience cannot be used for projecting 
costs and impacts.
    Empirical research has also found that employers are likely to 
respond to mandated overtime premiums by making adjustments so as to 
not absorb the entire cost of overtime.\49\ For example, similar to the 
NAHC survey, the IFA survey found 95 percent of respondents in states 
where there are no overtime regulations stated they would eliminate all 
scheduled overtime hours, while two percent said they would reduce 
overtime hours and three percent said they would make no changes to 
current scheduling.\50\ In view of the research, employer comments and 
industry survey evidence, the Department believes employers responding 
to the Final Rule changes by paying for 100 percent or 0 percent of 
overtime are highly unlikely scenarios. Therefore, in the Final Rule 
the Department adjusted OT Scenario 1 to reflect 60 percent of overtime 
paid, OT Scenario 2 to reflect 40 percent of overtime paid, and OT 
Scenario 3 to reflect 10 percent of overtime paid. The latter two 
scenarios represent the more aggressive responses to the rule indicated 
in the industry surveys and comments. Based on the combination of two 
industry surveys, empirical research, and employer comments, the 
Department believes that OT Scenario 2 reflects the most likely impacts 
of the Final Rule, and therefore focuses on the results of that 
scenario in the following analysis.
---------------------------------------------------------------------------

    \49\ Barkume, Anthony. (2010). The Structure of Labor Costs with 
Overtime Work in U.S. Jobs, Industrial and Labor Relations Review, 
64(1), pp. 128-142.
    \50\ The IFA survey does not compare anticipated business 
responses in states without current overtime regulations with actual 
business responses in states with current overtime regulations. 
However, other responses provided in the IFA survey (WHD-2011-0003-
8952) show similar patterns to the NAHC survey. First, respondents 
in states that require overtime do not differ substantially from 
those in states without such requirements in terms of customers 
receiving live-in care, customers receiving more than 40 hours of 
care per week, and average overtime worked per week by employees. 
Second, among respondents in states without current overtime 
regulations, 18 percent already pay overtime premiums and 50 percent 
already pay travel time voluntarily. Third, other questions 
demonstrate considerable inconsistencies in their responses. For 
example, many respondents anticipate raising the rates charged to 
their customers; on average, the reported rate increases would be an 
amount in excess of that needed to offset the cost of any overtime 
pay incurred. However, if 95 percent of firms are eliminating all 
overtime, there will be little reason to increase fees. Thus, 
although the Department agrees that employers will likely respond so 
as not to absorb the entire cost of overtime, industry survey 
responses concerning the anticipated magnitude of this affect cannot 
be accepted at face value.
---------------------------------------------------------------------------

Travel Time Compensation
    Several industry groups, including IFA and PDHCA, expressed concern 
over the method used to estimate travel time between consumers, which 
under the revised rule must be compensated. The Department based its 
ratio of travel time compensation to overtime compensation on New York 
City's amicus brief for the U.S. Supreme Court case, Long Island Care 
at Home, Ltd. v. Coke, 551 U.S. 158 (2007). The Department received 
criticism that this ratio (travel time compensation as 19.2 percent of 
total overtime compensation) underestimated the true cost of travel 
time compensation. The estimate relies on New York City data and, 
therefore, the geographic scope is limited; travel time compensation 
may be higher in other locations, such as remote rural areas. 
Additionally, since travel time compensation is proportional to 
estimated overtime compensation, the reliability of this estimate is 
dependent upon accurately estimated overtime compensation.
    Although the Department requested additional data on travel time, 
commenters did not provide alternative methods or data to estimate 
travel time. The Department considered alternative sources, most 
notably the National Home Health Aid Survey (NHHAS).\51\ The NHHAS is a 
nationally representative survey of agency-employed home health aides 
who assist with ADLs. The NHHAS reports travel time for the last day 
worked; however, attempts to estimate weekly and annual travel time 
from these data suffer from several limitations. These limitations 
include evident reporting error (such as reporting travel time between 
consumers when the respondent cares for a single consumer) and the lack 
of some data necessary to estimate cost (such as days worked per week). 
Due to lack of confidence in its estimate of travel time from NHHAS 
data and a lack of alternative data sources, the Department continues 
to rely on the ratio provided by New York City in its amicus brief for 
the Final Rule analysis. Moreover, although the Department revised the 
overtime scenarios for the Final Rule, the Department continues to 
project travel time based on the proposed rule's overtime scenario in 
which agencies compensate 100 percent of all overtime hours. Thus, 
travel time estimates in the Final Rule are conservative estimates 
which significantly overestimate the cost of travel time.
---------------------------------------------------------------------------

    \51\ United States Department of Health and Human Services. 
Centers for Disease Control and Prevention. National Center for 
Health Statistics. National Home Health Care Survey, 2007.

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[[Page 60505]]

Summary of Impacts
    Table 1 illustrates the potential scale of projected costs, 
transfer effects and other impacts of the revisions to the FLSA 
regulations implementing the companionship services exemption. The 
Department projects that the average annualized direct costs of the 
rule will total about $6.2 to $6.8 million per year over 10 years 
(depending on how firms handle overtime and additional hiring).\52\ In 
addition to the direct cost to employers of the rule, there are also 
transfer effects resulting from the rule. The primary impacts shown in 
Table 1 are income transfers to direct care workers in the form of: 
Compensation for time spent traveling between consumers (average 
annualized value of $104.3 million per year); and payment of an 
overtime premium when hours worked exceed 40 hours per week. Because 
overtime compensation depends on how employers adjust scheduling to 
eliminate or reduce overtime hours, the Department considered three 
adjustment scenarios resulting in payment of: 60 percent of current 
overtime hours worked (OT Scenario 1, with an average annualized value 
of $326.3 million per year); 40 percent of current overtime hours 
worked (OT Scenario 2, with an average annualized value of $217.5 
million per year); and 10 percent of current overtime hours worked (OT 
Scenario 3, with an average annualized value of $54.4 million per 
year).\53\ As discussed in the previous section, this represents a 
change from the overtime scenarios in the NPRM, which used payment of 
100 percent, 50 percent, and 0 percent to represent possible 
adjustments. The Department revised these scenarios in response to the 
many comments, including comments from International Franchise 
Education Association, NPDA and private citizens, indicating agencies 
would respond to the rule by eliminating overtime from direct care 
worker schedules. While 100 percent payment of overtime remains a 
theoretical upper bound estimate, it is so unlikely that it loses 
validity in representing projections of how the market might adjust and 
the costs it might incur. Therefore, the Department selected payment of 
60 percent of current overtime hours to represent the upper bound of 
overtime compensation (OT Scenario 1). Similarly, it would be more 
costly for agencies to completely eliminate overtime than pay at least 
some overtime when unavoidable, such as when the cost of hiring a new 
worker might exceed the cost of paying overtime. In addition, comments 
on the NPRM, such as the survey results submitted by NAHC, indicated 
some agencies already pay overtime in states with no overtime 
requirements. Thus, no overtime compensation seemed equally unlikely to 
occur, and the Department now uses OT Scenario 3, in which agencies pay 
10 percent of baseline overtime, for its lower bound overtime cost 
scenario.
---------------------------------------------------------------------------

    \52\ As will be explained in further detail, the Department 
examined three scenarios on how firms adjust overtime hours worked 
in response to the overtime compensation premium requirement; within 
each of these overtime scenarios, we consider three benchmarks for 
reallocating overtime hours between new hires and current part time 
workers, for a total of 9 combinations of overtime and hiring 
decisions. However, to simplify the presentation, we include only 
three combinations of overtime adjustment and new hiring in the 
tables; these are: OT Scenario 1: 60 percent of current overtime 
hours are paid the overtime premium, and of the remaining 40 percent 
of overtime hours, 30 percent are allocated to new hires while 70 
percent are redistributed to current part-time employees; OT 
Scenario 2: 40 percent of current overtime hours are paid the 
overtime premium, and of the remaining 60 percent of overtime hours, 
20 percent are allocated to new hires while 80 percent are 
redistributed to current part-time employees; OT Scenario 3: 10 
percent of current overtime hours are paid the overtime premium, and 
of the remaining 90 percent of overtime hours, 10 percent are 
allocated to new hires and 90 percent redistributed to current part-
time employees. Under this combination of overtime and hiring 
decisions, OT Scenarios 1 and 2 incur the same hiring costs in year 
1 as shown in Table 1.
    \53\ Estimated total overtime hours, and therefore total 
overtime wage premiums, are larger for the Final Rule than for the 
proposed rule. This results from four factors. First, the Department 
increased its estimate of average overtime worked for that fraction 
of direct care workers who work overtime (we now estimate 12 percent 
of workers average 8.8 hours of overtime per week instead of 6.3 
hours per week as in the proposed rule). Second, the Department 
determined that 26,000 of California's agency-employed direct care 
workers that were considered entitled to overtime under the proposed 
rule are not, in fact, entitled to overtime compensation under state 
law. Third, the 380,000 direct care workers in California's In-Home 
Supportive Services (IHSS) program are also not generally entitled 
to overtime compensation; 50,000 of these workers routinely exceed 
40 hours per week. Finally, 30,000 direct care workers considered 
jointly employed by the state of Illinois and the consumer are not 
currently entitled to overtime compensation. The total number of all 
overtime hours being worked by workers without overtime coverage is 
estimated to be 73.5 million hours. Thus estimated overtime costs 
increased substantially due to both an increase in the estimated 
number of overtime hours worked, and an increase in the number of 
those who work overtime.
---------------------------------------------------------------------------

    Although the transfer of income to workers in the form of higher 
wages is not considered a cost of the rule from a societal perspective, 
higher wages do increase the cost of providing home care services, 
potentially resulting in the provision of fewer services. This 
potential reduction in the provision of services may cause market 
inefficiency if it raises marginal labor costs and if we consider the 
current labor market to be in a competitive equilibrium, and this 
allocative inefficiency is a cost from a societal perspective. On the 
other hand, marginal labor cost may rise by less than the amount of the 
wage change because higher wages for workers may result in lower 
turnover rates and reduced recruitment and training costs for firms. 
With a 7 percent real rate, the Department measures the range of 
average annualized deadweight loss attributable to this allocative 
inefficiency as $177,000 when 60 percent overtime compensation 
adjustment is assumed, $99,000 when 40 percent overtime compensation 
adjustment is assumed and $24,000 when a 10 percent adjustment in 
overtime compensation is assumed. In perspective, the deadweight loss 
represents approximately 0.0001 percent of industry revenue with an 
associated disemployment impact of 0.06 percent of workers under OT 
Scenario 2. The relatively small deadweight loss occurs because both 
the demand for and supply of home care services appear to be inelastic 
in the largest component of this market, in which public payers 
reimburse home care; thus, the equilibrium quantity of home care 
services is not very responsive to changes in price. Average annualized 
benefits from reduced turnover range from $10.1 million per year under 
OT Scenario 3 to $34.1 million per year under OT Scenario 1, with 
average annualized net benefits ranging from $3.9 million per year 
(Scenario 3) to $27.3 million per year (Scenario 1). Under OT Scenario 
2, which the Department believes to be the most likely outcome, average 
annualized benefits total $23.9 million per year with average 
annualized net benefits of $17.1 million per year.

[[Page 60506]]



                 Table 1--Summary of Impact of Changes to FLSA Companionship Services Exemption
----------------------------------------------------------------------------------------------------------------
                                                    Future years  ($ mil.) \a\     Average annualized value  ($
                                     Year 1 ($   --------------------------------              mil.)
                                       mil.)                                     -------------------------------
                                                      Year 2          Year 10      3% Real rate    7% Real rate
----------------------------------------------------------------------------------------------------------------
                                                    Costs \i\
----------------------------------------------------------------------------------------------------------------
Regulatory Familiarization:
    Agencies....................            $6.9            $0.6            $0.6            $1.3            $1.4
    Families Hiring Self-                   $5.4            $2.8            $3.6            $3.4            $3.5
     Employed Workers...........
----------------------------------------------------------------------------------------------------------------
Hiring Costs \b\:
    30% OT remaining in OT 1....            $8.4            $0.8            $0.8            $1.6            $1.8
    20% OT remaining in OT 2....            $8.4            $0.8            $0.8            $1.6            $1.8
    10% OT remaining in OT 3....            $6.3            $0.6            $0.6            $1.2            $1.3
Total costs (30% of OT 1).......           $20.6            $4.2            $5.0            $6.4            $6.7
Total costs (20% of OT 2).......           $20.6            $4.2            $5.0            $6.4            $6.7
Total costs (10% of OT 3).......           $18.6            $4.0            $4.8            $6.0            $6.2
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
Minimum Wages (MW) \c\:
    to Agency-Employed Workers..            $0.0            $0.0            $0.0            $0.0            $0.0
    to Self-Employed Workers....            $0.0            $0.0            $0.0            $0.0            $0.0
Travel Wages....................           $68.1           $78.1          $151.8          $107.1          $104.3
Overtime Scenarios:
    OT 1 \d\....................          $213.2          $244.2          $474.8          $335.2          $326.3
    OT 2 \e\....................          $142.1          $162.8          $316.5          $223.5          $217.5
    OT 3 \f\....................           $35.5           $40.7           $79.1           $55.9           $54.4
----------------------------------------------------------------------------------------------------------------
                                           Total Transfers by Scenario
----------------------------------------------------------------------------------------------------------------
MW + Travel + OT 1..............          $281.3          $322.3          $626.5          $442.3          $430.5
MW + Travel + OT 2..............          $210.2          $240.9          $468.3          $330.6          $321.8
MW + Travel + OT 3..............          $103.7          $118.8          $230.9          $163.0          $158.7
----------------------------------------------------------------------------------------------------------------
                                          Deadweight Loss ($ millions)
----------------------------------------------------------------------------------------------------------------
MW + Travel + OT 1..............          $0.116          $0.132          $0.257          $0.182          $0.177
MW + Travel + OT 2..............          $0.065          $0.074          $0.144          $0.101          $0.099
MW + Travel + OT 3..............          $0.016          $0.018          $0.035          $0.025          $0.024
----------------------------------------------------------------------------------------------------------------
                                          Total Cost of Regulations \g\
----------------------------------------------------------------------------------------------------------------
RF + HC + DWL(OT 1).............           $20.8            $4.3            $5.2            $6.6            $6.8
RF + HC + DWL(OT 2).............           $20.7            $4.2            $5.1            $6.5            $6.8
RF + HC + DWL(OT 3).............           $18.6            $4.0            $4.8            $6.0            $6.2
----------------------------------------------------------------------------------------------------------------
                                        Disemployment (number of workers)
----------------------------------------------------------------------------------------------------------------
MW + Travel + OT 1..............           1,086           1,184           1,976           1,531           (\h\)
MW + Travel + OT 2..............             812             885           1,477           1,144           (\h\)
MW + Travel + OT 3..............             400             436             728             564           (\h\)
----------------------------------------------------------------------------------------------------------------
                                     Benefits from Reduced Turnover \b\ \g\
----------------------------------------------------------------------------------------------------------------
OT 1............................           $40.3           $34.9           $30.9           $33.8           $34.1
OT 2............................           $30.2           $24.7           $20.7           $23.6           $23.9
OT 3............................           $14.9           $10.7            $7.7            $9.9           $10.1
----------------------------------------------------------------------------------------------------------------
                                                Net Benefits \g\
----------------------------------------------------------------------------------------------------------------
OT 1............................           $19.6           $30.6           $25.7           $27.3           $27.3
OT 2............................            $9.4           $20.5           $15.5           $17.1           $17.1
OT 3............................           -$3.7            $6.7            $2.9            $3.9            $3.9
----------------------------------------------------------------------------------------------------------------
\a\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so
  these two values are reported.
\b\ We use three scenarios under which agencies redistribute overtime hours to either current part-time workers
  or new hires to manage overtime costs: 40 percent of overtime hours are redistributed under OT Scenario 1, 60
  percent under OT Scenario 2, and 90 percent under OT Scenario 3. Of this redistributed overtime, various
  percentages are redistributed to part-time workers and new hires: New hires constitute 30 percent of
  redistributed hours under OT Scenario 1 (12 percent of total overtime), 20 percent under OT Scenario 2 (12
  percent of total), and 10 percent under OT Scenario 3 (9 percent of total).
\c\ 2011 statistics on HHA and PCA wages indicate that few workers, if any, are currently paid below minimum
  wage (i.e., in no state is the 10th percentile wage below $7.25 per hour). See the BLS Occupational Employment
  Statistics, 2011 state estimates. Available at: http://stats.bls.gov/oes/.
\d\ Of the total, about 31 percent (e.g., $66.6 million in Year 1) is attributable to IHSS direct care workers;
  30 percent of IHSS costs (e.g., $20.0 million in Year 1) are included in the turnover and deadweight loss
  analyses.

[[Page 60507]]

 
\e\ Of the total, about 31 percent (e.g., $44.4 million in Year 1) is attributable to IHSS direct care workers;
  30 percent of IHSS costs (e.g., $13.3 million in Year 1) are included in the turnover and deadweight loss
  analyses.
\f\ Of the total, about 31 percent (e.g., $11.1 million in Year 1) is attributable to IHSS direct care workers;
  30 percent of IHSS costs (e.g., $3.3 million in Year 1) are included in the turnover and deadweight loss
  analyses.
\g\ Results based on the combination of overtime scenario and hiring costs presented under Hiring Costs.
\h\ Annual average.
\i\ Excludes paperwork burden, estimated in Section V.

    Note that there are additional impacts that are not presented in 
this table because they could not be quantified; these include impacts 
such as the opportunity cost of managerial time to optimize worker 
schedules to reduce or avoid overtime hours or reduce travel time. The 
Department also acknowledges the potential costs to direct care workers 
who may receive fewer hours from their home care agency employers and 
therefore will have to search for and coordinate multiple jobs for an 
increased number of consumers. The Department anticipates that these 
impacts will likely in the long run be small compared to the impacts 
presented in Table 1. First, most impacted employers already employ 
workers subject to the FLSA and are familiar with scheduling such 
workers. Second, high industry turnover rates suggest that agencies 
frequently have openings and are looking to hire new workers. 
Furthermore, if most agencies respond to the rule by reducing overtime 
hours worked by current employees and hiring additional employees to 
work those hours, the number of job openings can be expected to 
increase. Thus, the Department expects direct care workers who lose 
hours at one agency will readily be able to find an opening at another 
agency. Likewise, the Department has not attempted to quantify 
potential benefits such as decreased injury rates, or transfers such as 
the change in reliance on public assistance.
    Also not captured in Table 1 are the special circumstances 
surrounding entities that administer Medicaid-funded or other publicly 
funded programs that would, under the Final Rule, be subject to the 
provisions relating to third-party employers because they qualify as 
employers under the FLSA's economic realities test (as described in the 
section of this preamble discussing joint employment). For example, in 
the short run, continuation of direct care workers' current work 
schedules that exceed 40 hours per week may be infeasible for such 
entities, thus potentially resulting in reduced continuity of care for 
high-needs consumers. Other effects may also result from this Final 
Rule. Such consequences may be avoidable in the long run if Medicaid 
and other relevant programs adapt to allow overtime billing. Further, 
as discussed elsewhere in this preamble, long-term continuity of care 
may improve as a result of this Final Rule due to both decreased 
turnover rates and reduced disruption, because another worker already 
familiar to the consumer is available as a substitute when the primary 
direct care worker is temporarily unavailable.
Regulatory Alternatives
    The Department believes it has chosen the most effective option 
that updates and clarifies the Application of the Fair Labor Standards 
Act to Domestic Service Final Rule. Based on the commenters' 
suggestions, among the options considered by the Department but not 
described in the NPRM, the least restrictive option was taking no 
regulatory action. A more restrictive option was to add to the 
provisions being finalized a limit on the personal care services that 
can be performed. NELP and the National Council on Aging among others 
suggested that the Department require an initial assessment be 
conducted to determine if a direct care worker is performing primarily 
fellowship and protection for the consumer. They suggested that if it 
is found that the direct care worker is not engaged primarily in 
fellowship and protection, then the subsequent list of personal care 
services should not be considered at all and the worker should not be 
considered exempt. The National Council on Aging further expressed the 
view that toileting, bathing, driving, and tasks involving positioning 
and/or transfers be excluded from the list of permissible duties. ANCOR 
suggested that the list be made exclusive and include fewer tasks. The 
commenter added that the Department should consider providing an 
allowance for household work defined as no more than one hour in a 
seven day period. AFSCME expressed the view that those workers who 
regularly engage in mobility tasks should not be considered companions. 
The Department carefully considered such views in the development of 
this Final Rule. The Department ultimately settled on a broader set of 
permissible care services than initially proposed as well as less 
restrictive than options suggested by some of these commenters. The 
Department views inclusion of assistance with activities of daily 
living and instrumental activities of daily living as a balanced 
approach that allows for some delivery of care services by the direct 
care worker under the companionship services exemption while at the 
same time recognizing and making an effort to address the health and 
safety concerns of direct care workers and consumers. Taking no 
regulatory action does not address the Department's concerns discussed 
above under Need for Regulation. The Department found the most 
restrictive option to be overly burdensome on business.
    Pursuant to the OMB Circular A-4, the Department considered several 
other approaches to accomplish the objectives of the rule and minimize 
the economic impact on home care entities and other employers, 
including those suggested in comments on the NPRM as well as more 
traditional approaches.
    Many commenters indicated a concern with the cost of overtime 
compensation and less of a concern with the FLSA's minimum wage 
provision. See e.g., Henry Chazuad, ANCOR. One suggested alternative 
was to maintain the exemption from overtime compensation for third 
party employers of live-in workers, consistent with the laws in at 
least three states (Michigan, Nevada, and Washington). The Department 
recognizes that this approach would represent incremental progress 
towards narrowing the exemption for this set of workers and result in a 
very small economic impact on the industry from the Final Rule. 
However, the Department believes this approach is inconsistent with 
Congress's intent to provide FLSA protections to domestic service 
workers, while providing a narrow exemption for live-in domestic 
service workers. It is apparent from the legislative history that the 
1974 amendments were intended to expand coverage to include more 
workers, and were not intended to roll back coverage for employees of 
third parties who already had FLSA protections as employees of covered 
enterprises. Moreover, this approach does not support the objectives of 
the rule or the purposes of the overtime requirements of the FLSA, one 
of which is to spread employment.
    Another alternative suggested was to allow employers to exclude 
some nighttime hours from ``hours worked'' to

[[Page 60508]]

reduce the potential burden of overtime compensation to workers 
providing care on higher hour cases (12- or 24-hour shifts). For 
example, Minnesota and North Dakota state laws exclude up to eight 
hours from the overnight hours (from 10:00 p.m. to 9:00 a.m.) from the 
``hours worked'' for purposes of minimum wage and overtime 
calculations. This Final Rule does not include revisions to the 
longstanding regulations applicable to all FLSA-covered employers 
addressing when sleep time constitutes hours worked and when sleep time 
may be excluded from hours worked. Therefore, employers still have the 
opportunity to exclude bona fide sleep hours; however, there would be 
no basis under the FLSA for treating sleep time hours differently for 
domestic service workers than for other employees. The Department's 
existing regulations already provide for the exclusion of sleep time 
from compensable hours worked under certain conditions. As previously 
discussed in the Hours Worked section of this preamble, under the 
Department's existing regulations, an employee who is required to be on 
duty for less than 24 hours is working even though he or she is 
permitted to sleep or engage in other personal activities when not 
busy. See Sec.  785.21. Where an employee is required to be on duty for 
24 hours or more, the employer and employee may agree to exclude a bona 
fide meal period or a bona fide regularly scheduled sleeping period of 
not more than eight hours from the employee's hours worked under 
certain conditions. See Sec.  785.22. The conditions for the exclusion 
of such a sleeping period from hours worked are (1) that adequate 
sleeping facilities are furnished by the employer, and (2) that the 
employee's time spent sleeping is usually uninterrupted. When an 
employee must return to duty during a sleeping period, the length of 
the interruption must be counted as hours worked. If the interruptions 
are so frequent that the employee cannot get at least five hours of 
sleep during the scheduled sleeping period, the entire period must be 
counted as hours worked. Id.; see also Wage and Hour Opinion Letter, 
1999 WL 1002352 (Jan. 7, 1999). Where no expressed or implied agreement 
exists between the employer and employee, the eight hours of sleeping 
time constitute compensable hours worked. This description of these 
longstanding rules in the Final Rule's preamble is provided to help to 
educate small business employers regarding their ability to exclude 
sleep time from hours worked. See Sec.  785.22. However, because there 
would be no basis under the FLSA for treating sleep time hours 
differently for domestic service workers than for other employees, the 
commenters' suggestion was not adopted.
    Another approach suggested would be to calculate overtime 
compensation based on a different rate of pay than straight time; for 
example, under New York state law overtime hours are paid at one and a 
half times the minimum wage rather than the worker's regular rate of 
pay for some workers. Again, there is no legal basis in the FLSA for 
calculating overtime compensation at a rate other than one-and-one-half 
times the employee's regular rate of pay. Moreover, the Department does 
not believe that this supports the objective of the rule or the spread 
of employment under the Act. In terms of economic burden, this 
alternative could reduce the cost to employers of overtime by 
approximately 25 percent under OT Scenario 2; however, 15 states 
currently require payment of overtime at time and a half of regular pay 
with no evidence of significant economic burden. Quoting the Michigan 
Olmstead Coalition ``we have seen no evidence that access to or the 
quality of home care services are diminished by the extension of 
minimum wage and overtime protection to home care aides in this state 
almost six years ago.''
    Another alternative discussed by commenters is to exclude travel 
time from hours worked in order to decrease the burden of overtime 
compensation. However, the comments provided little justification for a 
departure from the general FLSA principles applicable to all employers 
on the compensability of travel time set forth in 29 CFR 785.33-.41. 
Excluding travel time that is ``all in the day's work'' from 
compensable hours worked, for example, would be inconsistent with the 
Portal-to-Portal Act amendment to the FLSA and inconsistent with how 
such travel time is treated for all other employees. Sec. Sec.  785.38; 
790.6. Furthermore, the analysis above suggests that travel time adds a 
relatively small amount to the burden of this rulemaking.
    The Department also considered several traditional alternatives. 
Those alternatives include:
     Informational measures rather than regulation. The 
Department has made a variety of informational and educational 
assistance materials related to this Final Rule available on its Web 
site and will add to those materials during the period in which 
employers are reviewing and revising their policies and practices to 
come into compliance with this Final Rule. In addition, WHD offices 
throughout the country are available to provide compliance assistance 
at no charge to employers. The Department has planned robust outreach 
efforts and will make every effort to work with employers to ensure 
compliance.
     Differing requirements based on size of firm or geographic 
region. The FLSA sets a floor below which employers may not pay their 
employees. To establish differing compliance requirements for 
businesses based on size or geographic location would undermine this 
important purpose of the FLSA. The Department makes available a variety 
of resources to employers for understanding their obligations and 
achieving compliance. Therefore the Department declines to establish 
differing compliance requirements based on the size or location of a 
business.
     Use of performance rather than design standards. Under the 
Final Rule, the employer may achieve compliance through a variety of 
means. The employer may: hire additional workers and/or spread 
employment over the employer's existing workforce to ensure employees 
do not work more than 40 hours in a workweek, and/or pay employees time 
and one-half for time worked over 40 hours in a workweek. In addition, 
the FLSA recordkeeping provisions require no particular order or form 
of records to be maintained so employers may create and maintain 
records in the manner best fitting their situation. The Department 
makes available a variety of resources to employers for understanding 
their obligations and achieving compliance.
     Compliance periods of various lengths. The Department has 
set an effective date for this Final Rule of January 1, 2015. The 
Department believes this delayed effect date takes into account the 
complex federal and state systems that are a significant source of 
funding for home care work, and the needs of the diverse parties 
affected by this Final Rule (including consumers, their families, home 
care agencies, direct care workers, and local, state, and federal 
Medicaid programs) by providing such parties, programs and systems time 
to adjust. The Department considered application of a 60-day delayed 
effective date, the minimum legally permitted effective date for a 
major rule (Congressional Review Act, 8 U.S.C. 801(a)(3)). A 60-day 
delayed effective date would most expeditiously extend the FLSA's 
protections to workers affected by this rule; however, the Department 
was concerned that such an effective date would not be sufficient for 
Federal, state, and local agencies, as well as private entities, to 
implement new protocols, apply for

[[Page 60509]]

changes to their Medicaid programs, adjust funding streams, and 
legislatively address budgetary and programmatic changes. The 
Department also considered a delayed effective date of two years. While 
a two-year delayed effective date would, in the Department's view, 
provide more than ample time for Federal, state, and local entities to 
complete any necessary programmatic changes, the workforce affected by 
this rule would continue to be without the wage protections available 
to most other workers, contributing to high turnover rates which 
negatively impact continuity of care. The Department believes that the 
January 1, 2015 effective date for this rule appropriately balances the 
needs of workers and the consumers utilizing their services.

B. State Law Requirements

    There are numerous state laws pertaining to direct care workers; as 
the industry has grown and expanded over the past 38 years the laws 
have increased in number and complexity to match the demands placed on 
workers. The State Medicaid Manual requires states to develop 
qualifications or requirements (such as background checks, training, 
age, supervision, health, literacy, or education, or other 
requirements) for Medicaid-financed personal care attendants. These 
state programs can each have multiple delivery models, including 
agency-directed or consumer-directed with care given by agencies or 
independent providers. These delivery models are not necessarily 
mutually exclusive. In general, for the purposes of this analysis, we 
refer to independent providers as workers who are hired directly by the 
consumer, and therefore they are not counted in the statistics on home 
care providers used as the basis for this analysis, with the exception 
of independent providers who advertise their availability through state 
registries.
    When Congress created the companionship services exemption in 1974, 
a ``companion'' was likely to be a family member or friend with the 
time for and interest in providing support to an elderly family member 
or friend or a family member or friend with a disability. A direct care 
worker today must meet a more extensive and expanding set of criteria--
such as background checks and training--to provide services in most 
states. A 2006 report by the HHS Office of the Inspector General (OIG) 
found that states have established multiple sets of worker requirements 
that often vary among the programs within a state and among the 
delivery models within programs, resulting in 301 sets of requirements 
nationwide.\54\ Four of the consumer-directed programs in the OIG 
review had no attendant requirements.
---------------------------------------------------------------------------

    \54\ U.S. Department of Health and Human Services (HHS) Office 
of the Inspector General (OIG). (2006). States' Requirements for 
Medicaid-Funded Personal Care Service Attendants, available at: 
http://oig.hhs.gov/oei/reports/oei-07-05-00250.pdf.
---------------------------------------------------------------------------

    Furthermore, states define these requirements differently, and 
specify different combinations of requirements in different programs. 
The most common requirements include: background checks; training; 
supervision; minimum age; health; education/literacy; and other, such 
as meeting state motor vehicle and licensure requirements if providing 
transportation.
    The number of states that included each requirement in at least one 
program and the number of state program sets that include each 
requirement are summarized in Table 2.

                                 Table 2--Six Most Common Attendant Requirements
----------------------------------------------------------------------------------------------------------------
                                                                 Number of States that        Number of sets
                          Requirement                           utilized requirement in  containing  requirement
                                                                  at least one program        (of 301 sets)
----------------------------------------------------------------------------------------------------------------
Background Checks.............................................                       50                      245
Training......................................................                       46                      227
Age...........................................................                       42                      219
Supervision...................................................                       43                      198
Health........................................................                       39                      162
Education/Literacy............................................                       31                      125
----------------------------------------------------------------------------------------------------------------
Source: DHSS OIG, 2006. p. 9.

States' laws also vary in whether they extend minimum wage and overtime 
provisions to direct care workers. In many states ``companions'' are 
not explicitly named in the regulations, but workers providing such 
services often fall under those regulations that apply to domestic 
service employees.
    Fifteen states extend minimum wage to most, and overtime coverage 
to some, direct care workers who would otherwise be excluded under the 
current Federal regulations: Colorado, Hawaii, Illinois, Maine, 
Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New 
Jersey, New York, Pennsylvania, Washington, and Wisconsin. However, in 
some states certain types of these workers remain exempt, such as those 
employed directly by households or by non-profit organizations. In 
Illinois, 30,000 personal care and home health aide workers in the Home 
Services Program under the Illinois Department of Human Services do not 
receive overtime compensation. Additionally, New York's overtime law 
provides that workers who are exempt from the FLSA and employed by a 
third party agency need only be paid time and one-half the minimum wage 
(as opposed to time and one-half of the worker's regular wage).\55\ 
Minnesota's overtime provision applies only after 48 hours of work.
---------------------------------------------------------------------------

    \55\ Under the 2010 Domestic Workers Bill of Rights, most New 
York direct care workers employed directly by the household in which 
they work receive full time-and-a-half overtime protections. The law 
applies to third party employers if any household services, such as 
cleaning, are performed.
---------------------------------------------------------------------------

    Six states (Arizona, California, Nebraska, North Dakota, Ohio, and 
South Dakota) and the District of Columbia extend minimum wage, but not 
overtime, protection to direct care workers. There are again some 
exemptions for those workers employed directly by households or who 
live in the household. Per Wage Order 15 in California, some direct 
care workers in California receive overtime; others are exempt from 
overtime requirements as ``personal attendants'' based upon the duties 
they perform; all receive minimum wage.
    Twenty-nine states do not include direct care workers in their 
minimum wage and overtime provisions: Alabama,

[[Page 60510]]

Alaska, Arkansas, Connecticut, Delaware, Florida, Georgia, Idaho, 
Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, New 
Hampshire, New Mexico, North Carolina, Oklahoma, Oregon, Rhode Island, 
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, West 
Virginia, and Wyoming.\56\
---------------------------------------------------------------------------

    \56\ National Employment Law Project (NELP). 2012. WHD-2011-
0003-9452, Fair Pay for Home Care Workers, available at: http://www.nelp.org/page/-/Justice/2011/FairPayforHomeCareWorkers.pdf?nocdn=1.
---------------------------------------------------------------------------

    Of the 21 states plus the District of Columbia that extend the 
minimum wage to at least some direct care workers, 12 have a state 
minimum wage that is higher than the current federal minimum wage of 
$7.25 an hour.\57\ These state laws are summarized in Table 3.
---------------------------------------------------------------------------

    \57\ U.S. Department of Labor (DOL). 2013. Minimum Wage, 
available at: http://www.dol.gov/whd/minwage/america.htm#Consolidated.

         Table 3--State Minimum Wage and Overtime Coverage of Non-Publicly Employed Direct Care Workers
----------------------------------------------------------------------------------------------------------------
                                                                                         Analysis and citations
      State             State minimum wage \a\          MW          OT        Neither              \b\
----------------------------------------------------------------------------------------------------------------
AL...............  ...............................  ..........  ..........          x   ........................
AK...............  $7.75..........................  ..........  ..........          x   ........................
AZ...............  $7.80..........................          x   ..........  ..........  Minimum wage but no
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA. No state
                                                                                         overtime law. See Ariz.
                                                                                         Rev. Stat. Ann. Sec.
                                                                                         Sec.   23-362, 23-363;
                                                                                         see also Office of the
                                                                                         Attorney General of the
                                                                                         State of Arizona,
                                                                                         Opinion No. I07-002
                                                                                         (Feb. 7, 2007).
AR...............  $6.25..........................  ..........  ..........          x   ........................
CA...............  $8.00..........................          x   ..........  ..........  All companions as
                                                                                         defined in the FLSA are
                                                                                         entitled to minimum
                                                                                         wage. Privately
                                                                                         employed direct care
                                                                                         workers who are
                                                                                         classified as
                                                                                         ``personal attendants''
                                                                                         employed by either ``a
                                                                                         private householder or
                                                                                         by any third party
                                                                                         employer recognized in
                                                                                         the healthcare industry
                                                                                         to work in a private
                                                                                         household'' and paid
                                                                                         family caregivers are
                                                                                         exempt from overtime
                                                                                         requirements. Whether
                                                                                         home care employees are
                                                                                         exempt ``personal
                                                                                         attendants'' is fact-
                                                                                         specific and based upon
                                                                                         the duties performed by
                                                                                         the workers. Generally
                                                                                         home care employees who
                                                                                         are part of
                                                                                         California's In-Home
                                                                                         Supportive Services
                                                                                         program are not
                                                                                         entitled to overtime.
                                                                                        Industrial Welfare
                                                                                         Commission Order No. 15-
                                                                                         2001; see also State of
                                                                                         California, Department
                                                                                         of Industrial
                                                                                         Relations, Opinion Ltr.
                                                                                         ``Interpretation of IWC
                                                                                         Wage Order 15:
                                                                                         Definition of `personal
                                                                                         attendant' '' (Nov. 23,
                                                                                         2005).
CO...............  $7.78..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         third party-employed
                                                                                         direct care workers who
                                                                                         do work beyond
                                                                                         Colorado's definition
                                                                                         of ``companion.''
                                                                                         Colorado's definition
                                                                                         of ``companion'' is
                                                                                         much narrower than the
                                                                                         FLSA definition.
                                                                                         Companions may not help
                                                                                         to bathe and dress the
                                                                                         person, do any amount
                                                                                         of housekeeping, or
                                                                                         remind the person to
                                                                                         take medication. People
                                                                                         who do those tasks are
                                                                                         more than just
                                                                                         ``companions'' they are
                                                                                         ``personal care''
                                                                                         attendants. Personal
                                                                                         care attendants are
                                                                                         entitled to minimum
                                                                                         wage and overtime.
                                                                                         However, PCAs employed
                                                                                         directly by private
                                                                                         households are exempt
                                                                                         from minimum wage and
                                                                                         overtime. Colorado
                                                                                         Minimum Wage Order No.
                                                                                         26 Sec.   5; 7 Colo.
                                                                                         Code Regs. Sec.   1103-
                                                                                         1:5.
CT...............  $8.25..........................  ..........  ..........          x   ........................
DE...............  $7.25..........................  ..........  ..........          x   ........................
DC...............  $8.25..........................          x   ..........  ..........  Minimum wage for
                                                                                         companions as defined
                                                                                         in the FLSA. D.C. Mun.
                                                                                         Regs. tit. 7, Sec.
                                                                                         902.1, 902.3, 902.4
                                                                                         (West 2011).
FL...............  $7.79..........................  ..........  ..........          x   ........................
GA...............  $5.15..........................  ..........  ..........          x   ........................
HI...............  $7.25..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA, but
                                                                                         exemption for those
                                                                                         employed directly by
                                                                                         private households.
                                                                                         Haw. Rev. Stat. Sec.
                                                                                         387-1.
ID...............  $7.25..........................  ..........  ..........          x   ........................
IL...............  $8.25..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         any person whose
                                                                                         primary duty is to be a
                                                                                         companion for
                                                                                         individual(s) who are
                                                                                         aged or infirm or
                                                                                         workers whose primary
                                                                                         duty is to perform
                                                                                         health care services in
                                                                                         or about a private
                                                                                         home. The 30,000
                                                                                         personal care and home
                                                                                         health aide workers in
                                                                                         the Home Services
                                                                                         Program under the
                                                                                         Illinois Department of
                                                                                         Human Services do not
                                                                                         receive overtime
                                                                                         compensation. Those
                                                                                         employed solely by
                                                                                         private households may
                                                                                         be exempt under a
                                                                                         general exemption for
                                                                                         employers with fewer
                                                                                         than four employees.
                                                                                         820 Ill. Comp. Stat.
                                                                                         Sec.   105/3(d); Ill.
                                                                                         Adm. Code Sec.
                                                                                         210.110.
IN...............  $7.25..........................  ..........  ..........          x   ........................
IA...............  $7.25..........................  ..........  ..........          x   ........................
KS...............  $7.25..........................  ..........  ..........          x   ........................
KY...............  $7.25..........................  ..........  ..........          x   ........................
LA...............  ...............................  ..........  ..........          x   ........................
ME...............  $7.50..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         all companions as
                                                                                         defined in the FLSA. No
                                                                                         relevant exemptions.
                                                                                         Me. Rev. Stat. Ann.
                                                                                         tit. 26, Sec.  Sec.
                                                                                         663, 664.

[[Page 60511]]

 
MD...............  $7.25..........................          x           x   ..........  Minimum wage coverage
                                                                                         for all companions as
                                                                                         defined in the FLSA.
                                                                                         Overtime coverage for
                                                                                         most direct care
                                                                                         workers but exemption
                                                                                         for workers employed by
                                                                                         non-profit agencies
                                                                                         that provide
                                                                                         ``temporary at-home
                                                                                         care services''. Md.
                                                                                         Code Ann., Lab. & Empl.
                                                                                         Sec.   3-415.
MA...............  $8.00..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         all companions as
                                                                                         defined in the FLSA. No
                                                                                         relevant exemptions.
                                                                                         Mass. Gen. Laws Ch.
                                                                                         151, Sec.   1.
MI...............  $7.40..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA, but
                                                                                         exemption for live-in
                                                                                         workers. Mich. Comp.
                                                                                         Laws Sec.
                                                                                         408.394(2)(a).
                                                                                         Exemption for workers
                                                                                         employed solely by
                                                                                         private household as a
                                                                                         result of exemption for
                                                                                         employer with fewer
                                                                                         than two employees.
                                                                                         Mich. Comp. Laws Sec.
                                                                                         408.382(c).
MN...............  $6.15 or $5.25 for employers             x           x   ..........  Minimum wage and
                    grossing under $625,000 per                                          overtime coverage after
                    year.                                                                48 hours for all
                                                                                         companions as defined
                                                                                         in the FLSA, but
                                                                                         nighttime hours where
                                                                                         companion is available
                                                                                         to provide services but
                                                                                         does not actually do so
                                                                                         need not be
                                                                                         compensated. Minn.
                                                                                         Stat. Sec.
                                                                                         177.23(11).
MS...............  ...............................  ..........  ..........          x   ........................
MO...............  $7.35..........................  ..........  ..........          x   ........................
MT...............  $7.80..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA, but
                                                                                         exemption for those
                                                                                         employed directly by
                                                                                         private households.
                                                                                         Mont. Code. Ann. Sec.
                                                                                         39-3-406(p).
NE...............  $7.25..........................          x   ..........  ..........  Minimum wage but no
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA. No state
                                                                                         overtime law. De facto
                                                                                         exemption for most
                                                                                         households as a result
                                                                                         of general exemption
                                                                                         for employers with
                                                                                         fewer than four
                                                                                         employees. Neb. Rev.
                                                                                         Stat. Sec.  Sec.   48-
                                                                                         1202, 48-1203.
NV...............  $8.25 \c\......................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA, but
                                                                                         exemption for live-in
                                                                                         workers. Also, business
                                                                                         enterprises with less
                                                                                         than $250,000 annually
                                                                                         in gross sales volume
                                                                                         need not pay overtime.
                                                                                         Nev. Rev. Stat. Sec.
                                                                                         608.250(2)(b).
NH...............  $7.25..........................  ..........  ..........          x   ........................
NJ...............  $7.25..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         all companions as
                                                                                         defined in the FLSA. No
                                                                                         relevant exemptions.
                                                                                         N.J. Stat. Ann.Sec.
                                                                                         34:11-56a et seq.
NM...............  $7.50..........................  ..........  ..........          x   ........................
NY...............  $7.25..........................          x           x   ..........  Minimum wage coverage
                                                                                         for all companions as
                                                                                         defined in the FLSA.
                                                                                         N.Y. Labor Law Sec.
                                                                                         651(5). There is
                                                                                         overtime coverage for
                                                                                         all companions but
                                                                                         those employed by third
                                                                                         party agencies receive
                                                                                         overtime at a reduced
                                                                                         rate of 150% of the
                                                                                         minimum wage (rather
                                                                                         than the usual 150% of
                                                                                         their regular rate of
                                                                                         pay). N.Y. Labor Law
                                                                                         Sec.  Sec.   2(16),
                                                                                         170; N.Y. Comp. Codes
                                                                                         R. & Regs. tit. 12,
                                                                                         Sec.   142-2.2.
                                                                                         Overtime coverage for
                                                                                         live-in workers after
                                                                                         44 hours/week (rather
                                                                                         than the usual 40
                                                                                         hours) at the same
                                                                                         rates detailed above.
                                                                                         Id.
NC...............  $7.25..........................  ..........  ..........          x   ........................
ND...............  $7.25..........................          x   ..........  ..........  Minimum wage but no
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA. However,
                                                                                         companions who are
                                                                                         certain first or second-
                                                                                         degree relatives of the
                                                                                         person receiving care
                                                                                         do not receive minimum
                                                                                         wage. Additionally,
                                                                                         nighttime hours where
                                                                                         companion is available
                                                                                         to provide services but
                                                                                         does not actually do so
                                                                                         need not be
                                                                                         compensated. N.D. Cent.
                                                                                         Code Sec.   34-06-03.1.
OH...............  $7.85..........................          x   ..........  ..........  Minimum wage but not
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA. Ohio Rev.
                                                                                         Code Ann. Sec.
                                                                                         4111.03(A), Sec.
                                                                                         4111.14 (West 2011).
                                                                                         Additional overtime
                                                                                         exemptions for live-in
                                                                                         workers. Id. Sec.
                                                                                         4111.03(D)(3)(d).
OK...............  $7.25..........................  ..........  ..........          x   ........................
OR...............  $8.95..........................  ..........  ..........          x   ........................
PA...............  $7.25..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA, but
                                                                                         exemption for those
                                                                                         employed solely by
                                                                                         private households. Pa.
                                                                                         Stat. Ann. tit. 43,
                                                                                         Sec.   333.105(a)(2).
                                                                                         Bayada Nurses v.
                                                                                         Commonwealth of
                                                                                         Pennsylvania, 8 A.3d
                                                                                         866 (Pa. 2010).
RI...............  $7.75..........................  ..........  ..........          x   ........................
SC...............  ...............................  ..........  ..........          x   ........................
SD...............  $7.25..........................          x   ..........  ..........  Minimum wage but no
                                                                                         overtime coverage for
                                                                                         companions as defined
                                                                                         in the FLSA. No state
                                                                                         overtime law. S.D.
                                                                                         Codified Laws Sec.
                                                                                         Sec.   60-11-3, 60-11-
                                                                                         5.
TN...............  ...............................  ..........  ..........          x   ........................
TX...............  $7.25..........................  ..........  ..........          x   ........................
UT...............  $7.25..........................  ..........  ..........          x   ........................
VT...............  $8.60..........................  ..........  ..........          x   ........................
VA...............  $7.25..........................  ..........  ..........          x   ........................

[[Page 60512]]

 
WA...............  $9.19..........................          x           x   ..........  Washington minimum wage
                                                                                         and overtime coverage
                                                                                         for most companions as
                                                                                         defined in the FLSA,
                                                                                         but exemption for live-
                                                                                         in workers. Wash. Rev.
                                                                                         Code Sec.
                                                                                         49.46.010(5)(j).
WV...............  $7.25..........................  ..........  ..........          x   ........................
WI...............  $7.25..........................          x           x   ..........  Minimum wage and
                                                                                         overtime coverage for
                                                                                         most companions as
                                                                                         defined in the FLSA,
                                                                                         but overtime exemption
                                                                                         for those employed
                                                                                         directly by private
                                                                                         households, Wis. Admin.
                                                                                         Code Sec.   274.015,
                                                                                         and those employed by
                                                                                         non-profit
                                                                                         organizations. Wis.
                                                                                         Admin. Code Sec.  Sec.
                                                                                          274.015, 274.01.
                                                                                         Companions who spend
                                                                                         less than 15 hours a
                                                                                         week on general
                                                                                         household work and
                                                                                         reside in the home of
                                                                                         the employer are also
                                                                                         exempt from minimum
                                                                                         wage. Wis. Admin. Code
                                                                                         Sec.   272.06(2).
WY...............  $5.15..........................  ..........  ..........          x   ........................
----------------------------------------------------------------------------------------------------------------
Abbreviations: MW = Minimum Wage, OT = Overtime, FLSA = Fair Labor Standards Act.
Sources: \a\ DOL, 2013; \b\ NELP, 2011. \c\ Nevada minimum wage is $7.25 per hour for employees to whom
  qualifying health benefits have been made available by the employer.

C. Data Sources

    The primary data services used by the Department to estimate the 
number of workers, establishments, and customers likely to be impacted 
by the rule include:

    2011 Bureau of Labor Statistics (BLS) Occupational Employment 
Survey, employment and wages by state for SOC codes 39-9021 
(Personal Care Aides) and 31-1011 (Home Health Aides);
    2011 BLS Quarterly Census of Employment and Wages, for NAICS 
6216 and 62412;
    2010 BLS National Employment Matrix;
    2007 Statistics of U.S. Businesses, for NAICS 6216 and 62412; 
and
    2007 Economic Census, by state for NAICS 6216 and 62412.

    BLS does not have a separate Standard Occupational Classification 
(SOC) code for ``Companions;'' instead, workers who provide 
companionship services are often classified as Personal Care Aides 
(PCAs; SOC 39-9021). However, considerable overlap exists between the 
duties of PCAs and Home Health Aides (HHAs; SOC 31-1011). While HHAs 
are trained to provide more medicalized care (e.g., wound care) than 
PCAs, they may also provide personal care services and assistance with 
ADLs.\58\ The Seventh Circuit Court of Appeals has found home health 
aides to qualify for the companionship services exemption. Cox v. Acme 
Health Servs, Inc., 55 F.3d 1304 (7th Cir. 1995). Therefore, the 
Department selected these two occupations to represent the universe of 
potentially affected direct care workers.
---------------------------------------------------------------------------

    \58\ See http://www.bls.gov/oes/current/oes399021.htm and http://www.bls.gov/oes/current/oes311011.htm; most recently accessed May 
18, 2013.
---------------------------------------------------------------------------

    For the purposes of this analysis, the Department further assumed 
that all HHAs and PCAs included in the analysis currently are treated 
as exempt under the companionship services exemption, but that none of 
them will qualify for the companionship services exemption under this 
Final Rule. Making these assumptions is likely to result in an 
overestimate of the projected costs and other impacts of the rule. 
First, although the Department is able to make some adjustments to the 
data to better identify the potentially affected worker population 
(e.g., including only HHAs and PCAs employed in states with no minimum 
wage and overtime compensation laws applicable to workers who provide 
companionship services to individuals in their homes rather than 
facilities and including only the percentage of HHAs and PCAs who 
likely work in private homes), it has insufficient data to determine 
how many direct care workers who are treated as exempt under the 
current companionship services exemption will qualify for exemption 
under the revised definition of companionship services. Because of this 
data limitation, and by assuming that 100 percent of HHAs and PCAs 
included in the analysis will no longer qualify for the exemption, the 
Department has overestimated the number of direct care workers who are 
currently not protected by the Act's minimum wage and overtime 
compensation provisions but who will receive these protections as a 
result of this rule.
    An additional limitation of this set of data sources stems from the 
fact that the Department's best estimate of agency-employed direct care 
workers is based on the 2011 BLS Occupational Employment Statistics, 
and its best estimate of independent providers directly employed by 
families is based on the 2010 BLS National Employment Matrix. The 
Occupational Employment Statistics (OES) is employer based, and does 
not collect data from the self-employed. The National Employment Matrix 
(NEM) obtains estimates on the self-employed from the Current 
Population Survey. However, it is not possible to match the OES 
estimates by subtracting the estimated number of self-employed workers 
from the NEM. Because these two estimates cannot be completely 
reconciled, the Department uses each source as the best estimate for 
one segment of the labor market and acknowledges there is some 
inconsistency between the two. In practice, the effect of that 
inconsistency on the analysis is likely to be quite small. In addition, 
the Congressional Research Service performed an analysis of the 
potential number of workers affected by the NPRM solely using data from 
the Current Population Survey Annual Social and Economic Supplement 
that resulted in comparable estimates of the numbers of workers 
affected by the minimum wage and overtime provisions.\59\
---------------------------------------------------------------------------

    \59\ Congressional Research Service. Memorandum dated March 2, 
2012, titled ``The Fair Labor Standards Act: Proposed Changes to the 
Exemptions for Employees Who Provide Companionship Services and 
Live-In Domestic Workers,'' pgs. 11 and 13.WHD-2011-0003-7820.
---------------------------------------------------------------------------

D. Consumers and Demand for Services

    Demand for home care services is anticipated to continue to grow in 
the next few decades with the aging of the ``baby boomer generation.'' 
According to PHI:

    Nearly one out of four U.S. households provides care to a 
relative or friend aged 50 or older and about 15 percent of adults 
care for a seriously ill or disabled family member. Over the next 
two decades the population

[[Page 60513]]

over age 65 will grow to more than 70 million people [the U.S. 
population 65 years and older was estimated at 40 million in 2009 
\60\]. Additionally, with significant increases in life expectancy 
and medical advances that allow individuals with chronic conditions 
to live longer, the demand for caregiving is expected to grow 
exponentially. The growth in the demand for in-home services is 
further amplified by an increasing preference for receiving supports 
and services in the home as opposed to institutional settings. This 
emphasis has been supported by the increased availability of 
publicly funded in-home services under Medicaid and Medicare as an 
alternative to traditional and increasingly costly institutional 
care.\61\

    \60\ 2011 Statistical Abstract, U.S. Census Bureau.
    \61\ National Alliance for Caregiving and the American 
Association of Retired Persons. (1997). Family Caregiving in the 
U.S.: Findings from a National Study. Available at: http://assets.aarp.org/rgcenter/il/caregiving_97.pdf. See also Center for 
Health Care Strategies, Inc. Medcaid-funded Long-term Care: Toward 
more Home- and Community-based Options. May 2010. Available at: 
http://www.chcs.org/usr_doc/LTSS_Policy_Brief_.pdf.
---------------------------------------------------------------------------

    While many consumers of home care services are elderly, about two-
fifths of those in need of these services are under 65 and include 
those with varying degrees of mental, physical, or developmental 
disabilities. This group of consumers is also anticipated to grow 
rapidly as more individuals opt for home-based care over institutional 
care.\62\ It is estimated that the demand for direct care workers will 
grow to approximately 5.7 to 6.6 million workers in 2050, an increase 
in the current demand for workers of between 3.8 and 4.6 million (200 
percent and 242 percent respectively).\63\ The home care industry has 
grown significantly over the past decade and is projected to continue 
growing rapidly; for example:
---------------------------------------------------------------------------

    \62\ PHI, 2003. The Personal Assistance Services and Direct-
Support Workforce: A Literature Review. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/CMS_Lit_Rev_FINAL_6.12.03.pdf.
    \63\ United States Department of Health and Human Services 
(2003). The Future Supply of Long-Term Care Workers in Relation to 
the Aging Baby Boom Generation: Report to Congress, p. v. Available 
at: http://aspe.hhs.gov/daltcp/reports/ltcwork.pdf.

    The number of establishments in Home Health Care Services (HHCS) 
grew by 101 percent between 2001 and 2011; during that same period, 
the number of establishments in Services for the Elderly and Persons 
with Disabilities (SEPD) grew by 466 percent.\64\
---------------------------------------------------------------------------

    \64\ Bureau of Labor Statistics, U.S. Department of Labor, 
Quarterly Census of Employment and Wages (QCEW). NAICS 6216 and 
62412. Available at http://www.bls.gov/cew/.
---------------------------------------------------------------------------

    Between 2010 and 2020 the number of home health aides is 
projected to increase by 69 percent and the number of personal care 
aides by 70 percent.\65\
---------------------------------------------------------------------------

    \65\ Bureau of Labor Statistics, U.S. Department of Labor, 
Occupational Outlook Handbook, 2012-13 Edition, Home Health and 
Personal Care Aides. Available at: http://www.bls.gov/ooh/healthcare/home-health-and-personal-care-aides.htm (visited February 
15, 2013).

Employers
    This section focuses on the employers of workers who are currently 
classified as exempt under the companionship services exemption and 
common sources of funding for the services they provide; the next 
section describes the workers and the work they do. Services in the 
home care industry are provided through two general delivery models: 
Agencies and consumer-directed (which often use independent providers 
and family caregivers).
    Figure 2 provides a visual overview of the home care industry and 
the two primary models for service provision, which are discussed in 
more detail in the sections that follow.
[GRAPHIC] [TIFF OMITTED] TR01OC13.000

Agency Model
    Under the agency model a third party provider of home care services 
(usually a home health care company) employs the direct care workers 
and is responsible for ensuring that services authorized by a public 
program or contracted for by a private party are in

[[Page 60514]]

fact delivered.\66\ There are currently about 89,400 establishments 
providing these services. These establishments also provide a variety 
of other health-related services, in addition to or concurrently with 
companionship services. In the following paragraphs we describe the 
industry as a whole since detailed information by the service provided 
is not available.
---------------------------------------------------------------------------

    \66\ Seavey and Marquand, 2011, p. 26. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------

    Agencies providing home care services are covered by two primary 
industries: Home Health Care Services (HHCS, NAICS 6216), and Services 
for the Elderly and Persons with Disabilities (SEPD, NAICS 62412).\67\ 
HHCS is dominated by for-profit agencies that are Medicare-certified 
and depend on public programs for three-quarters of its revenue.\68\ 
SEPD is a rapidly growing industry that is dominated by small 
enterprises. Table 4 provides an overview of these two industries in 
terms of number of establishments and estimated revenues.
---------------------------------------------------------------------------

    \67\ These two industries are the primary employers of workers 
who currently perform companionship services; however, based on data 
reported by BLS in the National Employment Matrix there are 
approximately 33 other industries that also employ these workers. 
Since these other industries employ so few of the workers under 
consideration here, they will be minimally affected by this Final 
Rule.
    \68\ Seavey and Marquand, 2011, pgs 20-22. WHD-2011-0003-3514. 
Also available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------

    The services provided by HHCS and SEPD are paid for through either 
public programs such as Medicaid, Medicare, or state programs, or 
through private sources such as private health insurance or out-of-
pocket payments. In 2009, public programs (Medicare, Medicaid, and 
other government spending) accounted for about 75 percent of the annual 
revenue dispersed to the home health care services 
industry.69 70 A review of funding sources by the CRS 
confirmed this finding but attributed a higher percentage of spending, 
89 percent ($96.3 billion), to public payers (including Medicare, 
Medicaid, and other public programs such as the Veterans Health 
Administration and other state and local programs).\71\ Due to data 
limitations we cannot identify funding sources for individual services 
provided (e.g., companionship services only) and therefore the 
Department analyzes funding for the establishments as a whole.
---------------------------------------------------------------------------

    \69\ Seavey and Marquand, 2011, pgs 22, 23. WHD-2011-0003-3514. 
Also available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
    \70\ Data is not available for the Services for the Elderly and 
Persons with Disabilities industry.
    \71\ The figures are based on CRS analysis of CMS National 
Health Expenditure Account data for 2009. Congressional Research 
Service. Memorandum dated February 21, 2012, titled ``Extending 
Federal Minimum Wage and Overtime Protections to Home Care Workers 
under the Fair Labor Standards Act: Impact on Medicare and 
Medicaid,'' p. 4. WHD-2011-0003-5683.

                 Table 4--Summary of HHCS and SEPD, 2011
------------------------------------------------------------------------
                                                       Estimated revenue
             Industry                 Establishments        ($ mil.)
------------------------------------------------------------------------
SEPD + HHCS.......................             89,400             90,800
SEPD..............................             61,100             32,600
HHCS..............................             28,300             58,000
------------------------------------------------------------------------
Sources: BLS QCEW 2011; BLS NEM, 2010.

    These two industries primarily employ workers as home health aides 
(HHAs) and personal care aides (PCAs) in addition to other occupations 
(e.g., nursing aides, orderlies, administrative personnel). However, 
not all of the HHAs and PCAs employed by these agencies perform 
companionship services as defined under the current exemption; these 
agencies provide a variety of health-related services that may be 
delivered in private homes (potentially companionship services) or in 
public or private facilities (not domestic service employment and 
therefore not companionship services). Additionally, the job duties of 
some HHAs and PCAs make them ineligible for the current companionship 
services exemption. Simply put, only a fraction of the workers employed 
by these establishments are currently performing companionship services 
and therefore may see changes in their wages and/or work schedules as a 
result of this Final Rule.
    Within these two industries there are two broad employer types: 
Home health care companies and private pay home care companies. Home 
health care companies provide medically-oriented home health care 
services and non-medical home care or personal assistance services. 
Some of these agencies are Medicare-certified; those that avoid 
obtaining certification do so because they do not provide the skilled 
nursing care required by Medicare. These companies also derive a 
significant portion of their revenue from the provision of medical 
devices to customers.\72\
---------------------------------------------------------------------------

    \72\ Seavey and Marquand, 2011, p. 15. WHD-2011-0003-3514. Also 
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------

    Private pay agencies are smaller, emerging employers that primarily 
provide non-medical care for consumers and typically earn a large 
percentage of their revenues from private sources (e.g. out-of-pocket, 
long-term health insurance).\73\ Although some agencies characterized 
as private pay are Medicare-certified, many do not provide substantial 
skilled health care services but instead focus on paramedical services 
as well as support services such as personal care, homemaker services, 
and companionship services (as defined by the current regulations).\74\ 
As of 2009, 28 states required private pay agencies to be licensed, but 
due to the variation in license requirements at least some of those 
agencies are likely to be Medicare-certified, or provide services to 
Medicaid beneficiaries, causing double-counting when identifying 
private pay agencies.\75\ Based on a very limited sample, perhaps one-
third of private pay agencies are not-for-profit.\76\
---------------------------------------------------------------------------

    \73\ Seavey and Marquand, 2011, p. 18, WHD-2011-0003-3514. Also 
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
    \74\ Seavey and Marquand, 2011, page 18. BLS data also support 
this: 2011, Employment and Wages from Occupational Employment 
Statistics (OES) survey, Multiple occupations for one industry: Home 
Health Care Services (NAICS code 621600) and Services for the 
Elderly and Persons with Disabilities (NAICS code 624120). Available 
at: http://data.bls.gov/oes/. Accessed April 20, 2012.
    \75\ Leading Home Care. 2010. 2010 Private Pay in Home Health 
Care Benchmarking and State of the Industry Report, p. 17.
    \76\ Leading Home Care. 2010. 2010 Private Pay in Home Health 
Care Benchmarking and State of the Industry Report, p. 22.
---------------------------------------------------------------------------

    Private pay agencies comprise a small fraction of the total market. 
Some industry sources suggest the number of private pay agencies might 
range from 15,000 to 17,000, but admit it is difficult

[[Page 60515]]

to determine the overlap with other types of home care agencies.\77\ 
Since in some states private pay agencies do not need to be licensed, 
it is difficult to determine the exact size of this market. Of these 
private pay agencies, 4,100 to 4,700 are franchises; however, this 
segment of the market is growing quickly, and perhaps fewer than 150 
started operating before 2000.\78\ Therefore, the importance of this 
segment of the industry may grow over time.
---------------------------------------------------------------------------

    \77\ Home Care Pulse. 2011. 2011 Annual Private Duty Home Care 
Benchmarking Study. Highlights Edition, p. 5; Leading Home Care. 
2010. 2010 Private Pay in Home Health Care Benchmarking and State of 
the Industry Report, p. 17. In addition, the industry benchmark 
reports appear to double-count licensed agencies; thus the number 
might be significantly smaller.
    \78\ Home Care Pulse. 2011. 2011 Annual Private Duty Home Care 
Benchmarking Study. Highlights Edition, pp. 5 and 21.
---------------------------------------------------------------------------

    Comments on the NPRM indicated many private pay agencies do not 
provide the types of skilled services that Medicare reimburses and rely 
on private pay for the majority of their revenues.\79\ BLS data 
supports this contention that private pay agencies provide fewer 
skilled care services; however, it is difficult to determine the degree 
of specialization in non-skilled support care because data are 
unavailable to determine how many of these agencies are Medicare-
certified or are associated with Medicare-certified agencies.\80\ In 
addition, the Companionship Services Exemption Survey (CSES) showed 
that private pay agencies rely on private pay and in addition the 
survey showed over 50 percent of respondents provided services covered 
by public payers such as Medicare, Medicaid, and the Department of 
Veterans Affairs (VA). With a focus on less skilled home care services, 
agencies in the private pay sector generally appear to be more reliant 
on private payers than home health care companies are, but the degree 
of reliance is unclear.\81\
---------------------------------------------------------------------------

    \79\ Private Duty Homecare Association. (2012). Companionship 
Services Exemption Survey (CSES), January 23. WHD-2011-0003-9175.
    \80\ Bureau of Labor Statistics. May 2011. Employment and Wages 
from Occupational Employment Statistics (OES) survey, Multiple 
occupations for one industry: Home Health Care Services (NAICS code 
621600) and Services for the Elderly and Persons with Disabilities 
(NAICS code 624120). Available at: http://data.bls.gov/oes/. 
Accessed April 20, 2012. Leading Home Care. (2010). 2010 Private Pay 
in Home Health Care Benchmarking and State of the Industry Report.
    \81\ Comments on the NPRM indicated many private pay agencies do 
not provide the types of skilled services that are Medicare 
reimbursable and rely on private pay for the majority of their 
revenues (e.g., Private Duty Homecare Association. (2012). 
Companionship Services Exemption Survey (CSES), January 23, WHD-
2011-0003-9175). BLS data supports this contention that fewer 
skilled care services are provided (id.). However, it is difficult 
to determine the degree of specialization in non-skilled support 
care because data are unavailable to determine how many of these 
agencies are Medicare-certified or are associated with Medicare-
certified agencies (Leading Home Care. 2010. 2010 Private Pay in 
Home Health Care Benchmarking and State of the Industry Report). In 
addition, the same survey that showed these agencies rely on private 
pay also showed over 50 percent of respondents provided services 
covered by public payers such as Medicare, Medicaid, and the 
Veterans Administration (CSES).
---------------------------------------------------------------------------

Consumer-Directed Models
    Under the consumer-directed models, the consumer or his/her 
representative has more control than in the agency-directed model over 
the services received, as well as when, how, and by whom the services 
are provided. Some consumer-directed services are purchased privately--
that is, out-of-pocket or with private long-term care insurance; 
however, most consumer-directed services are paid with public funds, 
primarily Medicaid waiver and state plan programs.\82\ The following 
discussion provides an overview of Medicaid-funded consumer-directed 
programs.
---------------------------------------------------------------------------

    \82\ ``Growth and Prevalence of Participant-Direction: Findings 
from the National Survey of Publicly-Funded Participant-Directed 
Services Programs, by Mark Sciegaj and Isaac Selkow, available at 
http://web.bc.edu/libtools/details.php?entryid=340.
---------------------------------------------------------------------------

    There are two distinct types of Medicaid-funded ``consumer-directed 
services'' programs: ``employer authority'' and ``budget authority''. 
The ``employer authority'' model gives consumers and their 
representatives choice and control only with respect to the employment 
of ``independent providers'' of direct care in the consumer's home. The 
``budget authority'' model gives consumers a ``budget'' (usually a 
monthly allowance, but unspent funds may be carried month-to-month 
within the year) that may be used to purchase a range of goods and 
services of the consumer's choosing that include, but are not limited 
to, human assistance from directly hired workers, and other goods and 
services that may include, for example, assistive devices, home 
modifications, home-delivered meals, and transportation.\83\
---------------------------------------------------------------------------

    \83\ Doty, P., Mahoney, K.J. & Sciegaj, M. 2010 (January). New 
State Strategies to Meeting Long-term Care Needs. Health Affairs, 29 
(1) 49-56.
---------------------------------------------------------------------------

    Both models permit self-directing consumers and/or their 
representatives (usually family caregivers) to hire/fire, schedule, and 
supervise individual independent providers (direct care workers) to 
provide home care. The direct care workers are often recruited from 
among existing networks of the consumer's family, friends, and 
neighbors. In addition, consumers train or participate in training the 
direct care workers they employ. They also participate in paying their 
direct care workers, most typically by co-signing their direct care 
workers' timesheets before they are submitted to the public program for 
payment, certifying that the work was performed in accordance with the 
information on the timesheet, which serves as the direct care worker's 
bill or claim for reimbursement. The budget authority model differs 
from the employer authority model primarily in giving consumers more 
flexibility to determine how many hours of direct care service they 
wish to obtain and to make agreements directly with their direct care 
workers regarding hourly wages and benefits, so long as the cost of 
consumer-directed home care services does not exceed the amount of 
funds available in the consumer's budget.
    The budget authority model of consumer direction is often referred 
to colloquially as ``cash and counseling'', based on the name of 
former, special, time-limited Medicaid research and demonstration 
(``1115'') waiver programs. These and subsequent programs based on the 
cash and counseling model are now fully integrated into the Medicaid 
programs in their respective states and operate under ongoing state 
plan or HCBS waiver authority, and some states have incorporated 
elements of budget authority consumer direction in programs funded by 
CMS' Money Follows the Person grants to states. Other HCBS programs 
that rely exclusively or primarily on public funding sources other than 
Medicaid have also incorporated consumer-directed options patterned 
after original cash and counseling programs.
    Although consumer-direction of HCBS is not new,\84\ a number of 
developments greatly spurred growth in consumer-directed services 
programs in the 2000s. Medicaid-funded budget authority consumer-
directed programs did not exist until the first three Cash & Counseling 
demonstration programs (in Arkansas, Florida, and New Jersey) began in 
the late 1990s. Favorable evaluation findings from these early 
demonstration programs led to changes to Medicaid law, regulation, and 
policy specifically designed to facilitate and encourage states to 
offer budget authority consumer-directed services

[[Page 60516]]

options.\85\ In addition, Older Americans Act funding for the National 
Family Caregiver Support program provided an impetus to consumer-
directed services that allow family caregivers more choice and control 
in accessing respite services.\86\
---------------------------------------------------------------------------

    \84\ California's In-Home Supportive Services program, which 
currently has 440,000 participants, began in 1973, and other sizable 
programs in Washington, Oregon, Michigan, and Massachusetts began in 
the late 1970s or early 1980s.
    \85\ Doty, Mahoney and Sciegaj, Health Affairs, January 2010.
    \86\ Feinberg, L. & Newman, S. (2005). Consumer Direction and 
Family Caregiving: Results from a National Survey, State Policy in 
Practice. Available at: http://www.hcbs.org/files/79/3926/ConsumerDirection&FamilyCaregivingNWEB.pdf. Feinberg, L. et al. 
(2004). The State of the States in Family Caregiver Support: A 50-
State Study. San Francisco, CA: Family Caregiver Alliance. Available 
at: http://www.caregiver.org/caregiver/jsp/content_node.jsp?nodeid=1276.
---------------------------------------------------------------------------

    A major characteristic of consumer-directed services programs is 
that they permit public program participants to hire direct care 
workers who are family members, friends, and neighbors and research has 
found that most consumers choose to recruit direct care workers who are 
relatives or individuals with whom they were previously acquainted. A 
minority of consumers in consumer-directed programs locate individuals 
known to them who are seeking work as providers of home care services 
via referrals from worker registries, through newspaper ads, or through 
internet social media and advertising sites.
    According to the comment from the California State Association of 
Counties (CSAC), County Welfare Directors Association of California 
(CWDA), California Association of Public Authorities for In-Home 
Supporting Services (CAPA) and California IHSS Consumers Alliance 
(CICA) on the NPRM, approximately 70 percent of all IHSS providers in 
California are family members of the consumer.\87\ Research projects 
conducted by HHS also show that consumers often hire their family 
members as direct care workers. For example, in the original Cash & 
Counseling Demonstration programs, 58 percent of directly hired workers 
in Florida, 71 percent in New Jersey, and 78 percent in Arkansas were 
related to the consumer. About 80 percent of those directly hired 
workers had provided unpaid care to the consumer before the 
demonstration began and continued to provide additional unpaid care 
after becoming paid workers.\88\ In addition, since the passage of the 
National Family Caregiver Support Program enacted under the Older 
Americans Act Amendments of 2000, Medicaid and other state-funded 
programs have provided the bulk of public financing to support family 
caregiving.\89\ A survey of state consumer-directed and family 
caregiving programs found that:
---------------------------------------------------------------------------

    \87\ WHD-2011-0003-9420
    \88\ U.S. Department of Health and Human Services. (2005). 
Experiences of Workers Hired Under Cash and Counseling: Findings 
from Arkansas, Florida and New Jersey. Available at: http://aspe.hhs.gov.daltcp/reports/workerexp.pdf.; Foster, Leslie, Dale, 
Stacy B.& Brown, Randall S. 2007 (February). How Caregivers and 
Workers Fared in Cash and Counseling. Health Services Research 42(1) 
Part II: 510-532.
    \89\ Feinberg, L. & Newman, S. (2005). Consumer Direction and 
Family Caregiving: Results from a National Survey, State Policy in 
Practice. Available at: http://www.hcbs.org/files/79/3926/ConsumerDirection&FamilyCaregivingNWEB.pdf. Feinberg, L. et al. 
(2004). The State of the States in Family Caregiver Support: A 50-
State Study. San Francisco, CA: Family Caregiver Alliance. Available 
at: http://www.caregiver.org/caregiver/jsp/content_node.jsp?nodeid=1276.
---------------------------------------------------------------------------

     Over one-half (86 out of 150, or 57 percent) of the 
programs in 44 states and the District of Columbia allow family members 
to be paid to provide care. Only six states (Alaska, Delaware, 
Mississippi, Nevada, Pennsylvania, and Tennessee) did not allow 
payments to family members in any of their programs at the time of the 
study.\90\
---------------------------------------------------------------------------

    \90\ Feinberg & Newman, 2005. p. 8.
---------------------------------------------------------------------------

     Of the 86 programs that allow relatives to be paid 
providers, 73 percent allow family members to provide personal care, 70 
percent allow family members to provide respite care, 20 percent allow 
family members to act as homemakers or do chores, and 6 percent allowed 
family members to provide any service needed.\91\
---------------------------------------------------------------------------

    \91\ Feinberg & Newman, 2005. p. 8.
---------------------------------------------------------------------------

     Some programs place restrictions on what type of family 
members are allowed to be paid providers. Among these 86 programs, 61 
percent do not permit spouses to be paid providers, while others do not 
permit parents/guardians (37 percent), primary caregivers (18 percent), 
legal guardians (8 percent), children 18 and under (6 percent), or 
other relatives (4 percent).\92\
---------------------------------------------------------------------------

    \92\ Feinberg & Newman, 2005. p. 9.
---------------------------------------------------------------------------

    As noted in the research, while many consumer-directed programs 
allow paid family caregivers, some consumer-directed programs place 
restrictions on the employment of relatives. Such restrictions are 
usually limited to prohibiting paid caregivers who are ``legally 
responsible'' relatives--that is, those who may have financial 
obligations to public program participants (consumers) under state 
laws, such as spouses, parents of minor children, and guardians, 
especially when their income could be counted in determining the 
program participant's future eligibility for means-tested public 
benefits.
    Of those states that offer Medicaid-funded consumer-directed 
services, some have implemented a ``public authority'' design. The 
public authority design applies to both the employer authority and 
budget authority models of consumer-directed programs. Under the public 
authority design, the public authority or some other governmental or 
quasi-governmental entity (often termed a ``home care quality 
commission'' or ``workforce council'') plays a role in setting 
compensation and providing other benefits of employment for the direct 
care worker, who is compensated by public funds. In an effort to 
connect participants in consumer-directed programs with direct care 
workers, some states and public authorities have created matching 
registries. While use of these registries is voluntary on the part of 
consumers and direct care workers, these systems provide some insight 
into how consumers identify care providers to meet their needs. 
Depending on the registry, consumers can either search the worker 
database online, or speak to trained staff who conduct the search and 
report the results to the consumer. Some registries may also offer 
worker screening and orientation, access to consumer and worker 
training, and recruitment and outreach to potential workers.\93\ Others 
stipulate that providers in the database have not been pre-screened in 
any way and such responsibilities lie with the consumer. The Department 
also identified private sector registries that operate under a number 
of models. For example, one not-for-profit registry \94\ recruits, 
screens, and checks the references of local care providers, but the 
care workers are self-employed and work as independent providers. Other 
private sector entities refer to themselves as 
registries,95 96 97 98 but appear to be operated under an 
agency or quasi-agency model, with the consumer paying the company a 
weekly or bi-weekly registry fee in addition to paying the direct care 
worker, or with the company receiving some portion of the direct care 
worker's hourly rate.
---------------------------------------------------------------------------

    \93\ PHI, 2011a. The PHI Matching Services Project. Available 
at: http://phinational.org/policy/the-phi-matching-services-project/.
    \94\ Meals on Wheels and Senior Outreach Services. (2011). Home 
Care Registry. Available at: http://www.mowsos.org/about-us/.
    \95\ Experienced Home Care Registry. (2011). About Us. Available 
at: http://www.experiencedhomecare/about-experienced-home-care/.
    \96\ Angelic Nursing & Home Care Registry, Inc. (2011). Home 
Care Services for Seniors in Tolland and Hartford Counties in 
Connecticut. Available at: http://www.linkedin.com/company/angelic-nursing-&-home-health-care-services-registry-inc-.
    \97\ Golden Care Co. Inc. 2011. Billing Policy. Available at: 
http://www.goldencareco.com/.
    \98\ American HealthCare Capital. (2011). $1.5 Million Oregon 
Private Pay Homecare Registry for Sale. Available at: http://www.americanhealthcarecapital.com/listings/completed-listings/.
---------------------------------------------------------------------------

    The public authority or other governmental or quasi-governmental

[[Page 60517]]

entity acts as the ``employer-of-record'' of consumer-directed workers 
for the purpose of engaging in collective bargaining with a union 
representing consumer-directed workers. Direct care workers in this 
system have the option to select representatives for collective 
bargaining with the state. Direct care workers providing services to 
consumers through consumer-directed programs in states such as 
California, Washington, Oregon, Illinois, and Massachusetts have 
collective bargaining rights. In those states, unions may engage in 
collective bargaining with the state over wages and benefits for 
workers whose wages and benefits are paid for with Medicaid funding. In 
other states, unionization of consumer-directed home care workers has 
been authorized by the legislature and the process is underway but 
collective bargaining over Medicaid provider rates has not yet been 
implemented.\99\ In some states with consumer-directed programs, 
consumer-directed home care workers do not have collective bargaining 
rights.
---------------------------------------------------------------------------

    \99\ Seavey and Marquand, 2011, p. 28. WHD-2011-0003-3514. 
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------

Funding Sources
    There are a variety of different funding sources for provision of 
home care services of all types. Table 5 provides an overview of these 
funding sources, consumer eligibility requirements, and types of home 
care services covered. Public funding sources such as Medicare and 
Medicaid provide a majority of the reimbursement for services.\100\ In 
2009, Medicare and Medicaid accounted for 73 percent of home care 
services revenue, followed by 14 percent from private insurance 
coverage, 4 percent from consumers paying out-of-pocket, and the 
remaining 8 percent contributed by a mix of other sources.\101\
---------------------------------------------------------------------------

    \100\ Congressional Research Service. Memorandum dated February 
21, 2012, titled ``Extending Federal Minimum Wage and Overtime 
Protections to Home Care Workers under the Fair Labor Standards Act: 
Impact on Medicare and Medicaid,'' p. 4. WHD-2011-0003-5683.
    \101\ Seavey and Marquand, 2011, p. 23. WHD-2011-0003-3514. Also 
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.

                        Table 5--Summary of Home Care Service Payers and Service Coverage
----------------------------------------------------------------------------------------------------------------
                                                                                            Home care service
                Payer                        Description              Eligibility                coverage
----------------------------------------------------------------------------------------------------------------
                                                     Public
----------------------------------------------------------------------------------------------------------------
Medicare.............................  Federal government       Individual is under the  Intermittent skilled
                                        program to provide       care of a doctor and     nursing care, physical
                                        health insurance         receiving services       therapy, speech-
                                        coverage, including      under plan of care;      language pathology
                                        home health care, to     has a certified need     services, continued
                                        eligible individuals     for intermittent         occupational therapy.
                                        who are disabled or      skilled nursing care,
                                        over age 65.             physical therapy,
                                                                 speech-language
                                                                 pathology services,
                                                                 continued occupational
                                                                 therapy; and must be
                                                                 homebound.
                                       The program pays a       HHA providing services   Does not cover 24 hr/
                                        certified home health    is Medicare-certified;   day care at home;
                                        agency for a 60 day      services needed are      meals delivered to
                                        episode of care during   part-time or             home; homemaker
                                        which the agency         intermittent, and are    services when it is
                                        provides services to     required <7 days per     only service needed or
                                        the beneficiary based    week or <8 hours per     when not related to
                                        on the physician         day over 21 day period.  plan of care; personal
                                        approved plan of care.                            care given by home
                                                                                          health aides when it
                                                                                          is only care needed.
Medicaid.............................  A joint federal-state    Eligibility and          Coverage of home health
                                        medical assistance       benefits vary by         services must include
                                        program administered     state. In general,       part-time nursing,
                                        by each state to         states provide health    home care aide
                                        provide coverage for     care coverage to low     services, medical
                                        low income               income families with     supplies and
                                        individuals..            dependent children;      equipment. Optional
                                                                 pregnant women;          state coverage may
                                                                 children; and aged,      include audiology;
                                                                 blind and disabled       physical,
                                                                 individuals. Beginning   occupational, and
                                                                 in 2014, states have     speech therapies; and
                                                                 the option to extend     medical social
                                                                 coverage to additional   services.
                                                                 non-elderly low-income
                                                                 individuals.
                                       The program pays home    States also have the     Coverage is provided
                                        health agencies and      option to provide home   under: Medicaid Home
                                        certified independent    and community-based      Health, State Plan
                                        providers.               services to              Personal Care Services
                                                                 individuals who meet     benefit, and Home and
                                                                 eligibility for          Community-Based state
                                                                 institutional care or    plan services and
                                                                 meet state-defined       waivers.
                                                                 criteria based on need.
Older Americans Act..................  Provides federal         Must be 60 yrs of age    Home care aides,
                                        funding for state and    or older.                personal care, chore,
                                        local social service                              escort, meal delivery,
                                        programs that provide                             and shopping services.
                                        services so that
                                        frail, disabled, older
                                        individuals may remain
                                        independent in their
                                        communities.
Department of Veterans Affairs.......  Home health care         All enrolled Veterans    Interdisciplinary Home
                                        services provided by     and Veterans who can     Based Primary Care,
                                        VA employees and         receive outpatient       Skilled home health
                                        contractors.             care without             care services, home
                                                                 enrollment.              hospice and palliative
                                                                                          care, home respite,
                                                                                          and homemaker and home
                                                                                          health aide services.
Social Services Block Grant..........  Federal block grants to  Varies by state........  Often includes program
                                        states for state-                                 providing home care
                                        identified service                                aide, homemaker, or
                                        needs.                                            chore worker services.

[[Page 60518]]

 
Community organizations..............  Some community           Varies by program......  Covers all or a portion
                                        organizations provide                             of needed services.
                                        funds for home health                             Vary by program.
                                        and supportive care.
----------------------------------------------------------------------------------------------------------------
                                                     Private
----------------------------------------------------------------------------------------------------------------
Commercial Health Insurance Companies  Many policies cover      Varies by policy.......  Varies by insurance
                                        home care services for                            policy.
                                        acute, and less often,
                                        long-term needs.
Supplemental Insurance...............  May cover some personal  Varies by policy; not
                                        care services when a     required for standard
                                        Medicare beneficiary     Medigap insurance.
                                        is receiving covered
                                        home health services.
Private pay..........................  The individual           Individuals who are not  Services that do not
                                        receiving the services   eligible for covered     meet the eligibility
                                        pays ``out of            services under third     criteria of other
                                        pocket.''                party public or          payers.
                                                                 private payers.
----------------------------------------------------------------------------------------------------------------
Sources: National Association for Home Care. 1996. Who Pays for Home Care Services? Available at: www.nahc.org/consumer/wpfhcs.html; Centers for Medicare and Medicaid Services (CMS). Medicare and Home Health Care.
  Available at: http://www.medicare.gov/publications/pubs/pdf/10969.pdf.

    Industry commenters (NPDA, IFA) suggest that Medicare covers little 
provision of companionship services. However, the Department believes 
the key to understanding Medicare reimbursement of these types of 
services lies not in the ``does not cover'' statements in the Table 5 
summaries, but rather in the qualifying clauses that clarify that 
Medicare does not reimburse: ``homemaker services when it is only 
service needed or when not related to plan of care; personal care given 
by home health aides when it is only care needed'' [emphasis added]. 
Analysis of the 2009 Medical Expenditure Panel Survey (MEPS) showed 
that of 14.4 million home care episodes paid for by Medicare (and no 
Medicaid), the consumer received care from an HHA, PCA, Companion or 
Homemaker in 6.1 million episodes (42.5 percent).\102\ As noted above, 
the workers performing this work may be classified as exempt from the 
FLSA's minimum wage and overtime compensation requirements under the 
current companionship services exemption. Although the percent of care 
provided by these workers during each episode cannot be determined from 
MEPS, the Department believes these data are sufficient to show that 
services frequently provided by direct care workers commonly classified 
as ``Companions'' (who may meet the current companionship exemption) 
may be included in a Medicare-covered episode of care in certain 
circumstances though provision of such services is not separately 
billed or paid by Medicare.
---------------------------------------------------------------------------

    \102\ For Medicaid with no Medicare, MEPS shows 5.04 of 8.71 
million episodes (57.9 percent) of home care utilized an HHA, PCA, 
Companion or Homemaker; for consumers paying any out-of-pocket for 
home care, 1.05 of 4.19 million episodes (25 percent) used at least 
one of those categories of workers.
---------------------------------------------------------------------------

    In 2012, HHS outlays for Medicare programs were projected to total 
$591 billion and HHS and state outlays in support of Medicaid totaled 
$459 billion. Under Medicare, an estimated $34.1 billion went to home 
health programs.\103\ Medicaid expenditures on home care programs are 
concentrated in three types of programs: State Home Health, State 
Personal Care Services (PCS), and Home and Community-Based Services 
(HCBS) 1915(c) waiver programs. In 2009, Medicaid spent approximately 
$50.0 billion of $374 billion in total expenditures on these programs, 
including $5.3 billion on Home Health, $11 billion on PCS, and $33.7 
billion on HCBS waiver programs.104 105 Thus, payments for 
home care programs composed approximately 6 percent of Medicare 
spending, and about 13 percent of Medicaid spending.
---------------------------------------------------------------------------

    \103\ Centers for Medicare and Medicaid Studies, Office of the 
Actuary, National Health Expenditure Projections, 2011-2021. 
Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
    \104\ Detailed Medicaid data by type of home care are not yet 
available past 2009.
    \105\ Kaiser commission on Medicaid and the Uninsured. 2012 
Medicaid Home and Community-Based Services Programs: 2009 Data 
Update.
    Note, not all of the HCBS goes to personal care services; a more 
detailed breakdown of this spending is not available. For additional 
data, see Kaiser Family Foundation, State Health Facts, p. 2: http://kaiserfamilyfoundation.files.wordpress.com/2013/01/7720-06.pdf. 
Centers for Medicare and Medicaid Studies, Office of the Actuary, 
National Health Expenditure Projections, 2011-2021.
---------------------------------------------------------------------------

    Both Medicare and Medicaid pay the service provider directly. The 
Medicare program uses a prospective payment system (PPS) to reimburse 
home health agencies a pre-determined base payment for an episode of 
care; this base payment is adjusted for the condition and needs of the 
beneficiary as well as geographic variation in wages.\106\ Under 
Medicaid, the state agency implementing the program pays the service 
provider directly except under certain consumer-directed programs.
---------------------------------------------------------------------------

    \106\ For additional detail see Center for Medicare & Medicaid 
Services (CMS). 2011a. Home Health PPS. Available at: http://www.cms.gov/HomeHealthPPS/.
---------------------------------------------------------------------------

    The Medicare and Medicaid programs also work together to provide 
services for a group of consumers referred to as ``dual eligibles,'' 
that is, consumers that are eligible for both Medicare and Medicaid 
coverage. Studies have found that individuals covered by both Medicare 
and Medicaid are among the most expensive groups to cover and are more 
likely to use more Medicare-covered home care services than Medicare 
home care consumers not also covered by Medicaid. Also, states with low 
Medicaid spending appear to shift costs to the Medicare home care 
program spending.\107\ Most of the public matching registries are 
funded by the state, with a few receiving federal dollars through 
reimbursement for Medicaid administrative costs or receiving initial 
funding through federal Medicaid Systems Transformation grants.\108\
---------------------------------------------------------------------------

    \107\ Center for Medicare & Medicaid Services (CMS). 2011b. Home 
Health Study Report: Literature Review, pg.16. Available at: http://www.cms.gov/HomeHealthPPS/Downloads/HHPPS_LiteratureReview.pdf.
    \108\ Seavey & Marquard, 2011.
---------------------------------------------------------------------------

    Just focusing on raw percentages of services paid through public 
funding, however, obscures an important characteristic of private pay 
account

[[Page 60519]]

home care, i.e., that any single episode of home care service 
utilization appears to be paid almost completely by a single payer. The 
Department found that data from MEPS provided insight into this issue. 
MEPS is a set of large-scale surveys of families and individuals, their 
medical providers, and employers across the United States published by 
AHRQ. MEPS collects data on the specific health services that Americans 
use, how frequently they use them, the cost of these services, and how 
they are paid for, as well as data on the cost, scope, and breadth of 
health insurance held by and available to consumers. The Home Health 
section of the survey asks whether: (1) The care was medical or non-
medical; (2) the direct care worker was from an agency, an independent 
provider, or an informal direct care worker; (3) the care resulted from 
specific or general health problem (including ``old age''); (4) the 
consumer received care associated with activities of daily living or 
personal care; and (5) the direct care worker provided companionship. 
The Department therefore believes that private pay home care services 
provided by private pay agencies are captured by this survey.
    In MEPS the Department found that of 9.8 million episodes of care 
for which Medicaid paid any amount, Medicaid paid for almost 94 percent 
and Medicare paid for almost 6 percent of all expenditures; less than 1 
percent of expenditures were paid for by other sources. Similarly, of 
the 14.4 million episodes of care for which Medicare paid some amount 
(after excluding those episodes for which Medicaid was paid), Medicare 
paid for over 97 percent of expenditures. Although only 3.2 million 
episodes of home care were paid for primarily out-of-pocket (after 
excluding episodes in which any part of expenditures were paid by 
Medicare or Medicaid), almost 99 percent of expenditures on those 
services were paid out-of-pocket.\109\
---------------------------------------------------------------------------

    \109\ ERG analysis of MEPS data. Agency for Healthcare Research 
and Quality (AHRQ). Medical Expenditures Panel Survey. 2009. 
Available at: http://meps.ahrq.gov/mepsweb/data_stats/download_data_files.jsp. Accessed March, 2012.
---------------------------------------------------------------------------

    This pattern of payments affects the impact of increased costs 
resulting from this rule on the providers (e.g., agencies and 
independent providers) and consumers of home care services. To the 
extent that providers' costs increase, but Medicare and Medicaid 
reimbursement rates do not increase, part of the impact may be incurred 
by the providers in the form of a smaller profit margin for these 
services. Consumers paying out-of-pocket, however, might be more 
sensitive to a rate increase because the individual pays the entire 
amount, and the provider risks inducing a reduction in demand for its 
services. The majority of the direct care workers documented in the 
MEPS data are agency-employed, and the agency would not be able to 
claim the exemption under the Final Rule; however, in the event that 
the consumer has selected an independent provider as the direct care 
worker, the worker would continue to be considered exempt, provided the 
direct care worker meets the duties requirements for the exemption, and 
therefore the consumer may not experience an increase in costs.

E. Direct Care Workers

    This section provides an estimate of the total number of direct 
care workers who may be impacted by the Final Rule as well as the 
characteristics of these workers, the services they provide, and the 
wages they receive for their work.
Number of Affected Workers
    The workers who will be directly affected by the change to the 
companionship exemption are concentrated in two occupations: Home 
Health Aides (SOC 31-1011) and Personal Care Aides (39-9021). These 
workers are concentrated in two industries: Home Health Care Services 
(NAICS 6216) and Services for the Elderly and Persons with Disabilities 
(NAICS 62412).
    These workers are predominantly women in their mid-forties or 
older, minorities, with a high school diploma or less education but 
this varies highly by region. A similar percentage of PCAs are Black 
and Hispanic (22 percent and 18 percent, respectively), but a much 
higher percentage of HHAs are Black (35 percent) than Hispanic (8 
percent). One in four (23 percent) PCAs are foreign-born, with higher 
percentages (over 45 percent) in certain regions of the country, e.g., 
California and New York. California also has a high percentage of 
direct care workers who are paid family members.\110\
---------------------------------------------------------------------------

    \110\ Seavey and Marquand, 2011, pgs. 11 and 29. WHD-2011-0003-
3514. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------

    Direct care workers are called by a variety of titles, including: 
Home health aides, home care aides, personal care aides, personal 
assistants, home attendants, homemakers, companions, personal care 
staff, resident care aides, and direct support professionals. They are 
tracked by the following occupational titles.\111\
---------------------------------------------------------------------------

    \111\ BLS. 2011. Standard Occupational Classification, available 
at: http://www.bls.gov/soc/home.htm.
---------------------------------------------------------------------------

    Personal Care Aides (SOC 39-9021): ``Assist the elderly, 
convalescents, or persons with disabilities with daily living 
activities at the person's home or in a care facility. Duties performed 
at a place of residence may include keeping house (making beds, doing 
laundry, washing dishes) and preparing meals. May provide assistance at 
non-residential care facilities. May advise families, the elderly, 
convalescents, and persons with disabilities regarding such things as 
nutrition, cleanliness, and household activities.'' The BLS does not 
have a separate SOC for ``Companions, elderly''; they are classified as 
PCAs.
    Home Health Aides (SOC 31-1011): ``Provide routine individualized 
healthcare such as changing bandages and dressing wounds, and applying 
topical medications to the elderly, convalescents, or persons with 
disabilities at the patient's home or in a care facility. Monitor or 
report changes in health status. May also provide personal care such as 
bathing, dressing, and grooming of patient.''
    Companionship services as defined in this Final Rule are separate 
from the services provided by home health and personal care aides as 
defined by BLS above and outlined in detail below. For the reasons 
described in the summary of public comments, throughout this analysis 
the Department refers to HHAs and PCAs when referring to the workers 
that fit the occupational definitions above, and uses the more general 
term ``direct care workers'' to refer to the broader group of workers 
(e.g., HHAs, PCAs, and companions) providing the types of services 
described above.
    The Department uses BLS' employer-based OES estimates of the number 
of workers in the HHA and PCA occupational categories as its best 
estimate of the number of direct care workers employed by agencies that 
might be affected by the Final Rule. There were approximately 1.75 
million direct care workers employed by agencies in 2011, composed of

 924,700 HHAs, and
 820,600 PCAs.\112\
---------------------------------------------------------------------------

    \112\ 2011 BLS Occupational Employment Survey, employment and 
wages for SOC codes 39-9021 and 31-1011.

    These data do not include workers providing these services as 
independent providers who may be affected by the Final Rule. As 
---------------------------------------------------------------------------
described above, the Department determined that an estimated additional

 24,000 HHAs, and
 158,700 PCAs \113\
---------------------------------------------------------------------------

    \113\ BLS, NEM 2010, adjusted to reflect 2011 values.


[[Page 60520]]


---------------------------------------------------------------------------

can be considered independent providers directly employed by families. 
Thus, we estimate

 948,600 HHAs, and
 979,300 PCAs

for a total of 1.93 million direct care workers who might be affected 
by the Final Rule.
    However, not all 1.93 million of these HHAs and PCAs are employed 
as FLSA-exempt companions, and some of these workers are already 
covered by minimum wage and overtime provisions at the state level. 
Many of these workers are employed at agencies that provide a variety 
of health-related services that may or may not be provided in the home; 
HHAs and PCAs employed in facilities, such as nursing homes and 
hospitals, are not engaged in domestic service employment and cannot be 
classified as providing companionship services. Furthermore, HHAs and 
PCAs who work in the home might be employed to perform services that 
fall outside the definition of companionship services, and therefore, 
do not qualify for the companionship services exemption. As will be 
discussed in further detail below, direct care workers in these 
occupational classifications provide a similar range of services, but 
the services provided by any specific direct care worker vary in 
emphasis and intensity depending on the specific job or consumer. Thus, 
this category of direct care worker might best be thought of as 
providing a mix of services along a continuum ranging from one end of 
the spectrum that focuses more on medicalized care, to the opposite end 
that might consist primarily of providing fellowship and protection. 
Those direct care workers at the more medicalized end of the spectrum 
may not be performing services considered to be companionship services 
and might not currently be employed under the companionship services 
exemption (although the case law interpreting the current exemption 
allows for the performance of significant medical duties). Thus, the 
Department considers the category of direct care workers used as the 
basis for this analysis, composed of HHAs and PCAs employed in the 
home, as an upper-bound estimate of the number of direct care workers 
employed as companions. An unknown, but potentially significant, 
percentage of these workers are not currently employed under the 
existing companionship exemption and will not be affected by this 
rulemaking. The Department will estimate the number of workers directly 
affected by both the minimum wage and overtime compensation provisions 
of the Final Rule.
    While many agency-employed direct care workers might work in 
various facilities that make them ineligible for the FLSA companionship 
services exemption, there is little information available concerning 
independent providers, particularly independent providers who provide 
services to consumers in consumer-directed programs. Because these 
sometimes informal arrangements are made directly between the consumer 
and the direct care worker/independent provider, there are limited data 
on the total number of consumers and limited information on the total 
number of providers. The Department estimated the number of independent 
providers in 2011 using BLS National Employment Matrix (NEM) data for 
2010 and inflating the values to reflect 2011 (the base year in the 
model). Approximately 92,200 PCAs (10.3 percent) are employed in 
private households and 66,500 (7.4 percent) are self-employed, for a 
total of 158,700 workers (17.7 percent) who may provide services as 
independent providers.\114\ Fewer HHAs are employed in this manner, 
with 3,600 (less than one percent) working for private households and 
20,300 (about two percent) who are self-employed for a total of 
approximately 23,900 (2.2 percent) workers who may provide services as 
independent providers. Combining the data for HHAs and PCAs suggests 
that 182,600 of these workers (9.5 percent) may be either self-employed 
or employed in private households. The Department believes that these 
workers can reasonably be described as independent providers who 
provide direct care worker services to individuals or families.
---------------------------------------------------------------------------

    \114\ BLS, 2010, projected to reflect 2011 employment.
---------------------------------------------------------------------------

    However, it is likely that not all independent providers of home 
care are captured in the NEM. For example, in its comment on the 
proposed rule, the National Resource Center for Participant-Directed 
Services (NRCPDS) cited a study of 298 publicly funded participant-
directed programs serving approximately 810,000 people.\115\ The study 
found that California accounted for 59 percent of enrollments in 
participant-directed programs. The study did not provide information on 
the number of direct care workers, including independent providers, of 
publicly-funded home care employed by these program participants; 
however, this number is undoubtedly larger than the BLS estimate of 
independent providers of home care employed in private homes, which was 
not restricted to those whose services were purchased with public 
funds. As discussed in detail below, to the extent that data on direct 
care workers, other than that included in the OES or NEM was made 
available to the Department, we have revised the analysis of the number 
of direct care workers in an attempt to better reflect direct care 
workers providing services through consumer-directed programs. The 
Department assumes that all HHAs and PCAs classified in the NEM as 
self-employed or employed by households are independent providers 
directly employed by the family, meet the requirements for exemption, 
and are thus by assumption currently exempt from the FLSA's minimum 
wage and overtime compensation requirements.
---------------------------------------------------------------------------

    \115\ WHD-2011-0003-9474; ``Growth and Prevalence of 
Participant-Direction: Findings from the National Survey of 
Publicly-Funded Participant-Directed Services Programs, by Mark 
Sciegaj and Isaac Selkow, available at http://web.bc.edu/libtools/details.php?entryid=340.
---------------------------------------------------------------------------

Tasks, Wages, Hours
    The Final Rule defines companionship services to include 
fellowship, protection, and care, defined as a limited amount of 
assistance with activities of daily living and instrumental activities 
of daily living.
     Fellowship means ``to engage the person in social, 
physical, and mental activities, such as conversation, reading, games, 
crafts, or accompanying the person on walks, on errands, to 
appointments, or to social events.'' Fellowship services are typically 
not covered by public programs.
     Protection means ``being present with the person in their 
home or to accompany the person when outside of the home to monitor the 
person's safety and well-being.'' Some states reimburse specific types 
of consumers (i.e., those living with mental disabilities) for 
protection services.
     Care means to assist the person with activities of daily 
living (such as dressing, grooming, feeding, bathing, toileting, and 
transferring) and instrumental activities of daily living, which are 
tasks that enable a person to live independently at home (such as meal 
preparation, driving, light housework, managing finances, assistance 
with the physical taking of medications, and arranging medical care).
    Since enactment of the companionship services exemption, the 
spectrum of tasks performed by workers for whom the exemption is 
claimed has expanded to include: Activities of daily living (ADLs), 
instrumental activities of daily living (IADLs), and paramedical

[[Page 60521]]

(``medicalized'') tasks.\116\ Paramedical tasks may include tasks such 
as changing of aseptic dressings, administration of non-injectable 
medications (e.g., blood pressure medication in tablet form); \117\ and 
ostomy, catheter and bowel hygiene.
---------------------------------------------------------------------------

    \116\ Seavey and Marquand, 2011, pg. 7. WHD-2011-0003-3514, 
http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
    \117\ Administration of an injectable medication is a medical 
task generally performed by workers with additional training in 
medical tasks, such as Certified Nurse Assistants (CNAs).
---------------------------------------------------------------------------

    As mentioned above, the Department believes the services provided 
by these direct care workers can best be thought of as existing along a 
continuum; the Department found data in MEPS which supports this view 
of the tasks currently classified as companionship services. MEPS shows 
that of the estimated 6.3 million individuals receiving home care 
services in 2009, 92 percent (5.8 million) received care from agency-
provided direct care workers. Of these consumers, 37 percent received 
care from HHAs, 9.7 percent from PCAs, and 3.8 percent from 
``Companions'' (MEPS uses job titles rather than SOCs for the survey). 
In describing the services provided by these direct care workers, it 
was difficult to distinguish major differences between types of 
workers. For example:
     100 percent of those receiving care from Companions 
received ``companionship services,'' about 53 percent of those 
receiving care from HHAs and PCAs also received such services from 
their HHA or PCA.
     90 percent of those receiving care from PCAs received help 
with daily activities from their PCA; 71 percent receiving care from 
Companions also received help with daily activities from their 
Companion.
     45 percent of those receiving care from HHAs received 
medical treatment from their HHA, 20 percent receiving care from 
Companions also received medical treatment from their Companion.
     22 percent of those receiving care from a Companion 
received services such as homemaking from their Companion; 7 percent of 
those receiving care from a PCA also received such services from their 
PCA.
    Therefore, the Department believes those employed under the job 
titles of HHA, PCA, and Companion (hereafter described as direct care 
workers for consistency with the remainder of the document) are best 
considered as providing a mix of services along a continuum ranging 
from more medicalized care at one end of the spectrum, to the opposite 
end that might consist primarily of providing fellowship and 
protection.
    While HHAs and PCAs overlap in the type of services they provide, 
it is primarily HHAs who are employed by Medicare-certified agencies 
who may be asked to perform paramedical tasks. Those workers are 
required by Medicare to be trained and certified to perform these types 
of tasks.
    Generally speaking, a home health aide or agency is authorized to 
provide a specific number of hours of service to consumers depending on 
their needs in the case of public funding, or agrees to provide a 
specific number of hours of service in the case of private pay. 
Agencies work to schedule direct care workers to cover the number of 
hours needed for the portfolio of cases they have, often taking into 
account continuity of service to each recipient, total number of hours 
each worker is scheduled per week, frequency of weekend services 
needed, and the distance between the direct care worker's home 
residence and the consumer's residence.
    In the home care industry, agencies may offer to provide services 
seven days a week and 24 hours a day. One survey indicated private pay 
agencies provide 24-hour or live-in care to 10 percent of their 
consumers.\118\ This type of schedule is frequently staffed using 12-
hour shifts, 24-hour shifts, or by having the direct care worker live 
in the consumer's home. These cases are of particular concern with 
respect to overtime. A 12-hour case is a consumer who requires services 
to be provided by a direct care worker for a 12-hour block of time; a 
24-hour case is a consumer who requires a direct care worker to be 
present to provide services around the clock. The key scheduling 
concerns that agencies contend exist with these cases are that:
---------------------------------------------------------------------------

    \118\ See, for example, IHS Global Insight (IHSGI). 2012. 
Economic Impact of Eliminating the FLSA Exemption for Companionship 
Services. WHD-2011-0003-8952. However, this analysis is based on a 
survey administered by IHSGI on behalf of the International 
Franchise Association in response to the NPRM; the survey was 
received by those private pay franchisees belonging to the 9 
franchise chains that facilitated the survey, and response was 
voluntary. Therefore it is impossible to determine whether the 
responses are representative of the industry as a whole, or the 
degree of response bias. The survey represents the work patterns for 
at least one group of agencies in this industry; it simply cannot be 
determined how representative the responses are for the entire 
industry.
---------------------------------------------------------------------------

     It is difficult to redistribute overtime hours to workers 
with fewer hours because workers are scheduled to work in lengthy 
shifts (up to 24 hours);
     Direct care workers are typically paid an hourly rate, and 
the employer would be required to pay an hourly overtime premium when 
applicable; however, Medicaid and other payers often reimburse agencies 
for these cases on a flat rate that does not account for overtime 
premiums or other costs;
     24-hour shifts usually include a five- to eight-hour 
period to allow the worker to sleep while on site; however, the aide is 
not necessarily off-duty because s/he would be expected to assist the 
consumer if an urgent need arose. If the agency is required to count 
sleep hours toward the total number of hours worked per week then it 
may become costly to provide 24-hour care.
     Because of the intimate nature of providing such services 
in the consumer's home, consumers prefer having a single or a small 
number of direct care workers. This limits the ability of agencies to 
avoid paying overtime premiums by having more staff work fewer hours. 
In addition, having too many direct care workers can reduce continuity 
of care for the consumer; on the other hand, having too few direct care 
workers may also result in reduced continuity of care if one of those 
direct care workers becomes unavailable.
    Private pay agencies have developed a two-tier pricing structure to 
make 24-hour private pay care cost competitive with nursing home care. 
Consumers may choose between paying for service on an hourly basis or 
pay a single flat rate for 24-hour care. According to the IHSGI survey, 
direct care workers are paid on average $9.87 per hour or $133 for 24 
hours under the flat rate. The Department estimates that agencies 
charge consumers about $18.30 per hour for hourly service, and about 
$250 under the 24-hour flat rate.\119\ According to the MetLife Market 
Survey of Long-Term Care Costs, the average private room nursing home 
rate in 2011 was about $240 per day.\120\ Although it is reasonable to 
assume that consumers are willing to pay a premium to be able to stay 
in their homes, these results indicate that private pay agencies face 
constraints concerning how much they can increase their rates without 
having consumers choose to switch to a nursing home.\121\ This affects 
a small minority of

[[Page 60522]]

consumers. Based on the IHSGI survey, less than 10 percent of consumers 
cared for by survey respondents receive 24-hour home care. Indeed, 65 
percent require less than 40 hours of care per week.
---------------------------------------------------------------------------

    \119\ The Department multiplied the reported pay rates by the 
ratio of revenues to wages from Home Care Pulse, 2011. We were able 
to confirm that the hourly rates were approximately the right 
magnitude from the MetLife Market Survey of Long-Term Care Costs 
(MetLife Mature Market Institute. October 2011).
    \120\ MetLife, 2011.
    \121\ Conversely, this does raise the question as to what 
percent of consumers need 24-hour care to remain in their homes. 
With the two-tier pricing structure, there is a discontinuity in the 
demand curve: for 13 hours of care or less, it is cheaper to use the 
hourly rate; for more than 13 hours of care it is cheaper to opt for 
24-hour care under the flat rate.
---------------------------------------------------------------------------

    To add to the complexity of concerns about the size of potential 
overtime premiums when the consumer needs 24-hour care 7 days a week, 
industry publications and comments on the NPRM appear to use the terms 
``24-hour'' and ``live-in'' synonymously. However, these terms have 
precise and separate meanings under the FLSA, and very different 
implications for overtime compensation. Under the general FLSA 
requirements:
     Employees on duty for periods of 24 hours or more may have 
bona fide scheduled sleeping periods of not more than 8 hours excluded 
from hours worked (with certain additional criteria concerning 
conditions, including that the employee must be able to get at least 5 
hours of sleep). Thus, an employee on a shift of 24 hours or more might 
be eligible to be paid for 16 to 19 of the 24 hours, although 
additional uninterrupted meal time can reduce that. Since overtime is 
not incurred until after 40 hours of work in the workweek are accrued, 
a worker scheduled for 24-hour shifts (with sleep time) might start 
accruing the overtime compensation premium on their third shift in a 
week, or sooner if unable to get the minimum amount of sleep.
     To be considered ``live-in,'' an employee must reside on 
the employer's premises permanently or for extended periods of time. 
The Department has allowed an employee who lives at the place of 
employment at least 5 consecutive days per week to be considered as 
residing on the employer's premises for extended periods of time. Live-
in workers need only be paid for compensable hours worked. The 
Department's long-standing existing regulations recognize that an 
employee who resides on his or her employer's premises is not working 
all the time he or she is on the premises. Ordinarily, live-in workers 
may engage in normal private pursuits and thus have enough time for 
eating, sleeping, entertaining, and other periods of complete freedom 
from all duties when they may leave the premises for their own 
purposes. Live-in domestic service workers must be paid at least 
minimum wage for all hours worked, but are not required to be paid for 
overtime when more than 40 hours of work are performed per week (unless 
employed by a third party employer). Thus, determining the potential 
impact of the revised rule on ``24-hour live-in'' care depends very 
much on whether the worker is ``24-hour'' or ``live-in.''
    Similarly, the Department received comments on the application of 
overtime provisions to direct care workers who are essentially 
roommates of persons with disabilities. These direct care workers live 
with the consumer, assist the consumer in the morning and evening, but 
otherwise are free during the day to go to their own job or school. 
Thus, these direct care workers are likely ``live-in'' as described 
above, and are not entitled to overtime compensation under this Final 
Rule unless employed by a third party employer.
    Some agencies take a proactive approach to scheduling these cases 
in order to manage the total number of hours on duty required from each 
worker. For example, an agency may split a 24-hour, seven days per week 
case between two direct care workers by having one aide provide 
services Sunday through half of the Wednesday shift (three 24-hour 
shifts and one 12-hour shift) when the second aide would take over and 
work through Saturday.\122\ This reduces the total number of hours each 
aide must work, limits the work to one weekend day, and avoids 
overwhelming the consumer with too many different care providers.\123\
---------------------------------------------------------------------------

    \122\ Elsas, M. & Powell, A. 2011. Interview of Michael Elsas, 
President, and Adria Powell, Executive Vice President of Cooperative 
Health Care Associates by Calvin Franz and Lauren Jankovic of ERG. 
April, 2011.
    \123\ Elsas, M. & Powell, A. 2011. Some agencies have 
experimented with breaking a 24-hour case into two 12-hour cases 
that are staffed by four direct care workers; this reduces total 
number of hours worked and eliminates the need for the 8-hour rest 
period but also increases the number of direct care workers that the 
consumer must become comfortable with.
---------------------------------------------------------------------------

    The direct care workers themselves report working an average of 31 
to 34 hours per week and available data suggest that very few work 
overtime.\124\ Based on an analysis of the 2007 National Home Health 
Aide Survey (NHHAS) and the 2009 Annual Social and Economic Supplement 
(ASEC) of the Current Population Survey, PHI reports that 92 percent of 
HHAs and 88 percent of PCAs work 40 hours or less per week for an 
average of 31 hours and 34 hours per week, respectively. By extension, 
only 8 percent of HHAs and 12 percent of PCAs reported working more 
than 40 hours per week.
---------------------------------------------------------------------------

    \124\ Seavey and Marquand, 2011, pgs. 61-64. Available at: 
http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf; HHS, 2011, p. 26.
---------------------------------------------------------------------------

    However, this information may not fully capture the total number of 
hours worked by these individuals because some direct care workers work 
for multiple employers, many direct care workers work part-time jobs, 
and some employers do not compensate workers for travel time between 
consumers (because they are not reimbursed for this time). Furthermore, 
there is very limited information on hours worked by independent 
providers or those workers employed as live-in, on-call, or night shift 
workers. The Department assumes that in general independent providers 
directly employed by individuals, families, or households work similar 
hours as direct care workers employed by agencies.
    The wages for these workers vary widely by occupation and 
geographic location. Based on detailed wage data from the BLS 
Occupational Employment Statistics Survey, the hourly wages of HHAs and 
PCAs range from about $7.55 to $19.84 (less than 10 percent earn below 
$7.55 and less than 10 percent earn more than $19.84) with the median 
wage for HHAs being approximately $9.94 and for PCAs $9.67 per 
hour.\125\ As discussed above, wages for PCAs tend to be slightly lower 
on average than those for HHAs. The Department assumes that in general 
independent providers directly employed by families receive similar 
hourly wages as direct care workers employed by agencies. In 
approximately 90 percent of states (46 states), average hourly wages 
for PCAs were below 200 percent of the federal poverty level wage 
($11.25) for individuals in one-person households working full-
time.\126\ Current research suggests that these workers find it 
difficult to support their households on these wages; approximately 50 
percent of PCAs have to rely on public benefits (e.g., Medicaid, food 
and nutrition assistance, cash welfare, or assistance with housing, 
energy or transportation) and 37 percent of direct care workers 
employed by agencies in HHCS lack health insurance.\127\
---------------------------------------------------------------------------

    \125\ BLS, OES, 2011.
    \126\ Hourly federal poverty level calculated assuming full-time 
(40 hours per week) and full-year (52 weeks per year) employment. 
2011 federal poverty levels provided by the U.S. Census Bureau. 
Available at: http://www.census.gov/hhes/www/poverty/data/threshld/index.html.
    \127\ Seavey and Marquand, 2011, pgs. 55-58. WHD-2011-0003-3514. 
Also available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf
---------------------------------------------------------------------------

F. Costs and Transfers

    This section describes the costs and transfers associated with the 
Final Rule

[[Page 60523]]

and the Department's approach to estimating their magnitude. The 
Department estimates the first-year regulatory familiarization and 
hiring costs of the rule will vary between $18.6 and $20.6 million. In 
following years, costs are projected to increase from around $4 million 
in Year 2, to about $5 million in Year 10 as new firms enter the market 
and new individuals, families and households hire direct care workers.
    Transfers result from the wage increases to comply with minimum 
wage and overtime compensation requirements. Total estimated transfers 
depend in part on the response of employers to the regulatory changes; 
in other words, will employers respond by paying overtime to current 
workers, changing scheduling practices to avoid paying overtime, hiring 
additional workers, or some combination of these approaches. Based on 
the methods described below, the Department estimates that first-year 
transfers from the rule will range from $103.7 to $281.3 million. In 
Years 2 through 10, total transfers using OT Scenario 1 are projected 
to increase from $322.3 million to $626.5 million while total transfers 
using OT Scenario 3 are projected to increase from $118.8 million to 
$230.9 million.
Regulatory Familiarization
    When a new rule is promulgated, all the establishments affected by 
the rule will need to invest time to read and understand the components 
of the new rule; this is commonly referred to as regulatory 
familiarization. Each establishment will spend resources to familiarize 
itself with the requirements of the rule and ensure it is in 
compliance.
    Each home care establishment will require about two hours of an HR 
staff person's time to read and review the new regulation, update 
employee handbooks and make any needed changes to the payroll systems. 
Based on our analysis of the industry and occupational data, the 
Department judges that each employer in HHCS and SEPD likely employs 
workers who will be affected by the Final Rule, and will therefore need 
to review the Final Rule. There are about 89,400 establishments in HHCS 
and SEPD; \128\ assuming a mid-level HR loaded wage of $38.44 per hour 
over two hours equals about $6.9 million for regulatory familiarization 
in the first year following promulgation of the rule.\129\
---------------------------------------------------------------------------

    \128\ This includes the 58 counties in California to account for 
costs to the IHSS program at the county level to become familiar 
with the requirements. For the purposes of the analysis (and to 
capture potential transfers), the Department is assuming that the 
IHSS could be considered the employer and therefore become 
responsible for ensuring payment of minimum wage and overtime to the 
workers (in particular, the 50,000 workers who regularly report more 
than 40 hours of worker per week). In practice, this determination 
would need to be made on a case by case basis based on the 
employment relationship between consumer, direct care worker, and 
IHSS.
    \129\ BLS, 2011, National Compensation Survey (Occupation 13-
1078), Median Hourly Wage.
---------------------------------------------------------------------------

    The Department received comments from industry groups such as NPDA 
and the U.S. Chamber of Commerce, arguing that the unit time estimates 
for regulatory familiarization are too small. However, the commenters 
provided no data to form a more appropriate estimate. After further 
consideration, the Department maintains its original estimate of two 
hours per establishment for regulatory familiarization. This rulemaking 
is a revision to an FLSA regulation that applies to a component of the 
home care industry workforce. The Department believes that most, if not 
all, affected firms are already covered by the FLSA, and employ other 
workers who are not exempt from its overtime and minimum wage 
provisions. For example, the BLS NEM data report that Home Health Care 
Services (6216) in 2010 includes over 200 occupations including nursing 
aides, therapists, and health practitioners that are not exempt from 
overtime and minimum wage provisions.\130\ Therefore the Department 
believes that firms are already familiar with the relevant provisions 
of the FLSA and merely have to apply those provisions to one additional 
group of workers. The Final Rule is limited in scope and length, 
limiting the time required for familiarization. Furthermore, we believe 
that most firms will make use of guidance and educational materials 
from the Department, industry trade groups, franchisers and other 
organizations to help them review the regulations more efficiently. 
Finally, the Department believes that most, if not all, affected firms 
already use payroll systems with the capability of handling overtime 
calculations, and already employ workers for whom overtime might have 
to be calculated. Based on interviews with payroll and human resources 
professionals, the Department estimates that, in general, the vast 
majority of employers use payroll systems to distribute wage statements 
to their employees.\131\ Thus, it is once again a matter of extending 
activities they already perform for one group of their employees to 
another group of employees. Therefore, the additional time necessary to 
perform the types of tasks listed in this section should be relatively 
minimal.
---------------------------------------------------------------------------

    \130\ BLS National Employment Matrix, Home Health Care Services 
(62-1600) 2010. Available at: http://www.bls.gov/emp/ep_table_109.htm.
    \131\ Lucy Key Price, 2010. Interview with Lucy Key Price of 
L.K. Price Associates, Calvin Franz and Lauren Jankovic, both of 
ERG. Polly Wright, 2010. Interview with Polly Wright of HR 
Consultants, Inc., Calvin Franz and Lauren Jankovic, both of ERG. 
Jennifer Wise, 2010. Interview with Jennifer Wise of Wise 
Consulting, Calvin Franz and Lauren Jankovic, both of ERG.
---------------------------------------------------------------------------

    For independent providers, the employer is considered to be the 
individual, family, or household that hires them. Therefore, families 
who directly employ these direct care workers will also have to review 
the regulatory revisions. Some commenters, including the Chamber of 
Commerce, stated that this estimate was too low because of the length 
of the preamble. Because the employer-employee relationship is less 
complex than for an agency that employs multiple workers caring for 
multiple consumers, the Department expects the burden of regulatory 
familiarization will be smaller. In addition, the regulatory text is 
quite short and the preamble discussion is intended simply as an aide 
to employers regarding a variety of FLSA issues. We believe that most 
individuals, families, and households will rely on guidance and 
educational materials from the Department and advocacy organizations. 
The Department therefore assumes that each individual, family, or 
household who directly hires a direct care worker will spend one hour 
on regulatory familiarization. The Department uses the national average 
hourly wage of $29.60 (loaded) to represent the opportunity cost of 
reviewing the regulatory revisions.\132\
---------------------------------------------------------------------------

    \132\ BLS, 2011, National Compensation Survey, Hourly mean wage 
for full-time Civilian Worker is $22.77; the Department estimates 
the fully loaded wage at the hourly wage x 1.3. Available at http://www.bls.gov/eci/.
---------------------------------------------------------------------------

    The Department has found no data to support an estimate of the 
number of individuals, families, and households that directly hire 
independent providers. The Department assumes each independent provider 
is hired by a single individual, family, or household, and therefore, 
because it estimates there are 182,600 independent providers 
nationally, 182,600 individuals, families, and households will incur 
one hour of time at an opportunity cost of $29.60 per hour for a total 
of about $5.4 million for regulatory familiarization in the first year 
following promulgation of the rule.

[[Page 60524]]

Wages and Overtime \133\
---------------------------------------------------------------------------

    \133\ These costs to employers are also transfer payments that 
will benefit employees. See Benefits, below.
---------------------------------------------------------------------------

    Many direct care workers are already protected by minimum wage and 
overtime provisions at the state level and will not drive additional 
costs related to the Final Rule. Fifteen states require minimum wage 
for all hours worked for most direct care workers and guarantee some 
type of overtime compensation for some direct care workers who would 
otherwise be excluded under the FLSA.\134\ Six states and the District 
of Columbia require minimum wage for all hours worked but do not 
guarantee overtime to most direct care workers.\135\ Twenty-nine states 
do not require minimum wage or overtime. Table 6 summarizes the wages 
for HHA and PCA occupations based on state level minimum wage and 
overtime coverage.
---------------------------------------------------------------------------

    \134\ Colorado, Hawaii, Illinois, Maine, Maryland, 
Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New 
York, Pennsylvania, Washington, and Wisconsin. NELP, 2012, WHD-2011-
0003-9452.
    \135\ Arizona, California, Nebraska, North Dakota, Ohio, and 
South Dakota. NELP, 2012, WHD-2011-0003-9452.

           Table 6--Summary of Wages by State Minimum Wage and Overtime Requirements for HHAs and PCAs
----------------------------------------------------------------------------------------------------------------
                                                                                   Hourly wages
                                                                   Minimum 10th      weighted      Maximum 90th
                    Area name                       Employment      percentile        average       percentile
                                                                       wage         median wage        wage
----------------------------------------------------------------------------------------------------------------
All States:
    Total.......................................       1,745,290  ..............  ..............  ..............
        PCA.....................................         820,630           $7.55           $9.67          $19.84
        HHA.....................................         924,660            7.60            9.94           18.23
----------------------------------------------------------------------------------------------------------------
States with Minimum Wage and Overtime
 Requirements:
    Total.......................................         765,220  ..............  ..............  ..............
        PCA.....................................         343,280  ..............           10.35  ..............
        HHA.....................................         421,940  ..............           10.32  ..............
----------------------------------------------------------------------------------------------------------------
States with Minimum Wage but not Overtime
 Requirements:
    Total.......................................         240,630  ..............  ..............  ..............
        PCA.....................................          82,250  ..............           10.15  ..............
        HHA.....................................         158,380  ..............            9.97  ..............
----------------------------------------------------------------------------------------------------------------
States without Minimum Wage or Overtime
 Requirements:
    Total.......................................         739,440  ..............  ..............  ..............
        PCA.....................................         395,100  ..............            8.98  ..............
        HHA.....................................         344,340  ..............            9.47  ..............
----------------------------------------------------------------------------------------------------------------
Source: BLS OES, 2011.

    In order to estimate the number of workers from the table that will 
be directly affected by the minimum wage and overtime components of the 
Final Rule, the Department made three primary calculations: (1) Removed 
from the data set those workers not currently employed in private homes 
(those providing services in facilities); (2) added employees of tax 
exempt organizations in states with overtime requirements to the set of 
workers without state-level overtime requirements (as they are 
sometimes exempt from the state overtime laws); and (3) identified the 
number of workers currently receiving less than the federal minimum 
wage ($7.25 per hour).
    The data presented in Table 6 do not differentiate the workers who 
provide services in the homes of consumers (engaged in domestic service 
employment) and those who provide services primarily in facility 
settings (not engaged in domestic service employment). To identify 
agency-employed HHAs and PCAs likely to be providing services in 
facilities and exclude them from the estimation of costs, the 
Department examined the BLS NEM of industries for each occupation and 
identified 32 industries that employ HHAs and PCAs. Based on the 
description of the industry employing the HHA or PCA, the Department 
made a judgment of whether the actual services were being provided in a 
facility or in a private home. This is then used to estimate the number 
of workers likely to be providing services in the home and the percent 
of that occupation providing services in the home. Table 7 summarizes 
the data as well as the determination of whether the industry would be 
home- or facility-based. This percentage, approximately 50 percent of 
HHAs and 76 percent of PCAs, is used in the detailed calculations 
described below. By definition, the Department assumes that 100 percent 
of the HHAs and PCAs working as independent providers are working in 
private homes.

 Table 7--Summary of Industries Employing HHAs and PCAs in 2010 and Likelihood of the Aide Working in a Home or
                                                    Facility
----------------------------------------------------------------------------------------------------------------
                                                     HHA                                    PCA
                                   -----------------------------------------------------------------------------
             Industry                 Percent of                             Percent of
                                        agency         Home or facility        agency        Home or  facility
                                      employment                             employment
----------------------------------------------------------------------------------------------------------------
Total, All workers \a\............           100.0                                  100.0
    Home..........................              50                                     76

[[Page 60525]]

 
    Facility......................              50                                     24
By Industry
    Accounting, tax preparation,               0.0  Facility.............             0.3  Facility.
     bookkeeping, and payroll.
    Activities related to real                  NA  NA...................             0.0  Facility.
     estate.
    Child day care services.......             0.1  Facility.............             0.1  Facility.
    Civic and social organizations              NA  NA...................             0.1  Facility.
    Community food and housing,                0.0  Facility.............             0.3  Facility.
     and emergency and other
     relief services.
    Educational services, public               0.1  Facility.............             0.1  Facility.
     and private.
    Employment services...........             3.1  Facility.............             3.1  Facility.
    Government, excluding                      2.9  Facility.............             2.3  Facility.
     education and hospitals.
    Grantmaking and giving                      NA  NA...................             0.4  Facility.
     services.
    HHCS..........................            35.5  Home.................            33.1  Home.
    Hospitals, public and private.             0.9  Facility.............             0.5  Facility.
    Lessors of real estate........              NA  NA...................             0.1  Facility.
    Management of companies and                0.0  Facility.............             0.5  Facility.
     enterprises.
    Management, scientific, and                 NA  NA...................             0.1  Facility.
     technical consulting.
    Nursing and community care                19.1  Facility.............             2.8  Facility.
     facilities.
    Offices of all other health                0.1  Facility.............             0.1  Facility.
     practitioners.
    Offices of mental health                   0.0  Facility.............             0.1  Facility.
     practitioners (except
     physicians).
    Offices of physical,                       0.1  Facility.............             0.1  Facility.
     occupational, and speech
     therapists, and audiologists.
    Offices of physicians.........             0.1  Facility.............             0.3  Facility.
    Other ambulatory health care               0.0  Home.................             0.0  Home.
     services.
    Other financial investment                  NA  NA...................             0.1  Facility.
     activities.
    Other investment pools and                  NA  NA...................             0.0  Facility.
     funds.
    Other miscellaneous...........             0.0  Facility.............             0.0  Facility.
    Other personal services.......              NA  NA...................             0.3  Home.
    Other residential care                     1.9  Facility.............             0.6  Facility.
     facilities.
    Outpatient mental health and               0.3  Facility.............             0.3  Facility.
     substance abuse centers.
    Residential mental health and              2.2  Facility.............             0.3  Facility.
     substance abuse facilities.
    Residential mental retardation            17.3  Facility.............             3.5  Facility.
     facilities.
    SEPD..........................            14.3  Home.................            42.5  Home.
    Social advocacy organizations.             0.0  Facility.............             1.2  Facility.
    Unpaid family workers.........              NA  NA...................             0.3  Home.
    Vocational rehabilitation.....             1.8  Facility.............             6.4  Facility.
----------------------------------------------------------------------------------------------------------------
Source: BLS 2010 NEM; note that the percent of the occupation employed in the home versus a facility is
  calculated based on the actual sum of the number appearing in the table. Values are rounded to the nearest
  10th of a percent and columns may not sum to totals due to rounding.
\a\ This excludes self-employed workers and those employed in private households because they are considered
  independent providers and will be added to the population of affected workers separately.

    It is important to note that the determination of whether the 
industry is home- or facility-based is an estimate; some industries 
that appear to provide services primarily in a nursing facility, for 
example, may employ a few direct care workers who provide services in 
the private homes of consumers to assist with transitioning of the 
consumers from the facility back to their homes. Some industries that 
appear to provide services primarily in the private home, HHCS for 
example, may also employ direct care workers who work primarily in 
facilities.
    Next, the workers in the states with minimum wage and overtime 
compensation are, in general, already receiving at least the minimum 
wage and some form of overtime premium for hours worked beyond 40 
hours. These workers do not need to be included when calculating the 
costs and transfers associated with additional wages resulting from the 
application of the federal minimum wage or payment of an overtime 
premium. The exception is for workers employed by public agencies, non-
profit organizations, and other tax exempt entities who are exempt from 
many of the applicable state laws (such as the employees of the 
Illinois Department of Human Services' Home Services Program). To 
account for these workers, the Department used the 2007 Economic Census 
to estimate the proportion of workers in those states who are employed 
in establishments exempt from Federal income tax. The proportion varies 
by state but is 42 percent on average. The proportion in each relevant 
state was multiplied by the number of HHA and PCA workers in each state 
to estimate the number of workers likely to be employed by an employer 
not covered by the state level laws related to minimum wage and 
overtime.\136\ These workers, about 302,500, were added to the total 
number of workers without overtime coverage in order to estimate the 
costs of providing overtime compensation to workers under the Final 
Rule. States vary widely in terms of exemptions from minimum wage and 
overtime rules and not all states have these types of exemptions; as a 
result, this approach results in an overestimate of the number of 
workers who will receive additional overtime wages as a result of the 
rule. The Department judges that this is the best

[[Page 60526]]

available method to estimate these additional workers given available 
data.
---------------------------------------------------------------------------

    \136\ The Department used a proportion of 100 percent for 
workers in New York to account for the fact that New York law 
establishes an overtime premium of one and one-half the FLSA minimum 
wage (rather than the workers' regular rate) for workers employed by 
a third party employer in a private. This produces an overestimate 
of the number of workers who will receive additional overtime 
compensation as a result of the rule.
---------------------------------------------------------------------------

    For the NPRM, the Department analyzed the 2009 BLS OES data on HHA 
and PCA wages by percentile to identify those workers receiving less 
than the federal minimum wage (usually those in the 10th and 25th 
percentiles in states without minimum wage coverage). For example, in 
North Dakota, the 10th percentile wage was $7.20 in 2009, roughly equal 
to the federal minimum wage of $7.25; the Department therefore assumed 
10 percent of HHAs and PCAs in North Dakota would be impacted by the 
extension of the FLSA's minimum wage provision. When newer data became 
available, the Department updated this analysis using 2011 BLS OES data 
on HHA and PCA wages. Using the 2011 data, the Department found no 
states in which workers in the 10th or 25th percentile received less 
than the Federal minimum wage, and therefore now assumes that a 
negligible number of workers will be affected by the minimum wage 
provision.
    Due to lack of data, the Department selected the assumptions it 
would use to analyze independent providers directly employed by 
individuals, families, and households. The Department assumes that 
independent providers: (1) Generally will not be entitled to overtime 
wage premiums, and (2) earn less than the current federal minimum wage 
in the same proportion as agency-employed direct care workers. This 
rulemaking does not eliminate the companionship services exemption for 
direct care workers directly hired by individuals, families, and 
households. Therefore, since independent providers by definition do not 
work for a third party, we assume they will be directly hired by the 
individual, family, or household and will not be entitled to overtime 
compensation when they work more than 40 hours per week (provided, of 
course, that the direct care worker performs companionship services as 
defined in Sec.  552.6 or is a live-in domestic service worker). The 
Department was unable to find data on the average number of hours 
worked per week by independent providers, but assumes that independent 
providers provide home care to multiple consumers and it is unlikely 
that an independent provider will work more than 40 hours per week for 
any single family. This assumption is based on available data which 
suggests that the majority of consumers receive less than 40 hours per 
week of services.
    By assuming that the proportion of independent providers earning 
less than the federal minimum wage is identical to that for agency-
employed direct care workers, the Department implicitly assumes 
independent providers work in similar patterns as agency-employed 
direct care workers. That is, independent providers are distributed 
across states in the same proportion as agency-employed direct care 
workers, and are as likely to earn less than minimum wage as those 
employed by agencies.
    Finally, the Department must account for those who work in 
Illinois' Department of Human Services (DHS) and in California's IHSS 
program. These workers were excluded from the estimate of potentially 
affected workers in the NPRM because review of state law suggested that 
they were already eligible for minimum wage and overtime. Comments 
submitted by Illinois and California clarified the employment 
arrangement, their status with respect to minimum wage and overtime, 
and the number of workers affected.137 138
---------------------------------------------------------------------------

    \137\ CSAC, CWDA, CAPA, and CICA, WHD-2011-0003-9420; State of 
Illinois DHS, Comments, WHD-2011-0003-7904.
    \138\ The Department received no other data suggesting that 
affected workers were not accurately represented in the OES or NEM, 
or appropriately considered in the Preliminary Regulatory Impact 
Analysis. Therefore, the Department had no basis for additional 
review of other states.
---------------------------------------------------------------------------

    For the NPRM, the Department erroneously determined that all direct 
care workers in Illinois are currently eligible for overtime and 
removed all such workers from the analysis to estimate transfer 
payments. In its comment on the NPRM, the Illinois DHS clarified that 
30,000 direct care workers are jointly employed by the state and the 
consumer and, although they receive employment benefits such as 
subsidized health insurance, are not eligible for overtime pay under 
state statute. Based on this comment, the Department returned 30,000 
workers to the OES data for Illinois, and assumes these workers will 
incur overtime hours at the same rate as other agency-employed workers.
    California's IHSS workers share some attributes with independent 
providers but are considered employees of the county level public 
authority for some purposes. Under the IHSS program, county level 
public authorities provide home care services to qualifying residents. 
The services are paid for by a mix of federal, state and county 
funding. The county authority screens and refers direct care workers to 
consumers with the selection of the direct care worker as well as 
scheduling and supervision determined by the consumer. The county 
authority also acts as the employer of record for direct care workers. 
In addition, in California's system the county authority is responsible 
for collective bargaining with the union representing direct care 
workers to determine wage rates and benefits.\139\
---------------------------------------------------------------------------

    \139\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420.
---------------------------------------------------------------------------

    There are approximately 380,000 direct care workers employed 
through IHSS caring for about 440,000 consumers. All IHSS direct care 
workers' pay exceeds the minimum wage, while about 50,000 direct care 
workers routinely work more than 40 hours per week.\140\ In Bonnette v. 
California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983), the 
Ninth Circuit held that IHSS direct care workers were employees of the 
state and counties. For purposes of this analysis, the Department 
initially assumed that direct care workers for IHSS were considered 
employees of the county authority and were included in OES data. 
However, review of OES found a total of 105,000 PCAs and HHAs in 
California, including those that work in facilities. The Department 
concluded that the 380,000 direct care workers for IHSS were not 
included in the OES for California, and therefore added those workers 
to the pool of workers without overtime coverage. Furthermore, the 
comment concerning California's IHSS program indicates that 50,000 of 
the 380,000 IHSS direct care workers (13.2 percent) routinely work 
overtime, which is a somewhat higher proportion than the national 
average of 12 percent. Therefore the Department included 50,000 IHSS 
workers in projections of overtime compensation rather than apply the 
standard percentage used for other affected workers.141 142
---------------------------------------------------------------------------

    \140\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420.
    \141\ Ibid.
    \142\ For the purposes of regulatory familiarization, we assumed 
that the 58 counties in California would incur familiarization 
costs.
---------------------------------------------------------------------------

    Table 8 summarizes the number of workers estimated to be directly 
impacted by the minimum wage and overtime provisions of this Final 
Rule. As explained in more detail above, to estimate the total number 
of workers potentially affected by the overtime provisions of this 
rule, the Department:
     Used OES data to identify agency employed workers in 
occupations that may provide companionship services under the current 
definition (i.e., 1,745,300 PCAs and HHAs). The OES is based on a 
nationally representative sample of private employers as well as state 
and local governments, and is a better measure of agency employment 
than the NEM.

[[Page 60527]]

     Estimated the percentage of agency-employed workers who 
are employed in homes rather than facilities from the NEM and applied 
those percentages to the workers identified in the OES to estimate 
1,086,600 agency-employed PCAs and HHAs work in homes. Because the NEM 
is based on the Current Population Survey, it permits us to identify 
the industry in which the worker is employed.
     Subtracted 472,100 direct care workers from states that 
already require overtime pay using state-level OES data leaving 614,500 
workers in states that do not currently require overtime coverage.
     Added 302,500 direct care workers back into the OES. These 
workers are employed in states that require overtime pay, but are not 
eligible for overtime for various reasons: They work for tax-exempt 
organizations; they work for the IL DHS; or they work in the state of 
New York.\143\ This results in an estimated 917,000 agency-employed 
direct care workers who are not currently eligible for overtime pay.
---------------------------------------------------------------------------

    \143\ Because conflicting information was available concerning 
overtime provisions for direct care workers in New York state, the 
Department included all New York direct care workers in the analysis 
to be conservative.
---------------------------------------------------------------------------

     To this the Department added 380,000 IHSS workers not 
currently eligible for overtime to estimate a total of 1,297,000 direct 
care workers are without overtime coverage.
     Due to a lack of data concerning the prevalence of use of 
the companionship exemption, the Department assumes that all 1,297,000 
direct care workers in states without overtime protection are currently 
paid as exempt companions, and are thus potentially eligible for 
overtime pay after the rule is promulgated. This assumption clearly 
leads to an overestimate of the magnitude of transfer payments 
resulting from the rule; this overestimate may be significant.
     Finally, the Department identified those PCAs and HHAs in 
the NEM who reported themselves as self-employed or employed by private 
households; this results in an estimated 182,600 independent providers.
    Since the data suggest that none of the agency-employed PCAs earn 
less than minimum wage, the Department also assumes that none of the 
158,700 PCA independent providers earn less than minimum wage. 
Similarly, because no agency-employed HHAs earn less than minimum wage, 
the Department assumes that none of the 24,000 HHA independent 
providers earn less than minimum wage.

  Table 8--Summary of Workers That Are Directly Impacted by Final Rule
------------------------------------------------------------------------
                                      Number of
          Affected workers             workers            Source
------------------------------------------------------------------------
Agency-employed PCA and HHA........    1,745,290  2011 OES; State-level
 PCA...............................      820,630   occupational
 HHA...............................      924,660   employment and wages
                                                   for SOC 39-9021 and
                                                   31-1011 (see Table
                                                   6).
Agency-employees working in the
 home:
    Percent PCA and HHA in homes:    ...........  2010 NEM for SOC 39-
     PCA                                   76.2%   9021 and 31-1011 (see
     HHA                                   49.9%   Table 7).
    Number of PCA and HHA in homes:  ...........  Total Workers
     PCA                                 625,323   multiplied by percent
     HHA                                 461,236   working in homes;
                                                   2011 OES and 2010
                                                   NEM.
                                    -------------
            Total..................    1,086,559
------------------------------------------------------------------------
Workers without OT Coverage:
    Number of PCA and HHA in States      614,508  Sum of employees
     without OT Coverage.                          working in homes in
                                                   selected states; 2011
                                                   OES.
    Number of PCA and HHA in public      302,531  Total workers in
     agencies and nonprofits in      ...........   states with OT laws
     states with OT but who are      \a\ 917,039   multiplied by
     ineligible; and NY, and IL DHS.               proportion of workers
     Total number of PCAs and HHAs                 in state employed by
     not currently entitled to OT                  tax-exempt
     coverage.                                     organizations, plus
                                                   workers in NY, and
                                                   the 30,000 workers in
                                                   the IL DHS Home
                                                   Services Program;
                                                   plus workers of CA
                                                   IHSS; 2011 OES and
                                                   2007 Economic Census.
    Number of California IHSS        \b\ 380,000
     workers.
                                    -------------
            Total workers without      1,297,039
             OT coverage.
------------------------------------------------------------------------
Workers below Minimum Wage.........            0  Number of workers with
                                                   wage below $7.25;
                                                   2011 OES.
------------------------------------------------------------------------
Family-employed Independent              182,604  Projections for 2011
 Providers.                              158,651   based on the 2010 NEM
 PCA...............................       23,953   for SOC 39-9021 and
 HHA...............................                31-1011.
Independent Providers below MW.....            0  Number of workers paid
                                                   below minimum wage;
                                                   2011 OES.
------------------------------------------------------------------------
\a\ Of the 917,039 total direct care workers not currently covered by
  overtime laws; 531,924 are PCAs and 385,115 HHAs. Estimated from state-
  level OES data with adjustments for tax-exempt employers, employees of
  IL DHS, and workers in NY state.
\b\ Based on public comment, the Department assumes 50,000 of the
  380,000 IHSS direct care workers (13.2 percent) work overtime; for the
  917,039 agency-employed workers estimated from the OES, the Department
  assumes 12 percent work overtime based on an analysis of NHHAS data.


[[Page 60528]]

Minimum Wage
    In the NPRM, the Department estimated the number of workers earning 
less than the minimum wage based on 2009 data. Using the 2009 BLS data 
on the wages of HHAs and PCAs by percentile, the Department estimated 
that approximately 14,200 HHAs and 30,700 PCAs in 13 states earned less 
than the federal minimum wage of $7.25. However, for this Final Rule 
the Department reviewed the 2011 BLS data, which suggests that no HHAs 
or PCAs are currently earning less than the minimum 
wage.144 145 Therefore the Department estimates no increase 
in wages will result from application of the minimum wage provision of 
the FLSA to direct care workers employed by agencies. With no evidence 
to the contrary, we maintain our working assumption that wages for 
independent providers track those of agency-employed direct care 
workers, and therefore the same result is obtained for independent 
providers.
---------------------------------------------------------------------------

    \144\ BLS, OES, by state, 2000-2010. Available at: http://stats/
bls/gov/oes/.
    \145\ Because the Department finds no evidence of HHAs and PCAs 
currently earning less than the FLSA minimum wage, estimates of 
costs and transfers from this point forward will not include mention 
of the minimum wage.
---------------------------------------------------------------------------

    The Department will not attempt to estimate impacts of future 
increases in the minimum wage. Since Congress extended FLSA protections 
to domestic workers in 1974, it has acted four times to increase the 
Federal minimum wage. Congress passed amendments to the FLSA increasing 
the minimum wage in 1977 (Pub. L 95-151), 1989 (Pub. L 101-157), 1996 
(Pub. L 104-188) and 2007 (Pub. L 110-28). In each case, the minimum 
wage was gradually increased over a series of steps. Given that the 
minimum wage has reached the maximum rate contained in the most recent 
amendments (Pub. L 110-28), any estimate of the cost of this rule 
accounting for increases in the minimum wage would be purely 
speculative.
Overtime
    Limited data exist on the amount of overtime worked by this 
population. A PHI analysis of the 2007 NHHAS and U.S. Census Bureau's 
Current Population Survey, ASEC on direct care workers found 8 to 12 
percent of HHAs and PCAs may work overtime. Among HHAs, 8 percent 
worked more than 40 hours per week, and 2 percent worked more than 50 
hours per week; 12 percent of PCAs appeared to work more than 40 hours 
per week; however, PHI believes this may be an overestimate based on 
the 2010 ASEC supplement which suggests approximately 42 percent of 
direct care workers in HHCS work full-time year round.\146\
---------------------------------------------------------------------------

    \146\ Seavey and Marquand, 2011, pgs. 61-64. WHD-2011-0003-3514. 
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
---------------------------------------------------------------------------

    A significant overtime compensation issue in this industry is 
associated with 24-hour care. Attending staff may be entitled to pay up 
to 16 of every 24 hours or even more (if the staff is not provided a 
bona fide sleep period). The City of New York and New York State 
Association of Counties filed an amicus brief with the U.S. Supreme 
Court in Long Island Care at Home, Inc. v. Coke on this issue.\147\ The 
brief asserted that changing the FLSA companionship services exemption 
would significantly increase the cost to the City and State for 
providing home health services and included an estimate of the 
increased costs. The additional costs for direct care workers in New 
York City attending consumers requiring 24-hour care is by far the 
largest component of these costs, exceeding the Department's estimate 
of nationwide overtime for all workers in all states not currently 
covered by overtime.
---------------------------------------------------------------------------

    \147\ 551 U.S. 158 (2007). Brief of Amici Curiae City of New 
York and New York State Association of Counties in Support of 
Petitioners.
---------------------------------------------------------------------------

    Unfortunately, the brief does not adequately describe how it 
arrived at the cost estimates, nor does it provide estimates of the 
number of consumers requiring 24-hour care or the workers caring for 
them. The numbers presented in the brief suggest over 33.6 million 
hours of annual overtime are worked just to care for consumers 
requiring 24-hour care plus an additional 14.6 million hours of 
overtime hours are worked to care for other consumers.\148\ This 
comprises 45.7 percent of the total amount of overtime the Department 
estimated for the 35 states and Washington, DC that do not currently 
require overtime compensation (73.5 million hours).\149\ Furthermore, 
this sample, from the Current Population Survey ASEC, should reflect 
all hours worked, including that of direct care workers providing 
services to consumers requiring 24-hour care. In addition, the need to 
provide a consumer with 24-hour care does not necessarily result in 72 
hours of overtime per week. Maintaining continuity of care does not 
require a single direct care worker in attendance for the entire week; 
service can be provided with adequate continuity of care by two to four 
workers.\150\ Therefore, because the brief does not explain the basis 
for the numbers, nor were the estimates in the brief clarified or 
explained in comments on the NPRM, the Department has not relied upon 
those estimates.
---------------------------------------------------------------------------

    \148\ The incremental cost of requiring overtime compensation 
under this regulation is the difference between the current hourly 
rate paid for direct care workers, and the rate that would be paid 
if this regulation is promulgated (i.e., the overtime differential) 
applied to hours worked in excess of 40 hours per week. If straight 
time pay is currently about $10 per hour, the incremental cost will 
be $5 per hour. New York City projects the rule will cost $168 
million per year for care of patients requiring 24-hour care; $168 
million divided by $5 suggests that roughly 33.6 million overtime 
hours per year are worked in New York City alone to care for these 
consumers.
    \149\ See discussion later in this section for the methodology 
used to estimate the 73.5 million hours.
    \150\ Elsas & Powell, 2011.
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    In addition, although industry commenters (IFA, NAHC, NPDA, PCA) 
stated that direct care workers work considerably more overtime than 
the impact analysis suggested, it was impossible to derive a reliable 
estimate of patterns of overtime from the provided data. While 
responses characterized the percent of direct care workers who might 
work more than 40 hours per week, or consumers who receive ``live-in'' 
or 24-hour service, not enough information was presented that would 
permit estimation of the number of direct care workers who have such 
schedules or their typical hours worked.\151\ Furthermore, much of 
their claim that overtime hours were underestimated was based on the 
prevalence of ``24-hour care'' and ``live-in care.'' Although 
commenters used these terms synonymously, these terms are not identical 
and have very significant implications for how hours worked are 
calculated, and it was highly problematic to interpret reported survey 
results in a meaningful way (see discussion of public comments on 
overtime scenarios for further explanation of this issue). Finally, the 
reported data were gathered in two industry surveys, as described 
above, that suffered from flawed sampling approaches and cannot be 
considered representative of the industry as a whole. Thus, the 
Department also could not estimate overtime hours based on industry 
data. Therefore, the Department has generally relied upon nation-wide 
data from BLS and the nationally representative NHHAS in developing the 
overtime analysis.
---------------------------------------------------------------------------

    \151\ IHSS Global Insight 2012,. WHD-2011-0003-8952.
---------------------------------------------------------------------------

    BLS data show there are about 614,500 total direct care workers in 
private homes in states without state-mandated overtime coverage, plus 
302,500 workers employed in New York or by tax-exempt organizations in 
states

[[Page 60529]]

with overtime requirements who are not entitled to overtime 
compensation (including the 30,000 workers in the Illinois Department 
of Human Services Home Services Program) and 380,000 workers in the 
California IHSS program who are not entitled to overtime. In total, the 
Department estimates that there are 1.30 million agency-employed 
workers without overtime compensation protection who will be entitled 
to it as a result of the Final Rule (See Table 8).
    For the NPRM, the Department calculated that 10 percent of affected 
direct care workers are employed 45 hours per week (5 hours of 
overtime), and an additional 2 percent are employed 52.5 hours per week 
(12.5 hours of overtime) based on the PHI analysis of NHHAS and ASEC 
data on overtime worked in this industry. As a result of public comment 
on these overtime estimates, the Department reviewed hours worked by 
direct care workers as reported in the 2007 NHHAS. When calculating 
overtime directly instead of using estimates based on the summary 
provided by PHI, the Department found that those direct care workers 
who work more than 40 hours, but no more than 50 hours per week, 
average 6.4 hours of overtime; those who work more than 50 hours per 
week average 21.0 hours of overtime per week. The Department calculates 
overtime hours worked assuming that 10 percent of these 917,000 direct 
care workers (excluding California's IHSS workers) are employed 46.4 
hours per week (6.4 hours of overtime), and an additional 2 percent are 
employed 61.0 hours per week (21.0 hours of overtime). The joint 
comment from potentially affected groups in California \152\ stated 
that 50,000 IHSS workers work more than 40 hours per week, but did not 
indicate how many additional hours they worked. Therefore, the 
Department assigned the same overtime work pattern to them: 83.3 
percent of these workers (10 out of every 12) work 46.4 hours per week, 
and 16.7 percent (2 out of every 12) work 61 hours per week. In total, 
73.5 million hours of overtime are worked per year. Using the weighted 
median HHA wage of $9.84 and the weighted median PCA wage of $9.54 per 
hour, these workers would earn an overtime premium of $4.92 and $4.77 
per hour, respectively. Under these assumptions the additional cost of 
overtime compensation would be approximately $355.3 million per year, 
absent changes to employment practices that could reduce or even 
eliminate overtime for these employees.
---------------------------------------------------------------------------

    \152\ CSAC, CWDA, CAPA, and CICA. WHD-2011-0003-9420, p. 2.
---------------------------------------------------------------------------

Industry Adjustments to Overtime Requirement
    It is reasonable to anticipate that agencies will evaluate and 
potentially change operating and staffing policies in response to 
overtime. Commenters universally agreed, with many home care agencies 
suggesting that they would limit employees' hours rather than pay 
overtime. See e.g., IFA, NPDA, Martin Hayes, Henri Chazaud, and Melina 
Cowan. Currently, agencies have little incentive to manage overtime 
because hours worked in excess of 40 per week are paid at the same rate 
as hours less than 40 per week. Because overtime hours will now cost 
agencies more, they will have an incentive to manage those hours so as 
to reduce costs.
    The Department identified at least three possible agency responses 
to overtime compensation requirements. First, the agency might manage 
existing staff to reduce overtime hours while maintaining the same 
caseload and staffing levels. For example, two direct care employees--
one previously scheduled to work 50 hours per week and another 
previously scheduled to work 30 hours per week--may be rescheduled so 
that they both work 40 hours every week, thus leaving caseload and 
number of employees unchanged while eliminating the need for overtime 
compensation. Henri Chazaud notes that ``work schedules will be based 
on reduction and elimination of overtime.'' This sentiment is echoed by 
Martin Hayes who states that ``[i]f our agency is required to pay 
overtime for these caregivers--their hours will be reduced. Our agency 
will not pay overtime because our clients cannot afford it and it would 
cost us more than we make to foot the bill our self.'' However, there 
is little evidence on which to predict how agencies might reorganize 
staff time to support the same caseload. It seems doubtful that many 
agencies can support their caseload without paying at least some 
overtime compensation, but it is unclear how much overtime could be 
reduced. In addition, the time spent reorganizing staffing plans is not 
costless. In this scenario agencies will also incur opportunity costs 
for managerial time even if management pay is unchanged. In addition, 
employees will experience adjustment costs as they adapt to new work 
schedules.
    Second, as suggested in the City of New York's amicus brief, 
agencies might choose to hire new employees to avoid having current 
staff exceed 40 work hours per week.\153\ After the Court of Appeals 
for the Second Circuit concluded in Coke that direct care workers were 
entitled to overtime compensation, the experience of New York City 
indicates this might be a common response in some regions. Such an 
approach will require increased staffing to cover the existing 
caseload. The New York City experience suggests it became common for 
staff who worked more than 40 hours per week at a single agency to 
continue to work more than 40 hours per week, but for multiple 
agencies.\154\ For example, a direct care worker might work 25 hours 
per week for each of two different agencies, and not be entitled to 
overtime compensation despite working 50 hours per week. Once again, 
agencies will incur additional managerial costs as they hire and manage 
additional staff. Employees who begin to work for more than one agency 
will also incur opportunity costs as they coordinate their schedules 
with multiple agencies. Finally, agencies might increase staffing by 
hiring workers who are new to the industry; depending on the tightness 
of the labor market, this might necessitate increasing hourly wages to 
attract new workers.
---------------------------------------------------------------------------

    \153\ Brief of Amici Curiae City of New York. 2007.
    \154\ Elsas & Powell, 2011.
---------------------------------------------------------------------------

    The third scenario comprises a mix of the first and second 
approaches. Neither of those approaches is costless to agencies. Under 
the FLSA, agencies will be required to pay their employees an 
additional 50 percent premium for each hour worked in excess of 40 per 
week. Conversely, managing workers to reduce or avoid working employees 
overtime hours will require additional time spent managing schedules. 
If agencies must hire additional workers to absorb the potential 
overtime hours, managerial time will be spent screening candidates and 
processing and training new hires. In addition to balancing overtime 
and managerial costs, agencies will have to consider potential impacts 
on consumer satisfaction; scheduling multiple workers for each consumer 
to avoid paying overtime might affect the agency's ability to retain 
existing consumers or attract new consumers. Therefore, the Department 
expects that agencies will weigh the cost of hiring additional workers 
with the cost of paying overtime to existing workers to determine the 
optimal mix of overtime and new hires appropriate to their 
circumstances. Agency caseload, consumer preferences, current staffing 
patterns, the cost of hiring new workers, and managerial preferences 
for staffing mix will affect the final decision.

[[Page 60530]]

    Because the potential magnitude of managerial time to handle more 
complex scheduling is unknown, the Department requested comments on 
this cost to agencies. Unfortunately, no estimates of this time were 
provided. The Department will discuss the cost of hiring new workers in 
detail below.
    One factor that may help determine how many employees currently 
exceeding 40 hours of work per week would receive overtime compensation 
rather than have their hours reduced below 40 per week is the potential 
for existing workers to absorb additional hours without exceeding 40 
hours per week. Available data suggest many employees are working 
significantly less than 40 hours per week and at least some of those 
workers are interested in working additional hours. As has been 
mentioned, studies show that direct care workers work, on average, 
approximately 34 hours per week, and many work part-time.\155\ Seavey 
and Marquand, citing the 2010 CPS ASEC found that about 45.4 percent of 
workers report working part-time, and asked those part-time workers why 
they did not work full-time; 22 percent indicated they could only find 
part-time work and 18 percent stated they worked part-time due to 
business conditions. Thus, potentially 40 percent of part-time direct 
care workers might be interested in increasing their hours worked if 
more hours were available.
---------------------------------------------------------------------------

    \155\ Seavey and Marquand, 2011, p. 62-63. WHD-2011-0003-3514. 
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf. HHS, 2011. p.26.
---------------------------------------------------------------------------

    This suggests that of 917,000 agency-employed HHAs and PCAs not 
currently entitled to overtime protections, approximately 416,300 (45.4 
percent) are part-time, and 166,500 (40 percent of part-time workers) 
might be interested in increasing their hours worked.\156\ Employees in 
this industry currently average about 35 hours worked per week, and 
those who do not typically work overtime average about 28 hours per 
week.\157\ If each of the 166,500 agency employed part-timers who might 
like to work additional hours increased their average hours worked by 
approximately seven hours per week, they could absorb the estimated 
57.4 million hours of overtime currently worked per year by agency 
employed workers and non-family IHSS workers without exceeding 40 hours 
per week themselves.\158\ Not all employers will be able to 
redistribute hours to interested part-time workers in this way, and it 
may be difficult for agencies to adjust worker schedules to come close 
to, but not exceed, 40 hours due to the nature of the work; the types 
of services they provide do not necessarily fit into one-hour 
increments.
---------------------------------------------------------------------------

    \156\ The analysis of the availability of part-time workers to 
absorb additional work hours does not include IHSS workers because 
they differ from agency workers. In particular, many IHSS workers 
provide services to only one client, often a family member, and 
therefore seem unlikely to be interested in adding additional work 
hours to their schedule by adding an additional client.
    \157\ This hours estimate, 28 hours, was estimated by the 
Department based on the 2007 NHHAS data.
    \158\ Note: The total number of overtime hours available to the 
166,500 agency employed part-time workers (57.4 million per year) 
differs from the total number of overtime hours worked by all 
workers without overtime coverage (73.5 million per year) used 
elsewhere in the analysis. The total number of overtime hours 
available to agency employed part-time workers is based on the 
number of overtime hours worked by agency employed workers plus the 
subset of IHSS workers who both work overtime and are not likely to 
be employed by a family member.
---------------------------------------------------------------------------

    However, those employers who can adjust schedules and redistribute 
hours can be expected to decrease overtime costs significantly.
Hiring Costs
    When agencies reduce the number of overtime hours worked, they must 
hire new workers or reallocate hours to under-employed workers to cover 
the hours that would have been overtime prior to the rule. The 
Department estimates cost per hire based on Seavey (2004), who 
concludes that $3,000 (inflated to 2011 dollars) is a conservative 
estimate of the direct cost of replacing a worker who quits (a 
turnover). About 75 percent of this cost is attributable to hiring the 
replacement worker (about $2,230), while the remainder is attributable 
to the costs of separation and vacancy.\159\ The additional hiring 
costs agencies incur will depend on their allocation of the remaining 
overtime hours over new hires and current part-time workers.
---------------------------------------------------------------------------

    \159\ Seavey, D. 2004. The Cost of Frontline Turnover in Long-
Term Care. Washington, DC: IFAS/AAHSa. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/TOCostReport.pdf. The Department attributes 75 percent of the cost 
to hiring replacement workers based on the compilation of findings 
reported by Seavey.
---------------------------------------------------------------------------

    As described in more detail below, the Department considers three 
scenarios for the reduction in overtime hours. OT Scenario 1 involves 
agencies paying for 60 percent of current overtime hours and allocating 
the remainder between current part-time employees and new hires. In OT 
Scenario 2, we assume agencies will pay for 40 percent of current 
overtime hours and allocate the remainder between current part-time 
employees and new hires. Under OT Scenario 3, agencies pay for 10 
percent of current overtime and allocate 90 percent to part-timers and 
new hires. Based on a review of relevant literature, the Department 
believes that, at the upper bound, employers will adjust so that 60 
percent of the current overtime worked is paid at time and one-half the 
employee's regular rate of pay and that the remaining 40 percent of 
current overtime worked will be worked by new hires and current part-
time workers. However, based on employer comments and the industry 
surveys, the Department believes that the actual response will most 
likely be OT Scenario 2.
    Within each of the three overtime scenarios, the Department 
considers a range of potential allocations of the remaining overtime 
hours to new hires: 30 percent, 20 percent, and 10 percent. The 
Department chose 30 percent as the maximum hours allocated to new hires 
since hiring is costly, and converting less than 40 percent of the 
current part-time workers to full-time workers would be sufficient to 
cover the total estimated overtime hours. We expect most agencies would 
hire a smaller percent of new workers as it would result in unnecessary 
hiring costs if reallocation of hours to part-timers is feasible.
    Table 9 lists the estimates of hiring costs in each of the overtime 
scenarios and the inputs used to calculate these estimates. In OT 
Scenario 1, agencies reallocate hours to the specified combinations of 
new and current part-time workers to cover the 40 percent of overtime 
hours they wish to avoid. This corresponds to converting from 43,700 to 
56,200 part-time workers to full-time, hiring between 1,200 and 3,700 
full-time workers, and incurring additional hiring costs of $2.8 to 
$8.4 million. In OT Scenario 2, agencies convert from 65,500 to 84,300 
part-time workers to full-time, hire between 1,900 and 5,600 full-time 
workers, and incur additional hiring costs of $4.2 to $12.5 
million.\160\

[[Page 60531]]

OT Scenario 3 involves converting 98,300 to 126,400 part-time workers 
to full-time, hiring 2,800 to 8,400 new full-time workers, and 
incurring additional hiring costs of $6.3 to $18.8 million. These are 
direct costs incurred by agencies, not a transfer of income from 
agencies or payers to employees (like overtime compensation).
---------------------------------------------------------------------------

    \160\ Hiring costs are identical under OT Scenario 1 with 30 
percent of reallocated overtime hours used for new hires and OT 
Scenario 2 with 20 percent of reallocated overtime hours used for 
new hires because both result in 12 percent of overtime hours going 
to new hires. Under OT Scenario 1, 60 percent of current overtime 
hours are paid to current employees and 40 percent are reallocated 
to new hires and current part-timers; 30 percent of the reallocated 
hours are used for new hires, resulting in 12 percent of overtime 
hours going to new hires (i.e., 40 percent of hours reallocated 
multiplied by the 30 percent of reallocated hours going to new 
hires). Under OT Scenario 2, 40 percent of current overtime hours 
are paid to current employees and 60 percent are reallocated to new 
hires and current part-timers; 20 percent of the reallocated hours 
are used for new hires, resulting in 12 percent of overtime hours 
going to new hires (i.e., 60 percent of hours reallocated multiplied 
by the 20 percent of reallocated hours going to new hires). This 
only occurs in Year 1.

                 Table 9--Year 1 Impact on Hiring Costs
------------------------------------------------------------------------
                                                              Additional
                                    New hires    Part-time      hiring
                                       \a\       workers to    costs ($
                                                 full-time      mil.)
------------------------------------------------------------------------
               OT Scenario 1 (60 Percent of Overtime Paid)
------------------------------------------------------------------------
Hiring full-time workers to
 cover:
    30% of remaining OT hours....        3,746       43,699          8.4
    20% of remaining OT hours....        2,497       49,941          5.6
    10% of remaining OT hours....        1,249       56,184          2.8
------------------------------------------------------------------------
               OT Scenario 2 (40 Percent of Overtime Paid)
------------------------------------------------------------------------
Hiring full-time workers to
 cover:
    30% of remaining OT hours....        5,618       65,548         12.5
    20% of remaining OT hours....        3,746       74,912          8.4
    10% of remaining OT hours....        1,873       84,276          4.2
------------------------------------------------------------------------
               OT Scenario 3 (10 Percent of Overtime Paid)
------------------------------------------------------------------------
Hiring full-time workers to
 cover:
    30% of remaining OT hours....        8,428       98,322         18.8
    20% of remaining OT hours....        5,618      112,368         12.5
    10% of remaining OT hours....        2,809      126,414          6.3
------------------------------------------------------------------------
\a\ The number of new hires is the number of full-time (35 hours per
  week) workers needed to cover the specified proportion of the total
  estimated 1.1 million overtime hours per week currently available to
  part-time workers (i.e., overtime hours worked by agency-employed
  workers and non-family IHSS workers). The number of part-time workers
  converted to full-time is calculated as the number of workers whose
  hours are increased from 28 to 35 per week needed to cover the
  specified proportion of current overtime hours per week. The hiring
  costs are based on an estimated cost of $2,230 per hire.

Travel Time
    The FLSA requires that employees who, in the normal course of work, 
travel to more than one worksite during the workday be paid for travel 
time between each worksite. If the direct care worker travels to the 
first consumer directly from home, and returns directly home from the 
final consumer, travel time for the first trip and last trip generally 
are not considered to be compensable hours worked. It is clear that at 
least some direct care workers travel between consumers for the same 
employer and are thus entitled to be paid for that time. However, the 
Department has been unable to find evidence concerning how many workers 
routinely travel as part of the job, the number of hours spent on 
travel, or what percentage of that travel time currently is 
compensated.
    New York City's amicus brief does suggest, however, that projected 
travel time pay would be about 19.2 percent of the size of overtime 
costs.\161\ As discussed in the summary of public comments, the 
Department received no comments providing additional data or 
alternative methods to revise this calculation; an alternative method 
using data on travel time in the NHHAS suffered from too many 
limitations to produce a suitable estimate. With no other data 
available, the 19.2 percent figure seems reasonable to estimate 
potential travel time pay. A number of qualifications apply to the use 
of this ratio. First, there is anecdotal evidence that agencies that 
operate in the city make little effort to minimize travel on the part 
of their workers; since travel is ``free'' to the agency, there is 
little incentive to manage travel time. Second, because there is no 
explanation of how either overtime or travel time estimates were 
generated, a closer examination of the data might change either or both 
estimates.\162\ Third, it is unclear how work and travel patterns in 
New York City apply to the rest of the country. For example, anecdotal 
evidence suggests that direct care workers in rural areas might have to 
travel further between consumers, but their typical caseload patterns 
and total travel time are unknown. A survey of 261 direct care workers 
in Maine found workers traveled between 0 and 438 miles per week for an 
average unreimbursed mileage of 45 miles per week. One survey 
participant's comment was compelling: ``I had to give up my other 
clients because the price of gas and low wages I wasn't making ends 
meet.'' \163\ However, it is not possible to estimate whether travel 
would involve longer or shorter periods of time than travel in New York 
City, which presumably often involves travel by public transportation 
or by car in heavily congested road conditions.
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    \161\ Brief of Amici Curiae City of New York. 2007.
    \162\ Thus, it is plausible that a modification in the 
assumptions used to generate one estimate might also affect the 
second estimate. The ratio of travel time to overtime might remain 
relatively stable even if the absolute values of the estimates 
change.
    \163\ Ashley, A., Butler, S., Fishwick, N. (2010). Home Care 
Aide's Voices from the Field: Job Experiences of Personal Support 
Specialists. The Maine Home Care Worker Retention Study. Home 
Healthcare Nurse, 28(7), 399-405. Available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2946202/.
---------------------------------------------------------------------------

    The Department expects few independent providers will be affected 
by the travel time provision. Although the FLSA requires that employees 
who travel to more than one worksite during the workday for one 
employer be paid for travel time between each worksite, in the case of 
independent providers, any travel between work sites most likely 
represents travel from one employer to another, not travel between 
sites for the same employer. Therefore the Department anticipates that 
few independent providers will be entitled to travel time pay, and 
included no independent providers in the cost model (because they would 
be traveling between separate employers and thus the time is not 
considered work time).

[[Page 60532]]

    Subject to the qualifications described above, applying New York 
City's 19.2 percent figure to the total overtime cost with no 
adjustments to direct care worker schedules and pay for 100 percent of 
current overtime hours, the Department estimates that the requirement 
to pay travel time under the FLSA might add approximately $104.3 
million per year to employer costs (7 percent annualization rate).\164\ 
In estimating travel time pay, the Department assumes that agencies 
will make no scheduling adjustments to overtime hours (thereby paying 
100 percent of overtime costs) and that travel time pay will maintain a 
constant proportion to overtime hours.
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    \164\ It is unknown whether travel hours will be paid at 
straight time or overtime rates; this will vary according to the 
circumstances of the individual worker. If we assume all travel 
hours are overtime hours, and are paid at approximately $14.50 per 
hour, then the $68.1 million in incremental travel time pay in Year 
1 suggests about 4.7 million hours per year are spent in travel. If 
we assume all travel hours are straight time hours, and are paid at 
approximately $9.67 per hour, then the $68.1 million in incremental 
travel time pay suggests about 7.0 million hours per year are spent 
in travel.
---------------------------------------------------------------------------

    Industry groups suggest that a significant portion of agencies 
already pay for overtime, including agencies that voluntarily pay for 
travel and overtime in states that do not require overtime 
compensation. The IHS Global Insight comment reports that 50 percent of 
its survey respondents pay travel time, including 39 percent of those 
in states that do not require it. Because this survey is not a random 
sample it is unknown how representative the results are of the industry 
in general. However, given the uncertainty concerning the travel 
estimate, the Department did not adjust it downwards to reflect these 
comments. Furthermore, because the Department's estimate of travel time 
pay assumes agencies pay 100 percent of overtime costs, the travel time 
pay figures presented in this analysis overestimate travel time pay 
costs resulting from the Final Rule.
Industry Adjustments Response to Travel Time Requirement
    As a result of this provision, agencies should have significant 
incentive to reduce travel between consumers for their employees, and 
therefore reduce costs. It is difficult, however, to predict the 
potential magnitude of the cost reduction. It might be difficult to 
reduce travel due to consumer preferences for specific direct care 
workers, or the geographical dispersion of consumers (especially in 
rural areas).
    Therefore, although the Department anticipates travel will be 
reduced as a result of the Final Rule, it cannot predict the magnitude 
of this reduction. First, there may be some minimum level of necessary 
travel that is irreducible. Second, although agencies have incentive to 
more carefully manage costs associated with employee travel, they might 
be able to do so in such a way that agencies avoid increased costs, but 
results in little reduction in travel by their employees. For example, 
employees currently working overtime may have their hours reduced and 
obtain a second job in order to work more hours. This would likely 
increase the uncompensated travel time of such workers.
Live-in Domestic Service Employees
    The Final Rule limits the application of the overtime exemption 
contained in Sec.  13(b)(21) of the Act to the individual, family or 
household employing the live-in domestic worker. Third party employers 
would no longer be entitled to claim the exemption. In addition, the 
rule requires employers of live-in domestic workers to maintain an 
accurate record of hours worked, rather than simply keeping a copy of 
the agreement made by the employer and employee covering hours of work. 
The cost to employers of the recordkeeping requirement, discussed more 
fully in the Paperwork Reduction Act (PRA) section of this preamble, is 
estimated to be $29.7 million (which reflects the amount for the entire 
information collection-approximately $8.95 million of which stems from 
this Final Rule). These figures reflect year 1 only. Following year 1, 
the regulatory familiarization burden associated with this Final Rule 
will drop substantially. The Department utilized a 1979 study of 
Domestic Service Employees which incorporated 1974 data on the number 
of live-in domestic service workers and assumed for purposes of the PRA 
that a similar percentage of the current domestic service worker 
population is employed in live-in domestic service work today. The 
Department has been unable, however, to identify current data to 
estimate the number of live-in domestic service workers employed by 
third party agencies, but based on the 1979 data, we do not expect the 
impact of the change concerning third party employment to be 
substantial. Although the Department has estimated the number of live-
in domestic service workers for purposes of the PRA, we have not 
included the 1979 data in the economic analysis because the data does 
not provide information to estimate the number of hours worked by live-
in domestic service workers per week (and whether the hours exceed 40), 
or information to estimate the percentage of live-in domestic service 
workers employed by third party entities. The Department also received 
no relevant comments providing such information.

G. Total Transfers

    Due to the continuum of different responses to the regulation, the 
Department analyzed three possible scenarios with respect to overtime. 
As previously discussed, in view of the comments received, the 
Department believes that paying for 100 percent or 0 percent of 
overtime are highly unlikely scenarios. Therefore, in the Final Rule 
the Department assumes 60 percent of current overtime will be paid in 
OT Scenario 1, 40 percent of current overtime will be paid in OT 
Scenario 2, and 10 percent will be paid in OT Scenario 3. Based on the 
combination of two industry surveys, empirical research, and employer 
comments, the Department believes that OT Scenario 2 reflects the most 
likely impacts of the Final Rule. Scenario 1 assumes the agency pays 
employees the overtime premium for over half of overtime hours worked. 
Conversely, the employer might change scheduling practices to avoid the 
majority of overtime costs to the extent practicable and hire 
additional workers as necessary to work the extra hours. In addition, 
it is assumed that additional staff can be hired at the current going 
wage rate under all three of these scenarios. As described above, 
additional managerial costs to agencies might occur as a result of 
changes in staffing; the Department has no basis for estimating these 
costs, but believes they are relatively small. Therefore, they are not 
included in the three scenarios.
    The three scenarios in rank order from highest to lowest amount of 
overtime that will be paid by employers are:
     OT Scenario 1: The Department assumes agencies pay 60 
percent of the overtime currently worked. Agencies use a combination of 
hiring additional direct care workers and increasing hours of current 
part-time workers to cover the remaining 40 percent of current overtime 
hours.
     OT Scenario 2: The Department assumes agencies make a 
partial adjustment to staffing; overtime compensation is reduced, but 
not eliminated, by hiring some additional staff or increasing hours to 
part-time workers. OT Scenario 2 assumes employers will pay the direct 
care workers for 40 percent of the overtime currently worked and hire 
additional direct care workers or increase hours for part-time workers 
to cover the remaining hours.
     OT Scenario 3: The Department assumes agencies ban 
overtime to the

[[Page 60533]]

extent possible and increase staffing to ensure few employees work more 
than 40 hours per week. The Department assumes that because of 
rigidities in staff and consumer preferences and schedules it will not 
be possible to reduce overtime to zero. Furthermore, some agencies 
already pay overtime voluntarily. Thus, the Department believes 10 
percent of the overtime currently worked is a reasonable expectation 
for the level of overtime achieved under this scenario.
    Table 10 presents an overview of the total estimated transfers of 
this rule where the scenarios represent a range of potential outcomes; 
actual transfers will depend on the response of employers to the Final 
Rule.

                  Table 10--Summary of Year 1 Transfers
------------------------------------------------------------------------
                                      Total
       Transfer components          transfers           Comments
                                     ($ mil.)
------------------------------------------------------------------------
Travel Time Compensation.........        $68.1
Overtime Scenarios:
    OT 1 \a\.....................        213.2  60% of $355.3 million.
    OT 2 \b\.....................        142.1  40% of $355.3 million.
    OT 3 \c\.....................         35.5  10% of $355.3 million.
Total Transfers by Scenario......               Employers of workers not
                                                 currently entitled to
                                                 overtime protections:
    Travel + OT Scenario 1.......        281.3     Allocate all but 60
                                                    percent of overtime
                                                    to non-overtime
                                                    workers.
    Travel + OT Scenario 2.......        210.2     Allocate all but 40
                                                    percent of overtime
                                                    to non-overtime
                                                    workers.
    Travel + OT Scenario 3.......        103.7     Allocate all but 10
                                                    percent of overtime
                                                    to non-overtime
                                                    workers.
------------------------------------------------------------------------
\a\ The Department estimates that 50,000 IHSS workers currently work
  overtime and about 110,000 (12% of 917,000) non-IHSS workers currently
  work overtime. Therefore, of the total estimated transfer, about 31
  percent (e.g., $66.6 million in Year 1) is attributable to IHSS direct
  care workers.
\b\ Of the total, about 31 percent (e.g., $44.4 million in Year 1) is
  attributable to IHSS direct care workers.
\c\ Of the total, about 31 percent (e.g., $11.1 million in Year 1) is
  attributable to IHSS direct care workers.

    The Department examined three scenarios representing varying 
agencies' potential responses to the overtime compensation requirement. 
There is little hard evidence concerning which scenario is most likely 
to occur based upon employer comments.\165\ However, agencies have 
reasonable alternatives to paying the overtime premium: Spreading 
existing overtime hours to other workers, either new employees or 
current employees who want more hours. The Department expects that OT 
Scenario 1 is the least likely to occur; there is no reason to believe 
agencies will pay workers for significant amounts of overtime if they 
can avoid it. OT Scenario 1 represents an upper estimate that projected 
transfer effects will probably not exceed. OT Scenario 3 represents a 
lower estimate below which projected transfers are unlikely to fall. 
Based on the combination of two industry surveys, empirical research, 
and employer comments, the Department believes that OT Scenario 2 
reflects the most likely impacts of the Final Rule and thus, believes 
that OT Scenario 2 best represents the true transfer effects resulting 
from the overtime requirement.
---------------------------------------------------------------------------

    \165\ National-level quantitative analyses have produced results 
consistent with the Department's qualitative analysis for this labor 
market:
    Barkume, Anthony. (2010). The Structure of Labor Costs with 
Overtime Work in U.S. Jobs, Industrial and Labor Relations Review, 
64(1): 128-142.
    Trejo, Stephen. (1991). The Effects of Overtime Pay Regulation 
on Worker Compensation, American Economic Review, 81(4): 719-40.
    Trejo, Stephen. (2003). Does the Statutory Overtime Premium 
Discourage Long Workweeks? Industrial and Labor Relations Review, 
56(3): 530-551.
---------------------------------------------------------------------------

    There are multiple channels through which hours can be spread to 
additional workers without significantly increasing non-overtime wages. 
For example, the Department examined scheduling patterns for consumers 
who require 24-hour care 7 days per week. With 2 direct care workers 
overtime might range from 18 to 46 hours per week depending on 
scheduling (assuming an average of 6.25 hours of sleep and 1.5 hours 
for mealtime for each 24 hour shift). By adding one more direct care 
worker, overtime can be reduced to perhaps 15 hours or less per week 
with similar assumptions concerning sleep and meal time.
    The extent to which current employees work more than 40 hours per 
week provides little evidence of a potential labor shortage in this 
industry; because most agencies are not required to comply with 
overtime compensation requirements for these workers, they have had 
little incentive to manage workers in a way to avoid overtime. 
Furthermore, the existence of a significant pool of part-time workers 
who would prefer to work more hours suggests that a general labor 
shortage does not exist (although there might be some localized 
shortages).
Projected Future Costs and Transfer Effects Due to Industry Growth
    As documented above in this analysis, the demand for direct care 
workers has grown significantly over the past decade and is projected 
to continue growing rapidly. One researcher has projected at least a 
200 percent increase in demand for direct care workers over the next 40 
years.\166\ Therefore, the Department examined how the provisions in 
the Final Rule might impact a rapidly growing industry.
---------------------------------------------------------------------------

    \166\ HHS, 2001. pgs. 4, 5, and 7.
---------------------------------------------------------------------------

    To project regulatory familiarization costs, the Department first 
estimated both the number of agencies and the number of independent 
providers likely to enter the market. The Department used U.S. Census' 
Business Dynamics Statistics to estimate an average annual firm 
``birth'' rate of 8.6 percent of existing firms.\167\ With 89,400 
affected agencies in the baseline, this projects to 7,700 new agencies 
per year that will incur incremental regulatory familiarization costs.
---------------------------------------------------------------------------

    \167\ U.S. Census Bureau, Center for Economic Studies. Business 
Dynamics Statistics: Firm Age by Firm Size. Available at: http://www.census.gov/ces/dataproducts/bds/data_firm.html. Accessed April 
10, 2013.
---------------------------------------------------------------------------

    The projected number of families expected to hire independent 
providers was calculated using U.S. Census population projections by 
age. Census projected that the number of individuals age 65 and older 
will increase from 40.3 million in 2010 to 56.0 million in 2020 (39 
percent), while those age 85 and older will increase from 5.5 million 
to 6.7 million (22 percent) over the same time period.\168\ The 
Department selected

[[Page 60534]]

the weighted midpoint of these two age groups to estimate the growth 
rate of the population most likely requiring assistance. This growth 
rate over 10 years (37 percent) was applied to the number of 
independent home care providers in the baseline year (182,600) to 
estimate that 250,000 independent providers would be supplying services 
to 250,000 families by 2021, an average of 6,744 new workers per year 
from 2012 to 2021.\169\
---------------------------------------------------------------------------

    \168\ U.S. Census Bureau, Population Division. Table 1: 
Intercensal Estimates of the Resident Population by Sex and Age for 
the United State: April 1, 2000 to July 1, 2010. Available at: 
http://www.census.gov/popest/data/intercensal/national/nat2010.html. 
Accessed April 10, 2013; U.S. Census Bureau. 2012. National 
Population Projections. Table 2: Projections of the Population by 
Selected Age Groups and Sex for the United States: 2015 to 2060. 
Available at: http://www.census.gov/population/projections/data/national/2012/summarytables.html. Accessed April 10, 2013.
    \169\ These do not include families that are using the services 
of IHSS direct care workers.
---------------------------------------------------------------------------

    However, this estimate does not account for turnover among 
individuals, families, and households hiring independent home care 
providers; the Department accounted for this by assuming that 50 
percent of the previous year's independent home care providers would 
gain a new consumer, and that consumer or consumer's family would 
require regulatory familiarization. Thus, on average, regulatory 
familiarization costs among families hiring independent providers each 
year was calculated at 50 percent of the previous year's providers plus 
6,744.
    Consistent with the baseline estimate, new agencies projected to 
incur regulatory familiarization costs are assumed to require two 
incremental hours at a rate $38.44 per hour. Families hiring 
independent providers are assumed to require one hour of regulatory 
familiarization at a rate of $29.60. Table 11 summarizes the estimation 
of projected regulatory familiarization costs. The analytic baseline 
for projecting the costs of this rule is 2011 due to data availability, 
and therefore the projected first and second year costs of the rule 
appear to be in the past. This approach is necessary because the 
projections rely on and are later compared to year-specific estimates 
from other sources (e.g., projected home health expenditures). For 
Table 11, 2011 data should be interpreted as the pre-rule baseline, 
with 2012 representing projected costs for Year 1 following 
promulgation of the rule, 2013 representing Year 2, and so on. When 
comparing numbers projected by other agencies (e.g., BLS Occupational 
Outlook, CMS Office of the Actuary), the actual year label is 
appropriate.

                                                  Table 11--Projected Regulatory Familiarization Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Agencies requiring      Families requiring regulatory familiarization
                                                                           regulatory       --------------------------------------------------
                                                                         familiarization                                                        Costs ($
                                Year                                ------------------------                                         Costs ($    mil.)
                                                                                   Costs ($   Total IPs     New IPs      Turnover     mil.)
                                                                        Number      mil.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011...............................................................       89,446       6.88      182,604  ...........  ...........       5.41      12.28
2012...............................................................        7,718       0.59      189,348        6,744       94,794       2.80       3.39
2013...............................................................        7,718       0.59      196,092        6,744       98,046       2.90       3.50
2014...............................................................        7,718       0.59      202,836        6,744      101,418       3.00       3.60
2015...............................................................        7,718       0.59      209,581        6,744      104,790       3.10       3.70
2016...............................................................        7,718       0.59      216,325        6,744      108,162       3.20       3.80
2017...............................................................        7,718       0.59      223,069        6,744      111,534       3.30       3.89
2018...............................................................        7,718       0.59      229,813        6,744      114,906       3.40       3.99
2019...............................................................        7,718       0.59      236,557        6,744      118,279       3.50       4.09
2020...............................................................        7,718       0.59      243,301        6,744      121,651       3.60       4.19
2021...............................................................        7,718       0.59      250,045        6,744      125,023       3.70       4.29
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Projected hiring costs under the three overtime scenarios are based 
on the projected growth in overtime hours. Projections of employment 
growth and projections of future overtime hours worked and overtime 
compensation are explained and quantified below. Only those new hires 
and their associated hiring costs that can be considered to be caused 
by this rule are considered (see Table 12). That is, the vast majority 
of new employees represented by job growth occur regardless of the rule 
and therefore the costs of hiring those workers are not attributable to 
the rule. It is only when an agency has to hire an additional worker as 
a result of the rule (i.e., a worker the agency would not have 
otherwise hired in the absence of the rule) that regulatory costs are 
attributed to this Final Rule.
    The number of new hires attributable to the rule is a small 
fraction of the projected growth in employment in this industry. First, 
since we assume future overtime work patterns resemble current 
patterns, only 12 percent of each year's new employees are expected to 
work overtime. Second, because on average they work 8.8 hours of 
overtime per week, total overtime hours per 100 new hires is analogous 
to 2.6 full-time equivalent (FTE) positions. Third, the Department 
expects agencies will pay the overtime premium for some of those hours 
(10 to 60 percent): Thus, of the potential 2.6 FTE overtime hours, only 
1.0 to 2.3 FTE overtime hours are necessary to cover reallocated 
overtime. Finally, the Department believes most (70 to 90 percent) of 
those 1.0 to 2.3 FTE overtime hours are likely to be reallocated to 
current part-time workers, and only 10 percent to 30 percent of those 
hours are allocated to new hires. Thus, the projected number of new 
hires that can be attributed to the rule is a very small percentage of 
the total number of new workers the industry is expected to hire over 
the next 10 years.
    Table 12 shows the estimated number of new hires attributable to 
this rule and their associated costs. The Department projects that the 
average number of new hires caused by this rule ranges from 228 to 
1,542, depending on the overtime and hiring scenario. Using a 7 percent 
real rate, the average annualized costs associated with hiring these 
workers range from $0.6 to $1.8 million in OT Scenario 1, $0.9 to $2.7 
million in OT Scenario 2 and from $1.3 to $4.0 million in OT Scenario 
3.

[[Page 60535]]



                                      Table 12--Projected Hiring Costs \a\
----------------------------------------------------------------------------------------------------------------
                                                   Future years ($     Average annualized      Number of hires
                                                      mil.) \b\          value ($ mil.)    ---------------------
 Hiring full-time workers to cover:  Year 1 ($ --------------------------------------------
                                       mil.)                           3% Real    7% Real     Year 1    Average
                                                  Year 2    Year 10      rate       rate                  \c\
----------------------------------------------------------------------------------------------------------------
OT Scenario 1......................
 
    30% of remaining OT hours......        8.4       $0.8       $0.8       $1.6       $1.8      3,746        685
    20% of remaining OT hours......        5.6        0.5        0.5        1.1        1.2      2,497        457
    10% of remaining OT hours......        2.8        0.3        0.3        0.5        0.6      1,249        228
 
OT Scenario 2......................
 
    30% of remaining OT hours......       12.5        1.2        1.2        2.5        2.7      5,618      1,028
    20% of remaining OT hours......        8.4        0.8        0.8        1.6        1.8      3,746        685
    10% of remaining OT hours......        4.2        0.4        0.4        0.8        0.9      1,873        343
 
OT Scenario 3......................
 
    30% of remaining OT hours......       18.8        1.7        1.7        3.7        4.0      8,428      1,542
    20% of remaining OT hours......       12.5        1.2        1.2        2.5        2.7      5,618      1,028
    10% of remaining OT hours......        6.3        0.6        0.6        1.2        1.3      2,809        514
----------------------------------------------------------------------------------------------------------------
\a\ Projected number of hires and hiring costs are based on the projected growth in the number of overtime hours
  in Table 16.
\b\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so
  these two values are reported.
\c\ Simple average over 10 years.

    To estimate the number of incremental direct care workers who might 
earn overtime compensation or travel time compensation under the 
revisions, the Department utilized BLS Occupational Outlook employment 
projections for 2020.\170\ The Department interpolated employment data 
for 2012 through 2019, and extrapolated the time series through 2021 
using a constant rate of growth assumption. Wage data were directly 
extrapolated through 2021 using the time trend from 2000 through 2011. 
Based on these time series:
---------------------------------------------------------------------------

    \170\ Bureau of Labor Statistics, U.S. Department of Labor, 
Occupational Outlook Handbook, 2010-11 Edition, Home Health Aides 
and Personal and Home Care Aides. Available at: http://www.bls.gov/oco/ocos326.htm. Accessed September 20, 2011.
---------------------------------------------------------------------------

     Home Health Aide employment will increase by an average of 
8.7 percent per year; \171\ their median nominal wage will increase by 
an average of 2.72 percent per year while median real wage will 
increase by an average of 1.53 percent per year.\172\
---------------------------------------------------------------------------

    \171\ Total hours worked and overtime hours worked will increase 
at the same rate in this model.
    \172\ The Department adjusted nominal wages for inflation using 
the average increase in the PPI for Home Health Services over the 
last 10 years (1.2 percent).
---------------------------------------------------------------------------

     Personal Care Aide employment will increase by an average 
of 8.0 percent per year; their median nominal wage will increase by an 
average of 3.88 percent per year, and the median real wage will 
increase by an average of 2.70 percent per year.
    Table 13 summarizes the projections of HHA and PCA employment and 
wages developed for this analysis.

                                      Table 13--Projected Employment and Hourly Wage, HHAs and PCAs, 2011-2021 \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Home health aides                              Personal care aides
                                                         -----------------------------------------------------------------------------------------------
                                                                                    Median wage                                     Median wage
                          Year                                 Total     --------------------------------      Total     -------------------------------
                                                            employment                      Inflation-      employment                      Inflation-
                                                              (mil.)          Nominal      adjusted \b\       (mil.)          Nominal      adjusted \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................            0.92           $9.91           $9.91            0.82           $9.49           $9.49
2012....................................................            1.01           10.16           10.05            0.89           10.34           10.23
2013....................................................            1.10           10.47           10.23            0.96           10.73           10.50
2014....................................................            1.19           10.78           10.42            1.04           11.13           10.75
2015....................................................            1.28           11.09           10.59            1.11           11.52           11.01
2016....................................................            1.37           11.40           10.76            1.18           11.91           11.25
2017....................................................            1.46           11.71           10.93            1.25           12.30           11.49
2018....................................................            1.55           12.03           11.09            1.32           12.69           11.72
2019....................................................            1.64           12.34           11.24            1.40           13.08           11.94
2020....................................................            1.72           12.65           11.39            1.47           13.48           12.16
2021....................................................            1.81           12.96           11.54            1.54           13.87           12.37
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Derived from BLS Occupational Outlook.
\b\ Estimates based on 10 year average change in PPI for Home Health Services.

    The Department did not project future (Year 2 and beyond) transfer 
effects associated with minimum wage provisions of the FLSA being 
extended to these occupations. BLS Occupational Employment Statistics 
on HHA and PCA wages for 2010 indicate that few, if any, workers are 
currently paid below minimum wage. BLS found no state in which the 
tenth percentile wage was below $7.25 per hour.\173\ As previously 
discussed, Congress passed amendments to the FLSA increasing the 
Federal minimum wage only four times since it extended FLSA protections 
to

[[Page 60536]]

domestic workers in 1974. Given that the minimum wage has reached the 
maximum rate contained in the most recent amendments, any estimate of 
the cost of this rule accounting for increases in the minimum wage 
would be purely speculative.
---------------------------------------------------------------------------

    \173\ BLS Occupational Employment Statistics, 2010 state 
estimates. Available at: http://stats.bls.gov/oes/.
---------------------------------------------------------------------------

Projected Cost Impacts
    This section draws on the estimates of costs to determine the 
anticipated impact of this Final Rule in terms of total cost across all 
industries as well as estimated cost per firm and per employee.
    Table 14 presents the impact of regulatory direct costs on existing 
agencies and individuals, families, and households in the first year. 
First year regulatory familiarization costs total $12.3 million; when 
annualized at a 7 percent discount rate over 10 years, total annualized 
costs are $4.9 million per year. Cost per agency is $77, while families 
employing independent providers will incur costs of $30 per individual, 
family, or household. Hiring costs annualized at a 7 percent real 
discount rate over 10 years range from $0.6 to $1.8 million in OT 
Scenario 1, from $0.9 million to $2.7 million in OT Scenario 2, and 
from $1.3 million to $4.0 million in OT Scenario 3. These correspond to 
Year 1 costs per establishment of $31 to $94 in OT Scenario 1, $47 to 
$140 in OT Scenario 2, and $70 to $211 in OT Scenario 3.

                                   Table 14--Impact of Regulatory Direct Costs
----------------------------------------------------------------------------------------------------------------
                                           Total projected compliance costs ($mil.) \b\
                                 ----------------------------------------------------------------   Year 1 cost
            Component                                      Future years                                 per
                                      Year 1     --------------------------------  Annualized at   establishment
                                                      Year 2          Year 10           7%         component \a\
----------------------------------------------------------------------------------------------------------------
                                        Regulatory familiarization costs
----------------------------------------------------------------------------------------------------------------
Home Healthcare Agencies........            $6.9            $0.6            $0.6            $1.4             $77
Families Employing IPs..........             5.4             2.8             3.6             3.5              30
----------------------------------------------------------------------------------------------------------------
                                                  Hiring Costs
----------------------------------------------------------------------------------------------------------------
OT Scenario 1:
    30% of OT hours.............            $8.4            $0.8            $0.8            $1.8             $94
    20% of OT hours.............             5.6             0.5             0.5             1.2              62
    10% of OT hours.............             2.8             0.3             0.3             0.6              31
OT Scenario 2:
    30% of OT hours.............            12.5             1.2             1.2             2.7             140
    20% of OT hours.............             8.4             0.8             0.8             1.8              94
    10% of OT hours.............             4.2             0.4             0.4             0.9              47
OT Scenario 3:
    30% of OT hours.............            18.8             1.7             1.7             4.0             211
    20% of OT hours.............            12.5             1.2             1.2             2.7             140
    10% of OT hours.............             6.3             0.6             0.6             1.3              70
----------------------------------------------------------------------------------------------------------------
\a\ Regulatory familiarization applies to 89,446 establishments; independent provider regulatory familiarization
  will impact 182,604 entities.
\b\ Excludes paperwork burden, estimated in Section V.

Market Impacts
    There are almost no data, such as price elasticities of supply or 
demand, that can directly be used to model the market for companionship 
services. Furthermore, because approximately 75 percent of expenditures 
on home care services are reimbursed by public payers, the effect of 
the rule depends on how the public payers respond to the increase in 
the cost of providing home care services. However, despite these 
limitations, the Department used available data combined with best 
professional judgment concerning appropriate parameter values, to 
project deadweight loss and disemployment effects of the Final Rule. 
The selection of specific values and the rationale for those decisions 
are explained in further detail below.
    In this section, the Department first presents estimated transfer 
effects for each provision of the rule, along with qualitative 
discussion of potential market adjustments and impacts of that 
provision. The Department then presents the projected deadweight loss 
and disemployment effects of the Final Rule using a market model 
framework.
    The Department estimates:
     Projected travel time pay represents a transfer of $68.1 
million per year from agencies to employees (Table 10, although this 
might decline as agencies will now have incentive to more closely 
manage travel time). If these payments are spread equally over all 
agencies in this industry, they represent about a 0.15 percent increase 
in wages to employees. It is more likely that these payments will be 
distributed less uniformly; employees of some agencies might receive 
significant travel transfer effects, while others receive less.
     Transfer effects associated with overtime are most 
difficult to project. In Scenario 2 the $142.1 million in additional 
wages compose about 0.31 percent of annual wages if overtime is spread 
over all workers, or about 0.16 percent of average industry annual 
revenues if spread over all establishments. Again, it is likely that 
overtime compensation will be distributed less uniformly in a way that 
is difficult to predict.
    However, changes in wages are not the only determinant of how the 
market might tend to respond to the Final Rule; the demand for home 
care services, and therefore the demand for workers in this industry, 
also affects the market response. Conceptually, the demand for 
companionship services has two distinct components: Consumers covered 
by public payers, and out-of-pocket payers. Multiple sources estimate 
that the percent of home care expenditures accounted for by Medicare 
and Medicaid range from about 75 percent to 90 
percent.174 175 176 177 178 The

[[Page 60537]]

remaining expenditures are accounted for by out-of-pocket payers, 
private insurance, and a mix of other governmental sources.
---------------------------------------------------------------------------

    \174\ Seavey and Marquand, 2011, pgs 22, 23. WHD-2011-0003-3514. 
Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
    \175\ Congressional Research Service. Memorandum dated February 
21, 2012, titled ``Extending Federal Minimum Wage and Overtime 
Protections to Home Care Workers under the Fair Labor Standards Act: 
Impact on Medicare and Medicaid,'' p. 4. WHD-2011-0003-5683.
    \176\ U.S. Census Bureau: Health Care and Social Assistance, 
Estimated Year-to-Year Change in Revenue for Employer Firms by 
Source, Table 8.10. Available at: http://www.census.gov/services/sas_data.html.
    \177\ Home Health Care Services Payment System. The Medicare 
Payment Advisory Commission (MedPAC). October 2010. Available at: 
http://www.medpac.gov/documents/MedPAC_Payment_Basics_08_HHA.pdf.
    \178\ ERG analysis of MEPS data. Agency for Healthcare Research 
and Quality (AHRQ). Medical Expenditures Panel Survey. 2009. 
Available at: http://meps.ahrq.gov/mepsweb/data_stats/download_data_files.jsp. Accessed March, 2012.
---------------------------------------------------------------------------

    Currently, Medicare will cover, without a copayment requirement, 
all--or almost all--of the allowed payment for home health care 
services for consumers eligible for Medicare payments. Thus, the demand 
for services by these consumers is likely to be highly inelastic, and 
the purchase of these services is dependent primarily on need and 
eligibility rather than price.\179\ The increase in the payment rate 
resulting from an increase in costs may vary depending on the type of 
cost increase. Because an increase in the minimum wage is an 
unavoidable cost of providing these services, it seems reasonable to 
assume that it will eventually be reflected in payment rates. The 
impact of overtime and travel on reimbursement rates is more uncertain.
---------------------------------------------------------------------------

    \179\ Home Health Care Services Payment System. The Medicare 
Payment Advisory Commission (MedPAC). October 2010. Available at: 
http://www.medpac.gov/documents/MedPAC_Payment_Basics_08_HHA.pdf. Medicare, for example, does not require copayment for 
eligible patients.
---------------------------------------------------------------------------

    Several commenters stated that Medicare/Medicaid only pay for 
services and not travel or overtime. For example, Daniel Berland of the 
National Association of State Directors of Disabilities Services 
observed that ``Medicaid doesn't pay for time that is spent not working 
directly for the consumer.'' The CRS observed that ``payments by 
Medicare or Medicaid to an agency to provide home health aide services 
or Medicaid personal care services are not the same as the wage that 
that the agency pays to the worker'' and stated that over time the 
payments under both Medicare and Medicaid could be adjusted to reflect 
additional costs to agencies providing these services.\180\
---------------------------------------------------------------------------

    \180\ Congressional Research Service. Memorandum dated February 
21, 2012, titled ``Extending Federal Minimum Wage and Overtime 
Protections to Home Care Workers under the Fair Labor Standards Act: 
Impact on Medicare and Medicaid.'' WHD-2011-0003-5683.
---------------------------------------------------------------------------

    Consumers who pay all, or a significant share, of costs out-of-
pocket might have a significantly different price elasticity of demand 
for home care services. Little information is known about this market 
segment, including the percent of home care consumers actually pay out-
of-pocket, as opposed to having private insurance to cover costs. 
Because public payers account for about 75 percent of total payments 
for home care services, it is likely that the private pay market 
segment is significantly smaller than the public pay market. To the 
extent that these consumers are not covered by private insurance and 
pay out-of-pocket, they are likely to have a more elastic demand for 
services; if the prices for home care services increase, these 
consumers are more likely to search for lower cost alternatives. 
However, the size of such an effect is difficult to predict on the 
basis of extant information.
    The Department expects the impact of this Final Rule on the market 
for home care services to be relatively small because incremental 
transfers are projected to be small relative to industry wages and 
revenues, and because the market for these services is dominated by 
government payers. However, to the extent that some transfers are not 
reimbursed by government payers, and that agencies might therefore 
increase the price to consumers, they might result in some consumers 
seeking alternatives to the organized market for home care services.
Deadweight Loss
    Deadweight loss from a regulation results from a wedge driven 
between the price consumers pay for a product or service, and the price 
received by the suppliers of those services. In this case, the transfer 
of income from agency owners to agency employees through overtime 
provisions reduces agencies' willingness to provide home care services. 
Because consumers and their families must now pay more to receive the 
same hours of service, they may reduce the number of hours of services 
they purchase; it is this potential reduction in services that causes 
the allocative inefficiency (deadweight loss) of the rule.
    To estimate deadweight loss, the Department must estimate the 
reduction in services agencies are willing to provide at the current 
market price, the resulting increase in market price paid by consumers 
and families, and their reduced purchases of home care services. To do 
this, the Department uses: (1) The current market wage and hours of 
home care services; (2) the estimated income transfers resulting from 
the rule; and (3) the price elasticity of demand for and supply of home 
care services.
    PCA criticized the deadweight loss analysis in the NPRM because it 
used an incorrect price elasticity of demand for direct care 
workers.\181\ Upon further investigation, the Department determined 
that the comment was accurate, although the commenter's suggested 
alternative value was also flawed. Issues associated with the 
estimation of the price elasticity of demand and deadweight loss are 
discussed in detail in the Summary of Public Comments on the 
Preliminary Regulatory Impact Analysis Section.
---------------------------------------------------------------------------

    \181\ William Dombi, WHD-2011-0003-9595.
---------------------------------------------------------------------------

    In addition, the Department accepts the commenter's point that the 
market for direct care workers contains a private pay sector and a 
public-funds-reimbursed sector that might differ substantially in terms 
of consumer response to price changes. Therefore, the Department now 
evaluates deadweight loss projections by explicitly modeling the two 
distinct market sectors; the larger public pay market segment (75 
percent of the market) is characterized by a highly inelastic price 
elasticity of demand (-0.17), while the smaller private pay segment (25 
percent of the market) has more elastic demand (-1.0).
    The Department has estimated approximately 385,000 HHAs and 532,000 
PCAs currently work without overtime protection. An additional 50,000 
of 380,000 IHSS direct care workers routinely work more than 40 hours 
per week but do not receive overtime compensation. These direct care 
workers are potentially affected by the overtime provisions of the 
Final Rule. The median hourly wage in these states is $9.91 for HHAs 
and $9.49 for PCAs. The Department used the number of employees 
affected by overtime provisions in its calculation of deadweight loss 
because: (1) The populations of affected workers in states without 
minimum wage and overtime provisions are largely overlapping (i.e., 
states without minimum wage protection also do not have overtime 
protection) because the same worker might be paid less than the minimum 
wage and also be working overtime, including both counts creates a 
double-counting problem; (2) minimum wage impacts of the Final Rule are 
estimated to be zero; and (3) spreading transfers over a smaller worker 
population results in a more conservative estimate of deadweight loss 
(that is, the Department is more likely to overestimate, than 
underestimate, deadweight loss).

[[Page 60538]]

    The Department included 30 percent of California IHSS direct care 
workers in the deadweight loss analysis. Comments from the California 
State Association of Counties, et al., indicate that perhaps 70 percent 
of IHSS direct care workers are family members. This suggests they are 
different from other agency-employed direct care workers. For example, 
IHSS workers may not consider direct care to be their vocation (outside 
of caring for their family members), and thus might be more likely to 
quit than care for a non-family member after their family member no 
longer needs care.\182\ Therefore, the Department believes most IHSS 
direct care workers are likely to respond to market forces in different 
ways than agency-employed direct care workers, and should not be 
included in the deadweight loss analysis. The Department assumed that 
those IHSS workers who exceed 40 hours of work per week are evenly 
distributed among family and nonfamily direct care workers, and 
therefore also included 30 percent of overtime premiums for IHSS 
workers in the deadweight loss analysis.
---------------------------------------------------------------------------

    \182\ CSAC, CWDA, CAPA, and CICA, WHD-2011-0003-9420.
---------------------------------------------------------------------------

    The Department estimated a range of income transfers depending on 
the assumptions made concerning business response to the regulation. 
The Department assumes a split of overtime costs between agencies, who 
pay at least some limited amount of overtime, and direct care workers, 
whose hours of work are reduced by that agency (although the direct 
care workers might seek additional hours to work at other agencies). 
Combining the $142.1 million estimated overtime compensation costs 
under OT Scenario 2 (expected by the Department to be the most probable 
of the three scenarios), with the amounts due based upon the travel 
time compensation provisions, the Department estimated the deadweight 
loss of the rule based on first year transfer costs of $210.2 million; 
this excludes 70 percent of overtime payments to IHSS workers. Thus, 
the rule might cost $159 per potentially affected worker, or 
approximately $0.09 per hour assuming workers average 35 hours per 
week, about 0.89 percent of the current hourly wage for HHAs and 0.92 
percent for PCAs.
    There are no econometric estimates of the price elasticity of 
demand or supply for home care services. The Department reviewed 
econometric literature to identify alternatives to use as proxies for a 
direct estimate of the price elasticity of demand for home care 
services. For the price elasticity of demand for home care services 
that are largely reimbursed by third party payers (e.g., public payers, 
private insurance), the Department chose the price elasticity of demand 
for ``health care services'' to use as a proxy for this analysis. The 
primary consideration in selecting this value is that the demand for 
home care should be largely inelastic due to the high degree of 
reimbursement; this characteristic is similar to the demand for health 
care services. A literature review shows that the price elasticity of 
demand for health care services is generally in the -0.10 to -0.20 
range. As discussed earlier in the analysis, the Department will use a 
value of -0.17 in the deadweight loss model.
    The price elasticity of demand for private pay care is expected to 
be more elastic because this type of demand is often for long-term 
chronic care, and is typically not reimbursed by third party payers. 
Therefore the Department selected the price elasticity of demand for 
nursing home care to use as a proxy: nursing home care appears to be a 
close substitute for long-term private pay home care because consumers 
frequently must choose between living at home with assistance, or 
entering a nursing home or assisted living facility if that assistance 
is unavailable or too expensive. Literature shows price elasticities of 
demand for nursing care in the -0.7 to about -4.0 range. For the 
reasons previously discussed, the Department will use a value of -1.0 
in the deadweight loss model.\183\
---------------------------------------------------------------------------

    \183\ Rechovsky, J. (1998). The Roles of Medicaid and Economic 
Factors in the Demand for Nursing Home Care, Health Services 
Research, 33(4 Pt 1): 787-813.
---------------------------------------------------------------------------

    For the purpose of estimating deadweight loss, the Department will 
assume that the private pay sector composes perhaps 25 percent of the 
home care services market; the private pay market segment will be 
assumed to employ 25 percent of direct care workers and incur 25 
percent of transfers in the form of overtime and travel time 
compensation. This judgment is based primarily on the percentage of 
home care services paid by public payers. Although private pay industry 
commenters on the NPRM asserted the private pay market is large, they 
provided little data to document this assertion. The only portion of 
the private pay market that could be documented (e.g., private pay 
franchisees) was a fraction of the number of agencies claimed to 
operate in the private pay market.
    In addition, the Department could find no corroboration to support 
the claim of a large private pay segment in other databases. The 
Department examined alternative data sources such as the nationally-
representative MEPS database, which captures the use of long-term non-
medical care (e.g., companionship and homemaker services) in addition 
to short-term acute medical home care. The MEPS data offered little 
support for the existence of a large private pay market for home care 
services. Private pay appears to be more frequently used with 
independent providers, whereas payment for agency services was 
dominated by Medicare and Medicaid with a relatively small percentage 
of consumers paying out-of-pocket for agency care.
    The price elasticity of supply for hourly labor has been estimated 
at 0.1 (a 1 percent increase in wages will cause a 0.1 percent increase 
in hours supplied). However, among women, that price elasticity of 
supply is estimated to be about 0.14; because hours worked in this 
labor market are primarily supplied by women, the Department selected a 
value of 0.14 to use as the price elasticity of supply of home care 
services in this analysis.
    Based on these price elasticities of supply and demand, the 
estimated cost per direct care worker hour, and baseline employment and 
wages, the Department projects that for:
     HHAs, hourly wage will increase by $0.03 to $9.94, and 
employment will decrease by about 332 (less than 0.1 percent of 
affected HHAs), or about 604,900 hours of home care services annually; 
deadweight loss will be $26,400 annually (less than 0.0001 percent of 
industry revenues).
     PCAs, hourly wage will increase by $0.03 to $9.52, and 
employment will decrease by 479 (less than 0.1 percent of affected 
PCAs), or about 872,500 hours of home care services annually; 
deadweight loss will be $38,100 annually (less than 0.0001 percent of 
industry revenues).
    In addition, transfers to direct care workers will be borne by the 
consumers and their families in the form of higher prices, and by 
agencies and their owners in the form of reduced profit. The 
determination of who pays these transfers is a function of the relative 
price elasticities of supply and demand; the weighted average results 
for the two market sectors shows that about 38 percent of transfers 
will be borne by consumers, their families, and public payers, with the 
remainder borne by agencies (about 62 percent). For:
     HHAs, about $26.1 million is estimated to be paid by 
consumers, their families, and public payers; while $42.8 million is 
estimated to be paid by agencies and their owners in the form of 
reduced income.

[[Page 60539]]

     PCAs, consumers, their families, and public payers are 
estimated to pay about $36.1 million, and $59.1 million is estimated to 
be paid by agencies and their owners in the form of reduced income.
    Table 15 summarizes both the values of the parameters used in the 
deadweight loss analysis and the results of the analysis.

                                                     Table 15--Summary of Deadweight Loss Estimation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Medicare/Medicaid reimbursed             Private pay                         Total
                                             --------------------------------------------------------------------------------------------------
                                                 HHA        PCA       Total       HHA        PCA       Total       HHA        PCA       Total
-----------------------------------------------------------------------------------------------------------------------------------------------
                                                    Values Used in Deadweight Loss Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Price Elasticity of Demand..................      -0.17      -0.17  .........      -1.00      -1.00  .........        N/A        N/A  .........
Price Elasticity of Supply..................       0.14       0.14  .........       0.14       0.14  .........        N/A        N/A  .........
Baseline Hourly Wage........................      $9.91      $9.49  .........      $9.91      $9.49  .........      $9.91      $9.49  .........
Baseline Employment \a\.....................    336,709    465,052    801,761     96,278    132,976    229,254    432,987    598,028  1,031,015
Compliance Costs ($ mil.) \b\...............  .........  .........     $128.1  .........  .........      $36.1  .........     $164.3
Compliance Costs per Hour \c\...............  .........  .........    $0.0878  .........  .........    $0.0866  .........  .........    $0.0875
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Results of Deadweight Loss Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Post-Rule Hourly Wage.......................      $9.95      $9.53  .........      $9.92      $9.50  .........      $9.94      $9.52  .........
Change in Hourly Wage.......................     $0.040     $0.040  .........     $0.011     $0.011  .........     $0.033     $0.033  .........
Post-Rule Total Employment..................    336,480    464,722    801,202     96,174    132,827    229,001    432,654    597,549  1,030,203
Change in Employment........................       -229       -330       -559       -103       -149       -252       -332       -479       -812
Deadweight Loss.............................    $18,300    $26,394    $44,694     $8,145    $11,748    $19,893    $26,445    $38,142    $64,587
% Paid by Purchasers \d\....................      45.2%      45.2%      45.2%      12.3%      12.3%      12.3%      37.9%      37.9%      37.9%
Amount Paid by Purchasers ($ mil.)..........      $24.3      $33.5      $57.8       $1.9       $2.6       $4.4      $26.1      $36.1      $62.3
% Paid by Employers \e\.....................      54.8%      54.8%      54.8%      87.7%      87.7%      87.7%      62.1%      62.1%      62.1%
Amount Paid by Employers ($ mil.)...........      $29.5      $40.7      $70.2      $13.3      $18.4      $31.7      $42.8      $59.1     $101.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Agency employment in states without minimum wage and/or overtime laws and tax-exempt employers plus independent providers in states without minimum
  wage laws.
\b\ Estimated sum of transfers and costs from overtime Scenario 2, travel, minimum wage, and regulatory familiarization costs. Values do not include
  independent providers.
\c\ Assumes each direct care worker works 35 hours per week 52 weeks per year.
\d\ Costs and transfers paid by purchasers in the form of higher prices; includes direct purchase of home care services and services purchased through
  public payers.
\e\ Costs and transfers paid by employers in the form of lower profits.

Impact to Medicare and Medicaid Budgets
    In 2012, HHS outlays for Medicare programs totaled $591 billion, 
and an estimated $34.1 billion went to home health programs.\184\ In 
2009, HHS and state outlays in support of Medicaid totaled $374 billion 
and approximately $50 billion went to home health 
services.185 186 In 2009, Medicare and Medicaid accounted 
for nearly 75 percent of home care services revenue; thus, the impact 
of the Final Rule on home care will depend on how Medicare and Medicaid 
respond to increased labor costs.
---------------------------------------------------------------------------

    \184\ Center for Medicare and Medicaid Studies, Office of the 
Actuary. National Health Expenditure Accounts 2011-2021. Available 
at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
    \185\ Detailed Medicaid data by type of home healthcare is not 
yet available for 2012.
    \186\ Kaiser Commission on Medicaid and the Uninsured. 2012 
Medicaid Home and Community-Based Services Programs: 2009 Data 
Update.
    Note, not all of the HCBS goes to personal care services; a more 
detailed breakdown of this spending is not available. For additional 
data, see Kaiser Family Foundation, State Health Facts: http://statehealthfacts.org/comparetable.jsp?ind=242&cat=4.
---------------------------------------------------------------------------

    Although increased compensation to workers under this Final Rule 
associated with travel and overtime hours are considered transfer 
effects from a societal perspective, the Department expects agencies 
will try to pass these transfers through to Medicare and Medicaid to 
the extent they are able. As described in the comment summary, several 
commenters expressed concern that public funding does not pay for 
travel and overtime; however, CRS notes that federal regulations do not 
explicitly regulate direct care worker wage or benefit levels with 
respect to service reimbursements. Agencies already pay workers only a 
portion of the reimbursement as wages, and the remainder presumably 
covers other costs of doing business. The CRS report also notes that 
although initially the costs may be passed through to consumers, over 
time Medicare and Medicaid reimbursements may be adjusted to reflect 
the added costs to agencies.\187\
---------------------------------------------------------------------------

    \187\ Congressional Research Service. Memorandum dated February 
21, 2012, titled ``Extending Federal Minimum Wage and Overtime 
Protections to Home Care Workers under the Fair Labor Standards Act: 
Impact on Medicare and Medicaid.'' WHD-2011-0003-5683.
---------------------------------------------------------------------------

    Under the three overtime scenarios examined, average first year 
transfer payments range from $103.7 to $281.3 million depending on how 
home care agencies respond to overtime requirements. Assuming transfer 
payments are incurred proportionately to the percentage of baseline 
home care costs, then services funded by public payers might account 
for approximately 75 percent of these overtime and travel payments, 
about $77.7 million to $211.0 million in the first year. These payments 
compose 0.13 to 0.35 percent of total HHS and state outlays for home 
care services ($60.4 billion in 2011).\188\
---------------------------------------------------------------------------

    \188\ Center for Medicare and Medicaid Studies, Office of the 
Actuary. National Health Expenditures by type of service and source 
of funds, CY 1960-2011. Available at: http:www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.
---------------------------------------------------------------------------

Projected Future Transfer Effects Due to Industry Growth
    This section projects transfer effects and other impacts over 10 
years. The Department used several key assumptions to develop these 
projections. First, the Department assumed that the number of home care 
workers directly employed in the homes and employed in states without 
current overtime premium requirements will remain a constant percentage 
of total employment in those occupations between 2012 and 2021 (about 
41.6 percent of HHAs and 64.8 percent of PCAs).\189\ We also assume 
that IHSS

[[Page 60540]]

employment grows at the same rate as HHA and PCA employment, and that 
70 percent of IHSS workers care for family members.
---------------------------------------------------------------------------

    \189\ These percentages are derived by dividing the number of 
workers without overtime coverage (917,039 total; 385,115 HHAs plus 
531,924 PCAs) by the total employment (1.75 million; 924,660 HHAs 
plus 820,630 PCAs). Specifically, for HHAs, the source of the 
percentage is 385,115/924,660 and for PCAs, it is 531,923/820,630 
(see Table 8).
---------------------------------------------------------------------------

    Second, the Department also maintained the assumptions that 12 
percent of HHAs and PCAs exceed 40 hours worked per week and that 10 
percent of these direct care workers work 6.4 hours of overtime per 
week while 2 percent work 21.0 hours of overtime per week. We assume 
IHSS workers exceeding 40 hours per week remain a constant percent of 
total IHSS workers. These overtime assumptions are identical to those 
used to estimate costs and transfers for the Year 1 baseline analysis.
    Third, consistent with the baseline analysis, we project three 
overtime scenarios. In these scenarios, employers adjust schedules as 
follows:
     OT Scenario 1: Employers adjust the hours worked and pay 
workers an overtime premium for 60 percent of the overtime hours worked 
prior to the rule.
     OT Scenario 2: Employers adjust the hours worked and pay 
workers an overtime premium for 40 percent of the overtime hours worked 
prior to the rule.
     OT Scenario 3: Employers adjust the hours worked and limit 
overtime hours to 10 percent of the overtime hours worked prior to the 
rule.
    Finally, we continue to estimate travel time pay as 19.2 percent of 
overtime evaluated at 100 percent of baseline overtime hours worked.
    The Department excluded potential transfer effects associated with 
the minimum wage provision from the projections because the number of 
workers earning less than the minimum wage has declined steadily, to 
the point of being at or near zero, as nominal wages have increased: 
thus, the Department estimates that the minimum wage provisions of this 
Final Rule will have negligible impact if the federal minimum wage 
stays at its current level. As previously discussed, based on the 
infrequency with which Congress historically has enacted updates to the 
minimum wage, the Department did not assume any minimum wage increase 
in the analysis. Although the Department expects that the parameters 
used in this analysis will not remain constant through 2021, it has 
insufficient information on which to base estimates of how these key 
variables might change over time. Therefore, maintaining the 
assumptions used in the Year 1 analysis provide the best basis for 
projecting future costs and transfer effects.
    Based on the data and assumptions described in this section, and 
the employment and wage projections in Table 13, Table 16 presents the 
Department's projections through 2021 of overtime and travel time 
compensation attributable to the revisions to the companionship 
regulations in this Final Rule.

      Table 16--Projected HHA and PCA Overtime Hours, Overtime Compensation and Travel Time Compensation Attributable to Final Rule, 2012-2021 \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Overtime hours worked  (millions)                                    Overtime and travel time compensation  (millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                             Year                               Scenario 1   Scenario 2   Scenario 3   Scenario 1   Scenario 2   Scenario 3     Travel
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               ...........  ...........  ...........                    Nominal Dollars
                                                                                                     ---------------------------------------------------
2012.........................................................         48.1         32.1          8.0       $247.0       $164.6        $41.2        $78.9
2013.........................................................         52.1         34.8          8.7        276.9        184.6         46.1         88.5
2014.........................................................         56.2         37.4          9.4        308.3        205.5         51.4         98.5
2015.........................................................         60.2         40.1         10.0        341.1        227.4         56.8        109.0
2016.........................................................         64.2         42.8         10.7        375.3        250.2         62.6        120.0
2017.........................................................         68.2         45.5         11.4        411.0        274.0         68.5        131.4
2018.........................................................         72.2         48.2         12.0        448.1        298.7         74.7        143.2
2019.........................................................         76.3         50.8         12.7        486.6        324.4         81.1        155.5
2020.........................................................         80.3         53.5         13.4        526.6        351.0         87.8        168.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
2021.........................................................         84.3         56.2         14.0        568.0        378.6         94.7        181.5
                                                                                                     ---------------------------------------------------
                                                               ...........  ...........  ...........            Inflation-Adjusted Dollars \b\
                                                                                                     ---------------------------------------------------
2012.........................................................         48.1         32.1          8.0       $244.2       $162.8        $40.7        $78.1
2013.........................................................         52.1         34.8          8.7        270.7        180.5         45.1         86.5
2014.........................................................         56.2         37.4          9.4        297.9        198.6         49.7         95.2
2015.........................................................         60.2         40.1         10.0        325.8        217.2         54.3        104.1
2016.........................................................         64.2         42.8         10.7        354.4        236.3         59.1        113.3
2017.........................................................         68.2         45.5         11.4        383.6        255.8         63.9        122.6
2018.........................................................         72.2         48.2         12.0        413.5        275.6         68.9        132.2
2019.........................................................         76.3         50.8         12.7        443.9        295.9         74.0        141.9
2020.........................................................         80.3         53.5         13.4        474.8        316.5         79.1        151.8
2021.........................................................         84.3         56.2         14.0        506.2        337.5         84.4       161.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Calculations based on employment and wage data in Table 13 and specified assumptions.
\b\ Inflation estimates based on 10-year average change in PPI for Home Health Services.

    The Department projects that paid overtime hours will increase from 
48.1 million to 84.3 million between 2012 and 2021 with a consequent 
increase in overtime compensation from $247.0 million to $568.0 million 
(OT Scenario 1). This corresponds to a $244.2 to $506.2 million 
increase in inflation-adjusted overtime compensation. In OT Scenario 2, 
overtime compensation is projected to increase from $162.8 million to 
$337.5 million in inflation-adjusted dollars. Assuming employers only 
cover 10 percent of overtime, and the other 90 percent of overtime 
hours

[[Page 60541]]

are eliminated through scheduling changes and/or hiring additional 
workers (OT Scenario 3), the projected increase ranges from $40.7 
million to $84.4 million in inflation-adjusted dollars. Travel time 
compensation is projected to increase from $78.1 million to $161.8 
million in inflation-adjusted dollars over that same period.
    To place these projected future transfer effects resulting from the 
Final Rule in context, the Department compared nominal transfer effects 
to projected Medicare and Medicaid spending over the same period. The 
Centers for Medicare & Medicaid Services report that in 2012 Medicare 
expenditures totaled $590.8 billion, while Medicaid expenditures were 
$458.9 billion; $34.1 billion of Medicare and $29.7 billion of Medicaid 
expenditures were spent on the provision of home care services.\190\ By 
2021, annual Medicare and Medicaid expenditures are projected to total 
$1,964 billion of which annual home care expenditures under both 
programs might increase to $126 billion .
---------------------------------------------------------------------------

    \190\ The 2009 Medicaid home care expenditures of $50 billion 
cited earlier in the report is composed of three types of programs: 
Home Health, Personal Care Services, and HCBS 1915 waiver programs. 
These data are compiled retrospectively by the Kaiser Commission on 
Medicaid and the Uninsured, and the Department believes that 
spending in these three types of programs best characterizes 
Medicaid home health expenditures. CMS Office of the Actuary 
classifies home health care expenditures somewhat differently in its 
National Health Expenditures Projections; in 2009 the NHE value for 
home health care was about half the Kaiser value at $24.3 billion. 
The Department chose to use the official CMS projections for home 
health care for consistency in methodology with all other 
expenditure projections used in this section and presented in Table 
17. The Department believes these projections underestimate future 
Medicaid home health expenditures; however, note that if larger 
projected values were used in the analysis, the impacts presented in 
Table 17 would be proportionately smaller.
---------------------------------------------------------------------------

    After adjusting projected overtime and travel transfer effects, the 
Department expects that these incremental transfers will compose 0.40 
percent of projected Medicare and Medicaid Home Health Care 
expenditures under OT Scenario 1, 0.30 percent under Scenario 2, and 
0.154 percent of those expenditures under OT Scenario 3. Table 17 
summarizes the projected National Health Care budgets, incremental 
payments attributable to the Final Rule, and those payments as a 
percent of National Health Care expenditures from 2012 through 2021. 
Projected overtime and travel payments resulting from the rule account 
for a similar, but slightly larger, percentage of National Home Health 
Care (i.e., all U.S. public and private home health care spending) than 
they do for public spending programs on home care.

                Table 17--Projected Overtime and Travel Time Compensation as Percent of Projected National Home Health Care Expenditures
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Projected       Adjusted overtime & travel time    OT & Travel  as % projected
                                                                      expenditures      compensation in nominal dollars          home health care
                                                                   (billions) \a\ \b\              (millions)           --------------------------------
                              Year                               -------------------------------------------------------
                                                                                Home                                       OT 1 +     OT 2 +     OT 3 +
                                                                    Total      health     OT 1 +     OT 2 +     OT 3 +     Travel     Travel     Travel
                                                                                care      Travel     Travel     Travel
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012............................................................     $2,809      $77.5     $326.5     $244.2     $120.7       0.42       0.31       0.16
2013............................................................      2,915       81.9      366.0      273.7      135.3       0.45       0.33       0.17
2014............................................................      3,130       88.3      407.4      304.7      150.5       0.46       0.34       0.17
2015............................................................      3,308       94.5      450.7      337.0      166.5       0.48       0.36       0.18
2016............................................................      3,514      101.2      495.9      370.8      183.1       0.49       0.37       0.18
2017............................................................      3,723      108.4      543.0      406.0      200.5       0.50       0.37       0.19
2018............................................................      3,952      117.1      591.9      442.6      218.5       0.51       0.38       0.19
2019............................................................      4,207      126.6      642.8      480.6      237.3       0.51       0.38       0.19
2020............................................................      4,487      137.0      695.5      520.0      256.7       0.51       0.38       0.19
2021............................................................      4,781      148.3      750.2      560.8      276.9       0.51       0.38      0.19
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Centers for Medicare and Medicaid Studies, Office of the Actuary, National Health Expenditure Projections, 2011-2021. Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
\b\ ``National Health Care'' indicates all U.S. public and private health care spending, as tabulated by the CMS Office of the Actuary.

    The Department also projected deadweight loss and employment 
impacts over 10 years. These projections are calculated maintaining the 
assumptions concerning the market shares and the price elasticities of 
supply and demand discussed in the first year deadweight loss analysis 
and projected overtime and travel time compensation presented in Table 
16. The Department's calculated deadweight loss and employment impacts 
over 10 years are summarized in Table 18.

                           Table 18--Projected Deadweight Loss and Employment Impacts
----------------------------------------------------------------------------------------------------------------
                                                     Other Years ($ mil.) \a\       Average Annualized Value ($
                                     Year 1 ($   --------------------------------              mil.)
                                       mil.)                                     -------------------------------
                                                      Year 2          Year 10      3% Real Rate    7% Real Rate
----------------------------------------------------------------------------------------------------------------
                                                    Costs \h\
----------------------------------------------------------------------------------------------------------------
Regulatory Familiarization:
    Agencies....................            $6.9            $0.6            $0.6            $1.3            $1.4
    Families Hiring Self-                   $5.4            $2.8            $3.6            $3.4            $3.5
     Employed Workers...........
Hiring Costs \b\:
    30% OT remaining in OT 1....            $8.4            $0.8            $0.8            $1.6            $1.8

[[Page 60542]]

 
    20% OT remaining in OT 2....            $8.4            $0.8            $0.8            $1.6            $1.8
    10% OT remaining in OT 3....            $6.3            $0.6            $0.6            $1.2            $1.3
Total costs (30% of OT 1).......           $20.6            $4.2            $5.0            $6.4            $6.7
Total costs (20% of OT 2).......           $20.6            $4.2            $5.0            $6.4            $6.7
Total costs (10% of OT 3).......           $18.6            $4.0            $4.8            $6.0            $6.2
----------------------------------------------------------------------------------------------------------------
                                                   Transfers
----------------------------------------------------------------------------------------------------------------
Travel Wages....................           $68.1           $78.1          $151.8          $107.1          $104.3
Overtime Scenarios:
    OT 1 \c\....................          $213.2          $244.2          $474.8          $335.2          $326.3
    OT 2 \d\....................          $142.1          $162.8          $316.5          $223.5          $217.5
    OT 3 \e\....................           $35.5           $40.7           $79.1           $55.9           $54.4
----------------------------------------------------------------------------------------------------------------
                                          Total Transfers by Scenario
----------------------------------------------------------------------------------------------------------------
Travel + OT 1...................          $281.3          $322.3          $626.5          $442.3          $430.5
Travel + OT 2...................          $210.2          $240.9          $468.3          $330.6          $321.8
Travel + OT 3...................          $103.7          $118.8          $230.9          $163.0          $158.7
----------------------------------------------------------------------------------------------------------------
                                          Deadweight Loss ($ millions)
----------------------------------------------------------------------------------------------------------------
Travel + OT 1...................          $0.116          $0.132          $0.257          $0.182          $0.177
Travel + OT 2...................          $0.065          $0.074          $0.144          $0.101          $0.099
Travel + OT 3...................          $0.016          $0.018          $0.035          $0.025          $0.024
----------------------------------------------------------------------------------------------------------------
                                          Total Cost of Regulations \f\
----------------------------------------------------------------------------------------------------------------
RF + HC + DWL (OT 1)............           $20.8            $4.3            $5.2            $6.6            $6.8
RF + HC + DWL (OT 2)............           $20.7            $4.2            $5.1            $6.5            $6.8
RF + HC + DWL (OT 3)............           $18.6            $4.0            $4.8            $6.0            $6.2
----------------------------------------------------------------------------------------------------------------
                                       Disemployment (number of workers)
----------------------------------------------------------------------------------------------------------------
Travel + OT 1...................           1,086           1,184           1,976           1,531           (\g\)
Travel + OT 2...................             812             885           1,477           1,144           (\g\)
Travel + OT 3...................             400             436             728             564           (\g\)
----------------------------------------------------------------------------------------------------------------
                                     Benefits from Reduced Turnover \b\ \f\
----------------------------------------------------------------------------------------------------------------
OT 1............................           $40.3           $34.9           $30.9           $33.8           $34.1
OT 2............................           $30.2           $24.7           $20.7           $23.6           $23.9
OT 3............................           $14.9           $10.7            $7.7            $9.9           $10.1
----------------------------------------------------------------------------------------------------------------
                                                Net Benefits \f\
----------------------------------------------------------------------------------------------------------------
OT 1............................           $19.6           $30.6           $25.7           $27.3           $27.3
OT 2............................            $9.4           $20.5           $15.5           $17.1           $17.1
OT 3............................           -$3.7            $6.7            $2.9            $3.9           $3.9
----------------------------------------------------------------------------------------------------------------
\a\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so
  these two values are reported.
\b\ We use three scenarios under which agencies redistribute overtime hours to either current part-time workers
  or new hires to manage overtime costs: 40 percent of overtime hours are redistributed under OT Scenario 1, 60
  percent under OT Scenario 2, and 90 percent under OT Scenario 3. Of this redistributed overtime, various
  percentages are redistributed to part-time workers and new hires: New hires constitute 30 percent of
  redistributed hours under OT Scenario 1 (12 percent of total overtime), 20 percent under OT Scenario 2 (12
  percent of total), and 10 percent under OT Scenario 3 (9 percent of total).
\c\ Of the total, about 31 percent (e.g., $66.6 million in Year 1) is attributable to IHSS direct care workers;
  30 percent of IHSS costs (e.g., $20.0 million in Year 1) are included in the turnover and deadweight loss
  analyses.
\d\ Of the total, about 31 percent (e.g., $44.4 million in Year 1) is attributable to IHSS direct care workers;
  30 percent of IHSS costs (e.g., $13.3 million in Year 1) are included in the turnover and deadweight loss
  analyses.
\e\ Of the total, about 31 percent (e.g., $11.1 million in Year 1) is attributable to IHSS direct care workers;
  30 percent of IHSS costs (e.g., $3.3 million in Year 1) are included in the turnover and deadweight loss
  analyses.
\f\ Results based on the combination of overtime scenario and hiring costs presented under Hiring Costs.
\g\ Simple average over 10 years.
\h\ Excludes paperwork burden, estimated in Section V.

    Average annualized minimum wage, overtime premium, and travel time 
compensation range from $158.7 million to $430.5 million per year based 
on how employers adjust to the requirement to pay overtime wage 
premiums using a 7 percent discount rate. These transfers are projected 
to cause average annualized deadweight loss ranging

[[Page 60543]]

from $24,000 to $177,000 per year. These transfers are also projected 
to cause disemployment impacts ranging from 564 to 1,531 workers per 
year. In general, approximately 70 percent of deadweight loss and 
disemployment occurs in the publicly funded market and 30 percent in 
the private pay market.
Non-Monetized Projected Impacts
    Two additional aspects of home care services might be affected by 
the rule. The rule might result in increased purchases of home care 
services through informal arrangements with independent providers and, 
although the hours of care received by consumers might be unaffected by 
the increased costs of care, additional caregivers may be required to 
provide the same number of hours of services. These additional aspects 
are discussed in turn below.
Independent Providers
    An unknown number of consumers receive home care services through 
more informal arrangements with care provided by independent providers. 
Here, informal agreements are reached between the consumer (or 
consumer's family) and the direct care worker regarding hours of care 
and hourly pay rates. Services can be provided at lower cost than when 
provided through agencies because the independent provider does not 
incur administrative and overhead costs and may have more flexibility 
to negotiate on prices and scheduling.
    The Final Rule will increase costs to home care agencies that offer 
services in states where they are not currently required to pay the 
minimum wage and/or overtime compensation and an unknown percentage of 
those costs might be reimbursed by public payers. If the costs are not 
fully reimbursed, home care agencies might increase the rates they 
charge consumers, have their profit margin squeezed, or both. If costs 
are passed through to consumers and their families, they will have 
incentive to look for lower cost alternatives, such as informal 
arrangements with independent providers. In addition, workers who 
desire to work more than 40 hours per week might have opportunities to 
provide services as independent providers rather than work for multiple 
agencies. Although the rule might increase incentives on both sides to 
use informal arrangements with independent providers, there is no 
information available to project potential changes to that market.
Continuity of Care
    Continuity of care ``is commonly framed as being composed of 
provider continuity (a relationship between a consumer and provider 
over time), information continuity (availability and use of data from 
prior events during current consumer encounters) and management 
continuity (coherent delivery of care from different doctors).'' \191\ 
In the home care scenario, concerns have been raised that continuity of 
care, specifically provider continuity, may suffer if employers opt not 
to pay overtime for direct care workers who, for example, work more 
than 40 hours per week for a single consumer and the employers instead 
schedule other direct care workers to provide home care services to 
that consumer in the same workweek. Some are concerned that a break in 
the continuity of care may result in a reduction in the quality of 
care.
---------------------------------------------------------------------------

    \191\ Van Walraven, C., Oake, N., Jennings, A., et al. (2009). 
The Association Between Continuity of Care and Outcomes: A 
Systematic and Critical Review. Journal of Evaluation in Clinical 
Practice, 16(5): 947-956.
---------------------------------------------------------------------------

    The Department understands that home care involves more than the 
provision of impersonal services; when a direct care worker spends 
significant time with a consumer in the consumer's home, the personal 
relationship between direct care worker and consumer can be very 
important. Certain consumers may prefer to have the same direct care 
worker(s), rather than a sequence of different direct care workers. The 
extent to which home care agencies choose to spread employment (hire 
more direct care workers) rather than pay overtime may cause an 
increase in the number of direct care workers for a consumer; the 
consumer may be less satisfied with that care, and communication 
between direct care workers might suffer, affecting the quality of care 
for the consumer.\192\ Alternatively, having additional direct care 
workers may improve continuity of care by minimizing disruption of care 
when the primary direct care worker is unavailable due to vacation or 
being sick.
---------------------------------------------------------------------------

    \192\ Brief of Amici Curiae City of New York. 2007.
---------------------------------------------------------------------------

    Continuity of care may suffer from the provision of too few direct 
care workers. This may occur currently because, as discussed below, an 
agency can schedule direct care workers without regard for the number 
of hours worked each week, which may cause increased turnover rates. 
Although matching consumer and direct care worker in a long-term 
personal relationship is the ideal for many consumers, it may not be 
the norm. Low wages and long, irregular hours may contribute to the 
high turnover rate in the industry, resulting in low continuity of 
care. For instance, the turnover rate (those leaving and entering home 
care work) for workers in the home care industry has been estimated to 
range from 44 to 65 percent per year.\193\ Other studies have found 
turnover rates to be much higher, up to 95 percent \194\ and, in some 
cases, 100 percent annually.\195\ Thus, many consumers already 
experience a sequence of different direct care workers, and it is not 
apparent that the Final Rule will necessarily exacerbate that 
experience.
---------------------------------------------------------------------------

    \193\ Seavey and Marquand, 2011, p. 70. WHD-2011-0003-3514. Also 
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf.
    \194\ Zontek, T., Isernhagen, J., Ogle, B. (2009). Psychosocial 
Factors Contributing to Occupational Injuries Among Direct Care 
Workers. American Association of Occupational Health Nurses Journal, 
338-347.
    \195\ Ashley, A., Butler, S., Fishwick, N. (2010). Home Care 
Aide's Voices from the Field: Job Experiences of Personal Support 
Specialists. The Maine Home Care Worker Retention Study. Home 
Healthcare Nurse, 28(7), 399-405.
---------------------------------------------------------------------------

    Application of the FLSA's minimum wage and overtime compensation 
protections may reduce turnover rates. Frequent turnover is costly for 
employers in terms of recruitment costs and training of new direct care 
workers and also in terms of the likelihood of a reduction of quality 
care or not being able to provide care at all. The employee turnover 
rate in this industry is high because of low wages, poor or nonexistent 
benefits, and erratic and unpredictable hours. Job satisfaction, and 
the desire to remain in a given position, is highly correlated with 
wages, workload, and working conditions. Increased pay for the same 
amount of work and overtime compensation likely would aid in employee 
retention and attracting new hires. Those employers who choose not to 
pay overtime would need to spread the hours among their employees, 
resulting in more consistent work hours for many direct care workers. 
As one study found, for this low-income workforce, ``higher wages, more 
hours, and travel cost reimbursement are found to be significantly 
associated with reduced turnover.'' \196\ Another report determined 
that ``increases in the federal or state minimum wage can make home 
care employment more

[[Page 60544]]

desirable.'' \197\ This finding was echoed in comments submitted by 
Steven Edelstein of PHI and the Women's Employment Rights Clinic.
---------------------------------------------------------------------------

    \196\ Morris, L. (2009). Quits and Job Changes Among Home Care 
Workers in Maine: The Role of Wages, Hours and Benefits. The 
Gerontologist, 49(5), 635-650.
    \197\ Burbridge, L. (1993). The Labor Market for Home Care 
Workers: Demand, Supply, and Institutional Barriers. The 
Gerontologist, 33(1), 41-46.
---------------------------------------------------------------------------

    For the estimated 8 to 12 percent of direct care workers who work 
more than 40 hours per week, only a portion of that percentage likely 
provides services for the same consumer. Many who work overtime accrue 
long hours in the service of at least a few consumers, traveling 
between consumer homes during the workweek. For example, the 2011 
Private Duty Homecare Benchmarking Study found that firms with annual 
revenue greater than $2 million attribute about 23 percent of weekly 
billable hours to live-in care (which presumably exceeds 120 hours of 
paid work per week per consumer), yet the average consumer only 
receives 25 hours of service per week.\198\ Thus, if the average 
consumer receives 25 hours of care per week, yet a disproportionate 
number of service hours are accrued by the minority of patients 
receiving 24-hour care, then most consumers must be receiving 
substantially less than 25 hours of care per week and their direct care 
workers must be responsible for multiple consumers. Such consumers 
should probably not lose any continuity of care as a result of agencies 
spreading some overtime hours to other workers. It is also conceivable 
that, in a minority of cases, the direct care worker provides home care 
services around the clock for a stretch of a few days.
---------------------------------------------------------------------------

    \198\ Home Care Pulse. 2011. 2011 Annual Private Duty Home Care 
Benchmarking Study. Highlights Edition, p. 24.
---------------------------------------------------------------------------

    Analysis of the NHHAS shows that those direct care workers who 
typically work overtime work 49 hours per week on average, not 
including travel time between consumer homes. Provider continuity that 
results in overtime work has drawbacks. From the aide's perspective, 
the long work hours can be a burden. For instance, ``shifts beyond the 
traditional 8 hours have been associated with increased risk of errors, 
incidents, and accidents.'' \199\
---------------------------------------------------------------------------

    \199\ Keller, S. (2009). Effects of extended work shifts and 
shift work on patient safety, productivity, and employee health. 
American Association of Occupational Health Nurses Journal, 57(12), 
497-502.
---------------------------------------------------------------------------

    Many regard having the same direct care worker for long hours as a 
cornerstone of ``continuity of care'' and having more direct care 
workers to cover the same number of direct care worker hours for a 
consumer as negatively impacting quality of care. As discussed above, 
however, the opposite may be true. Working extended hours may affect 
the quality of care that the aide is able to provide and even the 
aide's own health and well-being.
    Furthermore, paying employees below minimum wages, not paying for 
all hours worked or overtime, and providing no training or benefits is 
not the only path to financial success for employers in the home care 
industry. Another business model, in which employees receive training, 
an overtime wage differential, and health care benefits, has been 
successful. Cooperative Home Care Associates (CHCA), based in New York, 
for example, has always paid workers overtime. Although overtime at 
CHCA is carefully managed, it can still be substantial (e.g., 30 
percent or more of employees exceed 40 work hours per week); allowing, 
even expecting overtime, permits CHCA, however, to use a staffing plan 
that maintains continuity of care. These policies have driven CHCA's 
turnover rate far below the industry average, a major factor in its 
financial success.\200\ In terms of employee coverage, CHCA cases 
requiring weekday and weekend coverage are assigned permanent direct 
care workers who work on alternate weekends. Also, cases requiring 24-
hour coverage, seven days per week, are shared among four direct care 
workers, requiring only some overtime hours.\201\
---------------------------------------------------------------------------

    \200\ Elsas & Powell, 2011.
    \201\ NELP report, p. 26.
---------------------------------------------------------------------------

    Other agencies such as Community Care Systems, Inc., in 
Springfield, Illinois, have reduced overtime costs by distributing 
extra hours more evenly among workers through better tracking of work 
hours. Close monitoring of employee workloads and spreading of work 
hours also curbed overtime use for Illinois-based Addus HealthCare, one 
of the nation's largest home care employers. These employers pay 
overtime even in those states that do not require it, demonstrating 
that ``wage and hour protections are economically realistic for the 
industry, and can be achieved without excessive use of costly overtime 
hours.'' \202\ These examples suggest that requiring overtime 
compensation in this industry does not inevitably cause disruption of 
employer-employee relationships and direct care worker-consumer 
relationships leading to higher turnover, discontinuity of consumer 
care, and increased use of independent providers.
---------------------------------------------------------------------------

    \202\ NELP report, pgs 25-26.
---------------------------------------------------------------------------

Transfer Effects
    Perhaps the most visible effect of the Final Rule is the transfer 
of income from businesses and their owners to workers, and potentially, 
from one group of workers to another group of workers. In economics, a 
transfer payment is broadly defined as a redistribution of income in 
the market system that does not affect total output.
Transfer Effects Associated With Travel Provisions
    The Final Rule leads to an unambiguous transfer from employers to 
employees in those states that currently do not require compensation 
for travel time--approximately $68.1 million in Year 1.
    Two factors could change the dynamics of this transfer scenario. 
First, increased wages for compensating travel time might be passed 
through to consumers in the form of higher prices for home care 
services. If those higher prices result in consumers finding 
alternatives to home care services (e.g., accessing independent 
providers for services), then the income transfer from travel 
compensation is partially mitigated because the provision of home care 
services is reduced, resulting in reduced revenues to agencies, and a 
deadweight loss to the economy. This reduction in demand by households 
will be less pronounced if the demand for home care services is 
inelastic (i.e., the hours of home care services purchased does not 
change significantly when price increases, as in the public pay 
market). However, the Department's deadweight loss analysis did not 
show significant reductions in the private pay market for which the 
price elasticity of demand is much larger than the market for publicly 
funded care.
    Second, the Department expects that over time some of these costs 
may be reimbursed. To the extent that public payers increase 
reimbursement rates to cover these costs, the transfer is from the 
federal and state agencies to workers.
Transfer Effects Associated With Overtime Provisions
    The transfer of income associated with the payment of the overtime 
differential is more ambiguous. Employers are likely to respond to 
overtime compensation requirements along a spectrum ranging from (1) 
reducing overtime work to the extent possible and spreading hours to 
other workers or hiring new workers to fill the available hours, to (2) 
maintaining current staffing patterns and paying overtime for all work 
hours exceeding

[[Page 60545]]

40 per week. To the extent that employers choose to pay overtime, the 
income transfer is from businesses and their owners to workers. 
However, to the extent that employers eliminate overtime and spread the 
now available hours to other employees or new hires, the transfer is 
from worker to worker. Employees who used to exceed 40 hours of work 
per week will work fewer hours, transferring income to fellow workers 
who will absorb the extra hours. It is also possible that those 
employees working more than forty hours per week may distribute those 
hours among multiple employers.
Reduced Reliance on Public Assistance
    An increase in wages might reduce direct care worker reliance on 
public assistance programs to meet the needs of their own households. 
Recent research finds that approximately 50 percent of personal care 
aides rely on public assistance.\203\ Almost 90 percent of these 
workers are women.\204\
---------------------------------------------------------------------------

    \203\ Seavey and Marquand, 2011, p. 58. WHD-2011-0003-3514. Also 
available at: http://phinational.org/sites/phinational.org/files/clearinghouse/caringamerica-20111212.pdf.
    \204\ Seavey and Marquand, 2011, p. 10. WHD-2011-0003-3514. 
http://phinational.org/sites/phinational.org/files/clearinghouse/caringinamerica-20111212.pdf
---------------------------------------------------------------------------

    Assuming these workers are in a family consisting of themselves and 
two children, the average amount of public assistance for such families 
is about $10,300.\205\ In addition, many minimum wage workers also 
receive food stamps. The federally-assisted Supplemental Nutrition 
Assistance Program (SNAP, previously referred to as the Food Stamp 
Program) provided aid to 44.7 million participants in an average month 
in 2011 with total annual expenditures of $71.8 billion, an average of 
$1,600 in food stamps expenditures per participant.\206\ This would 
entail $4,800 per family for an assumed family of three. In total, the 
average direct care worker might receive $15,100 in public assistance 
and food stamps to provide for her/his family.
---------------------------------------------------------------------------

    \205\ TANF Eighth Annual Report to Congress.
    \206\ Characteristics of Supplemental Nutrition Assistance 
Program Households: Fiscal Year 2011, U.S. Department of 
Agriculture, Food and Nutrition Service, November 2012. Available 
at: http://www.fns.usda.gov/ora/MENU/Published/snap?FILES/Participation/2011Characteristics.pdf.
---------------------------------------------------------------------------

    Increased wages should reduce demand for public assistance services 
resulting in a savings to these programs; however, the Department is 
unable to quantify the savings due to the lack of data on how the 
benefits of these programs vary with income. The savings associated 
with the minimum wage provisions under the Final Rule might be 
negligible since the Department estimates that no workers currently 
earn less than the minimum wage. To the extent that the employees' work 
requires significant travel time and overtime, or added hours of work 
due to employer schedule adjustments, they will also receive additional 
income (note that some workers may lose hours or pay as a result of 
employer schedule adjustments, which may actually increase their 
reliance on public assistance). The Department did not estimate this 
portion of the potential economic impact due to uncertainty about the 
number of workers who would receive compensation for travel time or 
additional hours of work.

H. Benefits

    This section describes the expected benefits of the changes to the 
companionship services exemption made by this Final Rule. Potential 
benefits of this revision to the ``companionship services exemption'' 
flow from the transfer of regular and overtime wages to workers from 
their employers, and include: Reduced worker turnover and potentially 
reduced worker injury rates.
Reduction in Employee Turnover Rates
    Researchers have found that lower wages are associated with higher 
turnover and lower quality of care, and that increases in wages for 
direct care workers result in decreased turnover rates.\207\ Frequent 
turnover is costly for employers in terms of recruitment costs and 
training of new direct care workers and also in terms of the likelihood 
of a reduction in the quality of care or not being able to provide care 
at all. The employee turnover rate in this industry is high because of 
low wages, poor or nonexistent benefits, and erratic and unpredictable 
hours. Job satisfaction, and the desire to remain in a given position, 
is highly correlated with wages, workload, and working conditions. 
Increased pay for the same amount of work and overtime compensation 
likely would aid in employee retention.
---------------------------------------------------------------------------

    \207\ Powers, E., Powers, N. (2010). Causes of Caregiver 
Turnover and the Potential Effectiveness of Wage Subsidies for 
Solving the Long-Term Care Workforce `Crisis.' The B.E. Journal of 
Economic Analysis & Policy 10(1): Article 5.
---------------------------------------------------------------------------

    Studies estimating the relationship between wage rate and turnover 
rate often express that relationship as an elasticity--the percentage 
change in turnover rate associated with a one percent change in the 
wage rate. Studies have found turnover rates in the home care industry 
that range from 44 to 95 percent per year, and even approach 100 
percent per year.\208\ Based on the study most relevant to our 
analysis, the Department judges that the elasticity of the turnover 
rate with respect to a change in the wage rate is -2.17.\209\ However, 
the Department acknowledges that when many agencies are simultaneously 
increasing wages, the overall impact on turnover might be smaller. 
Therefore the Department also presents a sensitivity analysis using a 
smaller turnover elasticity of -0.844. For the purpose of estimating 
the impact of the rule on turnover costs, we assume the initial 
turnover rate is 50 percent. The Department estimates the value of the 
excess cost to the business of employee turnover as about $3,000 in 
2011 dollars based on Seavey (2004). About 75 percent of this cost is 
attributable to hiring the replacement worker, while the remainder is 
attributable to the costs of separation and vacancy.\210\
---------------------------------------------------------------------------

    \208\ PHI 2010a; Zontek, T., Isernhagen, J., Ogle, B., (2009); 
Ashley, A., Butler, S., Fishwick, N., (2010).
    \209\ The study most comparable used data from the San Francisco 
County home care workers (Howes, C. (2005). Living Wages and 
Retention of Homecare Workers in San Francisco. Industrial 
Relations: A Journal of Economy and Society. 44(1): 139-163).
    \210\ Seavey, D. 2004. The Cost of Frontline Turnover in Long-
Term Care. Washington, DC: IFAS/AAHSa, p. 11. Available at: http://phinational.org/sites/phinational.org/files/clearinghouse/TOCostReport.pdf.
---------------------------------------------------------------------------

    The Department estimated the impact of applying the minimum wage 
and overtime provisions of the FLSA on turnover costs. The Department 
believes few, if any, direct care workers currently earn less than the 
minimum wage. Therefore, we project no decline in turnover rates as a 
result of the minimum wage requirement.
    Table 19 also shows the estimated change in turnover costs due to 
travel reimbursement and overtime compensation in the three overtime 
scenarios. The Department estimates that the turnover rate will 
decrease by 1.3 percentage points due to an average increase in 
compensation of 1.21 percent in OT Scenario 1. This corresponds to a 
$40.3 million decrease in turnover costs in Year 1. In OT Scenario 2, 
the Department calculates that the turnover rate will decrease by 1.0 
percentage point due to an average increase in the hourly wage of 0.91 
percent, corresponding to a reduction in turnover costs of $30.2 
million. When agencies pay only 10 percent of the current overtime 
hours (OT Scenario 3), the turnover rate will decrease by 0.5 
percentage points due to an average increase in the hourly wage of 0.45 
percent; this corresponds to a $14.9 million reduction in Year 1 
turnover costs.

[[Page 60546]]



                Table 19--Year 1 Impact on Turnover Costs
------------------------------------------------------------------------
                                    Initial values     Resulting values
------------------------------------------------------------------------
                Application of the minimum wage provision
------------------------------------------------------------------------
Turnover Rate...................               50.0%               45.6%
Workers Impacted................                   0  ..................
Annual Turnover Cost (in                        $0.0                $0.0
 millions)......................
Change in Year 1 Turnover Cost    ..................                $0.0
 (in millions) \a\..............
------------------------------------------------------------------------
                  Application of the overtime provision
------------------------------------------------------------------------
OT Scenario 1 \b\:
    Turnover Rate...............               50.0%               48.7%
    Workers Impacted............           1,031,015  ..................
    Annual Turnover Cost (in                $1,534.6            $1,494.3
     millions)..................
    Change in Year 1 Turnover     ..................              -$40.3
     Cost (in millions) \c\.....
OT Scenario 2 \b\:
    Turnover Rate...............               50.0%               49.0%
    Workers Impacted............           1,031,015  ..................
    Annual Turnover Cost (in                $1,534.6            $1,504.5
     millions)..................
    Change in Year 1 Turnover     ..................              -$30.2
     Cost (in millions) \d\.....
OT Scenario 3 \b\:
    Turnover Rate...............               50.0%               49.5%
    Workers Impacted............           1,031,015  ..................
    Annual Turnover Cost (in                $1,534.6            $1,519.8
     millions)..................
    Change in Year 1 Turnover     ..................              -$14.9
     Cost (in millions) \e\.....
------------------------------------------------------------------------
\a\ Because no workers are currently believed to be paid less than
  minimum wage, no reduction in turnover costs is attributed to the
  minimum wage provision.
\b\ This analysis is performed on the same basis as the deadweight loss
  analysis (e.g., the same pool of workers, and overtime and travel time
  compensation).
\c\ The change in annual turnover cost is the reduction in turnovers
  (13,552) multiplied by the estimate of the cost per turnover.
\d\ The change in annual turnover cost is the reduction in turnovers
  (10,129) multiplied by the estimate of the cost per turnover.
\e\ The change in annual turnover cost is the reduction in turnovers
  (4,994) multiplied by the estimate of the cost per turnover.

    The first column in Table 20 presents the estimated net impact on 
turnover in Year 1 due to travel and overtime in each of the overtime 
scenarios. For OT Scenario 1, combining the impacts on turnover costs 
due to the application of overtime regulations shown in Table 19 above 
yields an estimated reduction in turnover costs of $40.3 million. The 
Department estimates that OT Scenario 2 corresponds to a $30.2 million 
decrease in costs, while OT Scenario 3 corresponds to a $14.9 million 
decrease in costs.
    Table 20 also summarizes the total impact on turnover costs for 
Years 1 and 10. Based on the Department's estimation of the growth in 
overtime hours, agencies will need to continue to hire workers to cover 
these additional hours in subsequent years. The annual turnover rate 
will remain at the lower rate, while the total number of employees is 
larger in each subsequent year due to the hiring of additional workers 
to cover some of the overtime hours; these additional workers would not 
have been hired in the absence of the overtime requirement. Thus, the 
absolute number of turnovers per year is increasing because the lower 
turnover rate is partly offset by the larger number of workers to whom 
it is applied. This reduces the annual savings attributable to the 
reduced turnover rate. Employers will continue to accrue cost savings 
due to reduced turnover, but those savings will be diminishing over 
time due to the increased employment. The Department calculates the net 
impact on annual turnover costs by subtracting the turnover cost 
associated with the initial 1.03 million positions and 50 percent 
turnover rate from the turnover costs based on the increased number of 
positions but decreased turnover rate as estimated in Year 1. The 
growth in the number of workers depends on agencies' allocation of the 
additional overtime hours among paying the overtime premium, hiring new 
workers, and distributing the hours over existing workers. Within the 
three overtime scenarios, the Department considers three proportions of 
the remaining overtime hours covered by new hires as discussed in the 
hiring costs section--30 percent, 20 percent, and 10 percent. Using a 7 
percent real discount rate, the annualized decrease in turnover costs 
will range from $34.1 to $38.3 million per year in OT Scenario 1. In OT 
Scenario 2, the annualized decrease in turnover costs will range from 
$20.7 to $27.0 million each year. In OT Scenario 3, the annualized 
decrease in turnover costs will range from $0.6 to $10.1 million each 
year.

                                            Table 20--Summary of Impact of Changes to FLSA on Turnover Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Future years ($ mil.) \b\       Average annualized value ($ mil.)
               Hiring full-time workers to cover                 Year 1 ($ mil.) -----------------------------------------------------------------------
                                                                       \a\             Year 2            Year 10        3% Real rate      7% Real rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      OT Scenario 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
30% of remaining OT hours.....................................            -$40.3            -$34.9            -$30.9            -$33.8            -$34.1
20% of remaining OT hours.....................................             -40.3             -36.7             -34.1             -36.0             -36.2

[[Page 60547]]

 
10% of remaining OT hours.....................................             -40.3             -38.5             -37.2             -38.2             -38.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      OT Scenario 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
30% of remaining OT hours.....................................             -30.2             -22.0             -15.9             -20.3             -20.7
20% of remaining OT hours.....................................             -30.2             -24.7             -20.7             -23.6             -23.9
10% of remaining OT hours.....................................             -30.2             -27.4             -25.4             -26.9             -27.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      OT Scenario 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
30% of remaining OT hours.....................................             -14.9              -2.4                .7               0.0              -0.6
20% of remaining OT hours.....................................             -14.9              -6.6              -0.5              -5.0              -5.3
10% of remaining OT hours.....................................             -14.9             -10.7              -7.7              -9.9             -10.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Year 1 estimates are the sum of the impacts on turnover costs due to the application of the overtime provision.
\b\ These costs represent a range over the nine-year span. Costs are lowest in Year 2 and highest in Year 10 so these two values are reported.

    The Department also performed a sensitivity analysis by repeating 
the calculations using a turnover elasticity of -0.844.\211\ With a 7 
percent real discount rate, the annualized decrease in turnover costs 
ranges from $9.4 to $13.6 million per year in OT Scenario 1. In OT 
Scenario 2, average annualized turnover costs are decreased by $2.2 to 
$8.6 million. Under OT Scenario 3, average annualized turnover costs 
range from a $1.0 million decrease to an increase of $8.6 million per 
year.
---------------------------------------------------------------------------

    \211\ Clabby II, Robert T. 2002. Report to the Joint 
Appropriations Committee on the Impact of Funding for Direct Staff 
Salary Increases in Adult Developmental Disabilities Community-Based 
Programs. Wyoming Department of Health, Cheyenne, WY.
---------------------------------------------------------------------------

    The Department notes that the estimates above do not reflect 
possible offsetting effects related to employees who previously worked 
overtime and who, as a result of the rule, experience a reduction in 
their scheduled hours and thus in their compensation. To compensate for 
their lower earnings, these workers may accept a second job, although 
this would not affect the turnover rate in a meaningful way. However, 
if some agencies continue to pay overtime, while a worker's current 
employer does not, the employee with reduced hours may be more likely 
to leave, thus resulting in increased turnover in the short-run, 
although turnover may still decrease in the long run since the worker 
may be more likely to remain longer with the employer that pays 
overtime.
Reduction in Worker Injuries and Illnesses
    Many studies have shown that extended work hours result in 
increased fatigue, decreased alertness, and decreased productivity, 
negatively affecting employee health and well-being. Long work hours in 
the health care field ``have adverse effects on patient outcomes and 
increase health care errors and patient injuries.'' \212\ For example, 
nurses working more than 8 hours report more medication errors, falling 
asleep at work, a decrease in productivity, and impaired critical 
thinking abilities. The error rates double when nurses work 12.5 or 
more consecutive hours. A 2004 National Institute for Occupational 
Safety and Health report evaluated the literature and found studies 
``examining 12-hour shifts combined with more than 40 hours of work per 
week reported increases in health complaints, deterioration in 
performance, or slower pace of work.'' \213\ One study that analyzed 13 
years' worth of data and nearly 100,000 job records notes that ``long 
working hours indirectly precipitate workplace accidents through a 
causal process, for instance, by inducing fatigue or stress in affected 
workers.'' \214\ It is therefore telling that ``[d]irect care workers 
have the highest injury rate in the United States, primarily due to 
work-related musculoskeletal disorders.'' \215\ The rate of days away 
from work (work days missed due to on-the-job injuries) for nursing 
aides, orderlies, and attendants was almost four times greater than the 
all-worker rate, 449 per 10,000 compared to 113 per 10,000 for all 
workers.\216\ One of the results of the FLSA's overtime compensation 
requirement is that employers may hire more people to work fewer hours 
each. Doing so in those circumstances where excessive overtime hours 
are worked may therefore result in fewer injuries and illnesses 
incurred. On the other hand, a possible effect of this rule is that 
direct care employees currently working more than 40 hours per week for 
one employer will spread those hours over multiple employers, which may 
increase fatigue due to, for example, increased travel time as a result 
of working for multiple employers; these conflicting theoretical 
possibilities make the rule's likely impact on injuries and illnesses 
an empirical question.
---------------------------------------------------------------------------

    \212\ Keller, S. 2009. pg. 498. Available at: http://
www.healio.com/~/media/Journals/AAOHN/2009/12--December/
Effects%20of%20Extended%20Work%20Shifts%20and%20Shift%20Work%20on%20P
atient%20Safety%20Productivity%20and%20Employ%2059601/
Effects%20of%20Extended%20Work%20Shifts%20and%20Shift%20Work%20on%20P
atient%20Safety%20Productivity%20and%20Employ%2059601.ashx.
    \213\ Caruso, C., Hitchcock, E., Dick, R., et al. (2004). 
Overtime and Extended Work Shifts: Recent Findings on Illnesses, 
Injuries, and Health Behaviors. National Institute for Occupational 
Safety and Health, U.S. Department of Health and Human Services. 
Available at: http://www.cdc.gov/niosh/docs/2004-143/pdfs/2004-143.pdf.
    \214\ Dembe, A., Erickson J., Delbos, R., et al. 2005.
    \215\ Zontek, Isernhagen, and Ogle, 2009.
    \216\ NELP report (p. 27, FN45).
---------------------------------------------------------------------------

    The Department looked at total injury numbers and injury rates from 
the Survey of Occupational Injuries and Illnesses (SOII) of the Bureau 
of Labor Statistics. To the best of our knowledge, this is the only 
available database providing data simultaneously on the state and 
industry level for multiple years. The goal was to determine whether it 
was possible to perform a ``difference-in-differences'' analysis of 
injuries; this type of analysis can determine whether there is a 
statistically significant difference in injuries before and after 
minimum wage and overtime regulations were passed in some states.
    Only four states had adopted direct care worker minimum wage and/or 
overtime provisions during the period

[[Page 60548]]

for which industry-specific data are available (2003-2011): Arizona 
(minimum wage, January 2007), Maine (minimum wage and overtime, 
September 2007), Ohio (minimum wage, April 2007), and Colorado (minimum 
wage and overtime, January 2010). Of these, only Arizona and Maine had 
usable data (for a total of 6 observations), which was not sufficient 
to perform conclusive analysis.
Improved Quality of Care
    As has been stated previously, one of the main benefits of this 
Final Rule is that the professionals who are entrusted to care for 
consumers in their homes will have the same protections in the labor 
market as almost all other employees. Guaranteed minimum wage and 
overtime compensation for home care jobs, comparable to similar 
occupations, will attract more workers to the home care industry. The 
increased availability of direct care workers will allow employers to 
meet the growing demand for home care services without requiring 
workers to perform services for excessive hours. Additionally, this may 
improve the quality of care since workers may be less fatigued and have 
more energy to devote to the consumers to whom they provide home care 
services. However, the Department understands that the continuity of 
care for some individuals may be affected, such as by having more care 
providers as a result of this rule. In addition, with the standard of 
pay raised, more highly trained and certified workers will seek out and 
remain in the HHA and PCA occupations, and a higher quality of service 
may be provided to the consumer. While a monetary value cannot be 
placed on increased professionalism and improved care, those expected 
benefits are noteworthy.

VII. Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980 (RFA) as amended by the 
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 
hereafter jointly referred to as the RFA, requires agencies to evaluate 
the potential effects of their proposed and Final Rules on small 
businesses, small organizations and small governmental jurisdictions. 
See 5 U.S.C. 604.
    The RFA requires agencies to prepare and make available for public 
comment a final regulatory flexibility analysis (FRFA) describing the 
impact of Final Rules on small entities. The RFA specifies the content 
of a FRFA. Each FRFA must contain:
     A succinct statement of the need for, and objectives of 
the Final Rule;
     A summary of the significant issues raised by the public 
comments in response to the NPRM, a summary of the agency assessment of 
the issues, and a statement of any changes made as a result of such 
comments;
     The agency's response to any comments filed by the Chief 
Counsel for Advocacy of the Small Business Administration;
     A description of an estimate of the number of small 
entities to which the Final Rule will apply;
     A description of the projected reporting, recordkeeping 
and other compliance requirements of the Final Rule including an 
estimate of the classes of small entities which will be subject to the 
requirement and the type of professional skills necessary for 
preparation of the report or record;
     Description of the steps the agency has taken to minimize 
the significant economic impact on small entities consistent with the 
stated objectives of applicable statutes, including a statement of the 
factual, policy, and legal reasons for selecting the alternative 
adopted in the Final Rule and why other alternatives were rejected.

1. Objectives of, and need for, the Final Rule

    Section 13(a)(15) of the FLSA exempts from its minimum wage and 
overtime compensation provisions 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).'' Due to 
significant changes in the home care industry over the last 38 years, 
workers who today provide home care services to individuals are 
performing duties and working in circumstances that were not envisioned 
when the companionship services regulations were promulgated. Section 
13(b)(21) provides an exemption from the Act's overtime compensation 
requirements for live-in domestic service workers. The current 
regulations allow an employer of a live-in service domestic worker to 
maintain a copy of the agreement of hours to be worked and to indicate 
that the employee's work time generally coincides with that agreement, 
instead of requiring the employer to maintain an accurate record of 
hours actually worked by the live-in domestic worker. The Department is 
concerned that not all hours worked are actually captured by such 
agreement and paid, which may result in a minimum wage violation. The 
current regulations do not provide a sufficient basis to determine 
whether the employee has in fact received at least the minimum wage for 
all hours worked.
    The Department has re-examined the regulations and determined that 
the regulations, as currently written, have expanded the scope of the 
companionship services exemption beyond those employees whom Congress 
intended to exempt when it enacted Sec.  13(a)(15) of the Act, and do 
not provide a sufficient basis for determining whether live-in workers 
subject to Sec.  13(b)(21) of the Act have been paid at least the 
minimum wage for all hours worked. Therefore, this document revises the 
definitions of ``domestic service employment'' and ``companionship 
services,'' and requires employers of live-in domestic service workers 
to maintain accurate records of hours worked by such employees. In 
addition, the regulation limits the scope of duties a direct care 
worker may perform and still be considered to perform companionship 
services, and prohibits employees of third party employers from 
claiming either exemption.
    There has been an increase in the employment of home health aides 
and personal care aides in the private homes of individuals in need of 
assistance with basic daily living or health maintenance activities. 
BLS's national occupational employment and wage estimates from the 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 workers 
employed as home health aides and 255,960 workers employed as personal 
care aides. The combined occupations of personal care and home health 
aides continue to constitute a rapidly growing occupational group. BLS 
statistics demonstrate that between 1998 and 2009, this occupational 
group again more than doubled with home health aides increasing to 
955,220 and personal care aides increasing to 630,740.\217\
---------------------------------------------------------------------------

    \217\ See 1998 and 2009 Occupational Employment and Wage 
Estimates, National Cross-Industry Estimates, Available at: http://www.bls.gov/oes/oes_dl.htm.
---------------------------------------------------------------------------

    The growth in demand, however, has not resulted in growth in 
earnings for workers providing home care services. The earnings of 
employees in the home health aide and personal care aide categories 
remain among the lowest in the service industry. Studies have shown 
that the low income of direct care workers continues to impede efforts 
to improve both jobs and care.\218\

[[Page 60549]]

Protecting domestic service workers under the Act is an important step 
in ensuring that the home care industry attracts and retains qualified 
workers that the sector will need in the future. Moreover, the workers 
that are employed by home care staffing agencies are not the workers 
that Congress envisioned when it enacted the companionship exemption 
(i.e., neighbors performing elder sitting) but are instead professional 
direct care workers entitled to FLSA protection based on the expanded 
nature of the duties many of them perform. In view of the dramatic 
changes in the home care sector in the 38 years since these regulations 
were first promulgated and the growing concern about the proper 
application of the FLSA minimum wage and overtime protections to 
domestic service employees, the Department believes it is appropriate 
to narrow the scope of the definition of ``companionship services'' and 
limit the companion and live-in exemptions to the individual, 
household, or family using the services to more accurately reflect 
Congressional intent.
---------------------------------------------------------------------------

    \218\ See Brannon, Diane, et al. (2007). Job Perceptions and 
Intent to Leave Among Direct Care Workers: Evidence From the Better 
Jobs Better Care Demonstrations. The Gerontologist, 47(6): 820-829.
---------------------------------------------------------------------------

2. Summary of Significant Issues Raised by Public Comments, Assessment 
of the Agency and Response

3. The Agency's Response to the Comment Filed by the Chief Counsel for 
Advocacy of the Small Business Administration

    The Small Business Administration's Office of Advocacy (Advocacy) 
submitted a comment summarizing key issues raised by small business 
representatives during a roundtable and in subsequent conversations; 
the small business representatives focused on three key issues with the 
IRFA and also suggested several alternatives for consideration (the 
alternatives are addressed under number 5, below).\219\
---------------------------------------------------------------------------

    \219\ Winslow Sargeant, WHD-2011-0003-7756.
---------------------------------------------------------------------------

    Specifically, small businesses suggested that the Department re-
evaluate the private pay sector of the companion services market, the 
incidence of overtime among these workers because it may be 
underestimated, and account for the costs of restricting hours and 
hiring additional workers to avoid the cost of overtime compensation.
    The Department appreciates this feedback from small businesses and 
endeavored to refine the final economic analysis to include it. First, 
the Department analyzed available data on the private pay sector and 
incorporated this sector into the discussion of the market and the 
analysis of deadweight loss and disemployment resulting from the Final 
Rule. The available data did not support the assertion of the 
significant size of the private pay market, as discussed in the 
Executive Orders 12866 and 13563 analysis. As stated earlier in this 
final rule, limited data exists regarding the private pay sector and 
overtime utilization within that sector. However, based on the 
analysis, it is clear that this sector behaves differently than the 
publicly funded market and should be analyzed differently.
    Second, the Department reviewed the references used to estimate the 
incidence of overtime among these workers in addition to any other 
available data on this issue and determined that, in the absence of new 
statistically reliable data sources, the two national surveys of direct 
care workers provide the best source of information on the amount of 
overtime worked. However, the estimated total number of overtime hours 
worked and the associated overtime compensation transfers have 
increased due to the addition approximately 80,000 workers who were 
previously unaccounted for (30,000 in Illinois, 50,000 in California). 
The estimated total number of overtime hours worked also increased 
because, after further evaluation of the data in the NHHAS, the 
Department determined that the estimated 12 percent of workers who work 
overtime average 8.8 hours of overtime per week instead of the 6.3 
hours estimated in the proposed rule.
    Third, the Department agrees with commenters that adjusting worker 
schedules and hiring additional workers in order to eliminate overtime 
hours is not costless. This cost has been incorporated into the 
analysis by adjusting the assumption on OT Scenario 3 to account for 
administrative costs and local rigidities in the availability of 
additional workers; specifically, the NPRM assumed that employers could 
adjust to absorb all of the overtime hours currently worked, and the 
final analysis assumes that employers could adjust to absorb all but 10 
percent of overtime hours due to the costs associated with 
administration.
    The U.S. Chamber of Commerce also submitted a comment expressing 
serious concerns with the impact of the rule on small entities, stating 
that the Department underestimated the costs of regulatory 
familiarization, especially to families, and inappropriately labeled 
some costs of the rule as transfers. The comment references data from 
the Chamber of Commerce's members, but does not provide any additional 
detail. Thus, as explained in some detail in the section describing the 
estimation of regulatory familiarization costs, the Department 
maintains its assumptions concerning regulatory familiarization. As 
stated previously, most third party employers are already covered by 
the FLSA and employ other workers who are not exempt, so they are 
familiar with the FLSA's minimum wage and overtime compensation 
requirements. Therefore, they simply need to apply the FLSA to an 
additional category of workers. The Department will provide guidance 
and educational materials that individuals and families who employ 
direct care workers can rely on to learn about the rule's requirements. 
With respect to the Chamber of Commerce's comment relating to whether 
transfers are costs, the Department describes the estimated transfers 
due to payment of travel time and overtime compensation as transfers in 
the economic analysis because those payments are not a loss to the 
larger economy; however, the transfers are treated as compliance costs 
to employers for the purpose of estimating the deadweight loss and 
disemployment effects of the Final Rule in recognition of the fact that 
it will impact the behavior of employers.
    Advocacy also suggested that the Department clarify that registries 
are not third party employers. The employment relationship was not 
addressed by the proposed rule and the Department proposed no changes 
to its longstanding test of what constitutes an employment relationship 
under the FLSA. However, in response to Advocacy's suggestion, the 
Department has included in the preamble to this Final Rule a lengthy 
description of the employment relationship test and how it applies in 
various factual scenarios including registries. This discussion is 
found in the Joint Employment section of this preamble.

4. Description and Estimate of the Number of Small Entities To Which 
the Final Rule Will Apply

    The RFA defines a ``small entity'' as a (1) small not-for-profit 
organization, (2) small governmental jurisdiction, or (3) small 
business. The Department used standards defined by SBA to classify 
entities as small for the purpose of this analysis. For the two 
industries that are the focus of this analysis, the SBA defines a small 
business as one that has average annual receipts of less than $14 
million for HHCS and $10 million for SEPD.\220\
---------------------------------------------------------------------------

    \220\ These thresholds were updated in 2012 from $13.5 and $7 
million, respectively. See: http://www.fns.usda.gov/ora/MENU/Published/snap/FILES/Participation/2011Characteristics.pdf.

---------------------------------------------------------------------------

[[Page 60550]]

    Based on the estimated average annual revenues per establishment in 
each employment size category derived from Statistics of U.S. 
Businesses (SUSB) data and attributed to the establishments in the HHCS 
and SEPD industries, it appears that no employers exceed the SBA size 
standards of $14 million in annual revenues for HHCS and $10 million in 
annual revenues for SEPD. Thus, for the purposes of this analysis, the 
entire HHCS and SEPD industries (89,400 establishments) are composed of 
small businesses.
    Although in reality it is possible that there are some firms in the 
100-499 and 500+ employee categories that earn revenues in excess of 
the SBA standard for their industry, we include all establishments in 
order to not underestimate the number of small firms affected by the 
rule. We also believe we have not mischaracterized this sector in any 
meaningful way: We believe these industries are primarily, if not 
completely, composed of small businesses by SBA standards.
    In order to better understand the impact of the rule on businesses 
of different sizes, the Department analyzed small business impacts 
using establishment size as a proxy for firm size. The Department 
combined Quarterly Census of Employment and Wages data for the HHCS and 
SEPD industries and then used the SUSB, 2007, data set to distribute 
establishments and employees to the following size categories: 0-4, 5-
9, 10-19, 20-99, 100-499, and 500+ employees.
    Although basing this analysis on establishment size will bias 
results, the bias will tend to overestimate the number of small 
businesses affected by the rule and the impacts to those small 
businesses. First, the analysis overestimates the number of small 
entities; a firm composed of multiple establishments might earn 
aggregate revenues that exceed the threshold the SBA used to define 
``small'' in these industries. Second, costs are in part a function of 
the number of firms in the industry due to the need for each firm to 
become familiar with the Final Rule. Our cost model thus assigns those 
familiarization costs to each establishment. Again, to the extent that 
firms own multiple establishments, compliance costs associated with 
regulatory familiarization will be smaller than estimated here. Third, 
compliance costs are also a function of the number of establishment 
employees. Because there are no data linking the use of the 
companionship services exemption to establishment size, there is no 
direct way to measure the impact of this rule's minimum wage and 
overtime requirements by size categories. The Department thus assumed 
compliance costs associated with meeting those requirements would be 
proportionate to the number of establishment employees. Therefore, 
these costs increase in proportion to establishment size (as measured 
by the number of employees), and smaller establishments are not unduly 
impacted relative to larger establishments. This proportionate approach 
may not capture the full impact of the regulatory requirements on 
smaller establishments given the lack of available data.
    Table 21 presents the estimated number of establishments, 
employees, and revenue by establishment size. The table shows that the 
500+ employee category employs 42 percent of workers, and accounts for 
20 percent of establishments and 43 percent of revenue for the combined 
industries. Conversely, establishments with fewer than 20 employees 
account for only six percent of employment but more than 44 percent of 
establishments.

                                     Table 21--Affected Establishments, Workers, and Revenue by Employment Size \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                              Average
                                      Total    Percent of    Workers     Workers        Total        Percent of      Revenue     Percent    revenue  per
       Number of employees          employees     total    without MW  without OT  establishments  establishments   ($ mil.)    industry   establishment
                                     (1,000)   employment                                                                        revenue      ($1,000)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0-4..............................          22         1.1           0      10,426        24,548            27.5        $1,954         2.2           $80
5-9..............................          29         1.5           0      14,080         7,262             8.1         1,779         2.0           245
10-19............................          64         3.3           0      30,471         7,685             8.6         3,752         4.1           488
20-99............................         421        22.0           0     201,744        18,495            20.7        18,422        20.3           996
100-499..........................         573        29.9           0     274,541        13,287            14.9        25,860        28.5         1,946
500 +............................         804        42.1           0     385,776        18,111            20.3        39,079        43.0         2,158
                                  ----------------------------------------------------------------------------------------------------------------------
    Total........................       1,912       100.0           0     917,039        89,388           100.0        90,846       100.0         1,016
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Data in this Table are distributed across categories using percentages from SUSB, 2007.

5. Description of the Projected Reporting, Recordkeeping and Other 
Compliance Requirements for Small Entities

    The FLSA sets minimum wage, overtime compensation, and 
recordkeeping requirements for employment subject to its provisions. 
All non-exempt covered employees must be paid at least the minimum wage 
and not less than one and one-half times their regular rates of pay for 
overtime hours worked. Workers performing domestic service but not 
meeting the definition of companionship services and live-in domestic 
service workers employed by third parties will need to be paid in 
accordance with the FLSA's minimum wage and overtime compensation 
provisions.
    This Final Rule provides no differing compliance requirements and 
reporting requirements for small entities. The Department has strived 
to minimize respondent recordkeeping burden by requiring no order or 
specific form of records under the FLSA and its corresponding 
regulations. Moreover, employers would normally maintain the records 
under usual or customary business practices.
    Every covered employer must keep certain records for each non-
exempt worker. The regulations at 29 CFR part 516 require employers to 
maintain records for employees subject to the minimum wage and overtime 
compensation provisions of the FLSA. The recordkeeping requirements 
under 29 CFR part 516 are not new requirements; however, some 
additional employees will be included in the universe of covered 
employees under the Final Rule. As indicated in this analysis, the 
Final Rule expands minimum wage and overtime compensation coverage to 
approximately 1.30 million workers. This results in an increase in 
employer burden and is estimated in the Paperwork Reduction Act (PRA) 
section of this Final Rule. Note that the burdens reported for the PRA 
section of this Final Rule include the entire

[[Page 60551]]

information collection and not merely the additional burden estimated 
as a result of this Final Rule.
Cost to Small Entities
    Table 22 presents the results of the first year, recurring years, 
and annualized cost and impact analyses as distributed by establishment 
size. The figures in the table include the costs of regulatory 
familiarization, hiring costs, complying with minimum wage 
requirements, travel time compensation, and overtime compensation, 
assuming employers respond by adjusting work schedules so that overtime 
hours are reduced to 60 percent of the current value (Scenario 1; in 
addition, we assume 30 percent of reallocated overtime hours are 
assigned to new hires). This scenario is the most costly of the three 
examined, and thus the results presented here show the anticipated 
upper bound.

             Table 22--First Year, Recurring, and Annualized Compliance Costs by Employment Size \a\
----------------------------------------------------------------------------------------------------------------
                                                                                                    Cost per
                                                               Percent of         Cost per        establishment
           Number of employees              Cost ($1,000)      total cost       establishment   as a percent  of
                                                                                                average  revenue
----------------------------------------------------------------------------------------------------------------
                                                   First Year
----------------------------------------------------------------------------------------------------------------
0-4.....................................            $4,423               1.9              $180              0.23
5-9.....................................             3,983               1.7               548              0.22
10-19...................................             8,003               3.5             1,041              0.21
20-99...................................            50,494              22.0             2,730              0.27
100-499.................................            67,801              29.5             5,103              0.26
500 +...................................            95,228              41.4             5,258              0.24
                                         -----------------------------------------------------------------------
    Total...............................           229,933             100.0             2,572              0.25
----------------------------------------------------------------------------------------------------------------
                                                 Recurring Costs
----------------------------------------------------------------------------------------------------------------
0-4.....................................             2,450               1.1               100              0.13
5-9.....................................             3,308               1.5               456              0.19
10-19...................................             7,159               3.3               932              0.19
20-99...................................            47,402              22.0             2,563              0.26
100-499.................................            64,506              29.9             4,855              0.25
500 +...................................            90,642              42.1             5,005              0.23
                                         -----------------------------------------------------------------------
    Total...............................           215,468             100.0             2,410              0.24
----------------------------------------------------------------------------------------------------------------
                                        Annualized Costs, at 7% Real Rate
----------------------------------------------------------------------------------------------------------------
0-4.....................................             2,712               1.2               110              0.14
5-9.....................................             3,398               1.6               468              0.19
10-19...................................             7,272               3.3               946              0.19
20-99...................................            47,813              22.0             2,585              0.26
100-499.................................            64,945              29.9             4,888              0.25
> 500...................................            91,252              42.0             5,038              0.23
                                         -----------------------------------------------------------------------
    Total...............................           217,393             100.0             2,432              0.24
----------------------------------------------------------------------------------------------------------------
\a\ Totals in this Table exclude costs related to California's IHSS workers because these workers are not
  employed by private small establishments and therefore the employer will not incur costs associated with IHSS
  workers.

    First year costs range from $180 for entities where the owner has 
fewer than five employees in addition to him- or herself (a 0-4 
employee establishment), to $5,258 per establishment for entities with 
more than 500 employees (Table 22). Annual recurring costs are somewhat 
smaller, ranging from $100 per year per establishment in the 1 to 4 
employee class, to $5,005 in the 500 employee or more size class. Over 
ten years, the rule is projected to cost establishments an annual 
average ranging from $110 for establishments with fewer than five 
employees to $5,038 for 500+ employee establishments per year when cost 
are annualized using a 7 percent real interest rate.
    Total costs and cost per establishment are consistently 
proportionate to establishment size as measured by either revenues or 
employment regardless of cost type (first year, recurring, or 
annualized). For example, employers with more than 500 employees are 
projected to incur 41.4 percent of total first year costs, which is 
proportionate to their share of the industry employment and revenues 
(see Table 21 and Table 22). In addition, the ratio of compliance costs 
to average establishment revenue is relatively similar regardless of 
establishment size. For example, the table shows that average 
annualized compliance costs vary between 0.14 and 0.26 percent of 
average annual revenues for all establishments ranging from the 0 to 4 
employee class to the 500+ employee class.
    In summary, first year compliance costs do not exceed $2,730 for 
establishments with fewer than 100 employees, and do not exceed $5,258 
for those with more than 100 employees; first-year compliance costs do 
not exceed 0.27 percent of establishment revenue for all establishment 
size classes; average annualized compliance costs do not exceed $2,585 
for establishments with fewer than 100 employees, and do not exceed 
$5,038 for those with more than 100 employees; and average annualized 
compliance costs do not exceed 0.26 percent of establishment revenue 
regardless of establishments size.

[[Page 60552]]

    Impacts to small businesses are unlikely to vary significantly over 
time. Existing firms incur regulatory familiarization costs once, and 
these costs do not impose a significant economic burden. It is 
possible, however, that the actual cost burdens to small entities may 
differ from the Department's estimates. The Department estimates that 
recurring costs such as overtime and travel time compensation (transfer 
payments in the EO 12866 analysis) are proportionate to firm size. 
These costs will increase if the firm grows, but in proportion to the 
firm's ability to bear them. As new firms enter the market, they will 
bear the same costs: One-time regulatory familiarization costs, and 
recurring payments for overtime and travel. Again, recurring costs will 
be proportionate to firm size. Therefore, based on these assumptions, 
if the revisions to the companionship services regulations are 
affordable for existing firms, they will be affordable to new market 
entrants as well.
    There are limitations to this analysis. It is assumed that the 
distribution of employees by establishment size has not changed 
significantly since 2007 (although the number of employees has 
increased significantly). We also assume that the occupations of HHA 
and PCA are distributed by establishment size similarly to other 
occupations in the HHCS and SEPD industries. With the exponential 
growth in these industries, it is possible that the distribution of 
workers by employment size class has shifted. In addition, the cost 
analysis conducted in this report is unable to capture the difference 
in costs for urban versus rural home care agencies.

6. Description of the Steps the Agency Has Taken To Minimize the 
Significant Economic Impact on Small Entities Consistent With the 
Stated Objectives of Applicable Statutes, Including a Statement of the 
Factual, Policy, and Legal Reasons for Selecting the Alternative 
Adopted in the Final Rule and Why Other Alternatives Were Rejected

    As previously discussed, the Department believes it has chosen the 
most effective option that updates and clarifies the rule. Based on the 
commenters' suggestions, among the options considered by the Department 
but not described in the NPRM, the least restrictive option was taking 
no regulatory action. A more restrictive option was to add to the 
provisions being finalized a limit on the personal care services that 
can be performed. NELP and the National Council on Aging among others 
suggested that the Department require an initial assessment be 
conducted to determine if a direct care worker is performing primarily 
fellowship and protection for the consumer. If it is found that the 
direct care worker is not engaged primarily in fellowship and 
protection, then the subsequent list of personal care services should 
not be considered at all and the worker should not be considered 
exempt. The National Council on Aging further expressed the view that 
toileting, bathing, driving, and tasks involving positioning and/or 
transfers be excluded from the list of permissible duties. ANCOR 
suggested that the list be made exclusive and include fewer tasks. The 
commenter added that the Department should consider providing an 
allowance for household work defined as no more than one hour in a 
seven day period. AFSCME expressed the view that those workers who 
regularly engage in mobility tasks should not be considered companions. 
The Department carefully considered such views in development of the 
Final Rule. The Department ultimately settled on a less restrictive 
list of permissible care services (assistance with ADLs and IADLs) than 
initially proposed as well as less restrictive than options suggested 
by some of these commenters. The Department views the resulting list as 
a compromise that allows for some delivery of care services by the 
exempt companion while at the same time recognizing and making an 
effort to address the health and safety concerns of direct care workers 
and consumers. Taking no regulatory action does not address the 
Department's concerns discussed above under Need for Regulation. The 
Department found the most restrictive option to be overly burdensome on 
business in general and specifically small business.
    Pursuant to the RFA, the Department considered several other 
approaches to accomplish the objectives of the rule and minimize the 
economic impact on small entities including those suggested in comments 
on the NPRM as well as more traditional approaches.
    In its comment, Advocacy noted that small businesses are most 
concerned with the cost of overtime compensation and less so the 
minimum wage provision. One suggested alternative was to maintain the 
exemption from overtime compensation for third party employers of live-
in workers, consistent with the laws in at least three states 
(Michigan, Nevada, and Washington). The Department recognizes that this 
approach would represent incremental progress towards narrowing the 
exemption for this set of workers and result in a very small economic 
impact on the industry from the Final Rule.
    However, the Department believes this approach is inconsistent with 
Congress's intent to provide FLSA protections to domestic service 
workers, while providing a narrow exemption for live-in domestic 
service workers. It is apparent from the legislative history that the 
1974 amendments were intended to expand coverage to include more 
workers, and were not intended to roll back coverage for employees of 
third parties who already had FLSA protections as employees of covered 
enterprises. Moreover, this approach does not support the objectives of 
the rule or the purposes of the overtime requirements of the FLSA, one 
of which is to spread employment.
    Another alternative suggested by Advocacy and the participants at 
the Small Business Roundtable hosted by Advocacy was to allow employers 
to exclude some nighttime hours from ``hours worked'' to reduce the 
potential burden of overtime compensation to workers providing care on 
higher hour cases (12- or 24-hour shifts). For example, Minnesota and 
North Dakota state laws exclude up to eight hours from the overnight 
hours (from 10:00 p.m. to 9:00 a.m.) from the ``hours worked'' for 
purposes of minimum wage and overtime calculations. This Final Rule 
does not include revisions to the longstanding regulations applicable 
to all FLSA-covered employers addressing when sleep time constitutes 
hours worked and when sleep time may be excluded from hours worked. 
Therefore, employers still have the opportunity to exclude bona fide 
sleep hours; however, there would be no basis under the FLSA for 
treating sleep time hours differently for domestic service workers than 
for other employees. The Department's existing regulations already 
provide for the exclusion of sleep time from compensable hours worked 
under certain conditions. As previously discussed in the Hours Worked 
section of this preamble, under the Department's existing regulations, 
an employee who is required to be on duty for less than 24 hours is 
working even though he or she is permitted to sleep or engage in other 
personal activities when not busy. See Sec.  785.21. Where an employee 
is required to be on duty for 24 hours or more, the employer and 
employee may agree to exclude a bona fide meal period or a bona fide 
regularly scheduled sleeping period of not more than eight hours from 
the employee's hours worked under certain conditions. See Sec.  785.22. 
The conditions for the exclusion of such a sleeping period from hours 
worked are (1) that adequate

[[Page 60553]]

sleeping facilities are furnished by the employer, and (2) that the 
employee's time spent sleeping is usually uninterrupted. When an 
employee must return to duty during a sleeping period, the length of 
the interruption must be counted as hours worked. If the interruptions 
are so frequent that the employee cannot get at least five hours of 
sleep during the scheduled sleeping period, the entire period must be 
counted as hours worked. Id.; see also Wage and Hour Opinion Letter, 
1999 WL 1002352 (Jan. 7, 1999). Where no expressed or implied agreement 
exists between the employer and employee, the eight hours of sleeping 
time constitute compensable hours worked. This description of these 
longstanding rules in the Final Rule's preamble is provided to help to 
educate small business employers regarding their ability to exclude 
sleep time from hours worked. See Sec.  785.22. However, because there 
would be no basis under the FLSA for treating sleep time hours 
differently for domestic service workers than for other employees, the 
commenters' suggestion was not adopted.
    Another approach suggested by small business representatives at the 
Small Business Roundtable and in subsequent conversations between small 
businesses and Advocacy would be to calculate overtime compensation 
based on a different rate of pay than straight time; for example, under 
New York state law overtime hours are paid at one and a half times the 
minimum wage rather than the worker's regular rate of pay for some 
workers. Again, there is no legal basis in the FLSA for calculating 
overtime compensation at a rate other than one-and-one-half times the 
employee's regular rate of pay. Moreover, the Department does not 
believe that this supports the objective of the rule or the spread of 
employment under the Act. In terms of economic burden, this alternative 
could reduce the cost to employers of overtime by approximately 25 
percent under OT Scenario 2; however, 15 states currently require 
payment of overtime at time and a half of regular pay with no evidence 
of significant economic burden. Quoting the Michigan Olmstead Coalition 
``we have seen no evidence that access to or the quality of home care 
services are diminished by the extension of minimum wage and overtime 
protection to home care aides in this state almost six years ago.''
    Another alternative discussed by commenters is to exclude travel 
time from hours worked in order to decrease the burden of overtime 
compensation. However, the comments provided little justification for a 
departure from the general FLSA principles applicable to all employers 
on the compensability of travel time set forth in 29 CFR 785.33-785.41. 
Excluding travel time that is ``all in the day's work'' from 
compensable hours worked, for example, would be inconsistent with the 
Portal-to-Portal Act amendment to the FLSA and inconsistent with how 
such travel time is treated for all other employees. Sec. Sec.  785.38; 
790.6. Furthermore, the analysis above suggests that the economic 
impacts of combined overtime and travel time pay are not significant, 
and travel time is merely a fraction of overtime cost. Thus, travel 
time adds a relatively small amount to the burden of this rulemaking.
    The Department also considered several traditional alternatives 
suggested in the SBA guide ``How to Comply with the Regulatory 
Flexibility Act.'' \221\ Those alternatives include:
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    \221\ SBA, A Guide for Government Agencies: How to Comply with 
the Regulatory Familiarization Flexibility Act, Implementing the 
President's Small Business Agenda and Executive Order 13272. June 
2010. pgs 47-58. Available at: www.sba.gov/advo.
---------------------------------------------------------------------------

     Compliance Assistance. The Department has made a variety 
of educational assistance materials related to this Final Rule 
available on its Web site, and WHD offices throughout the country are 
available to provide compliance assistance at no charge to employers. 
The Department intends to engage in robust outreach efforts and make 
every effort to work with employers to ensure compliance. As mentioned 
elsewhere in this preamble, the Department will work closely with 
stakeholders and the Department of Health and Human Services to provide 
additional guidance and technical assistance so that stakeholders, 
including employee and employer advocacy groups, as well as state 
agencies, understand their rights and responsibilities under the FLSA 
and this Final Rule.
     Differing compliance or reporting requirements that take 
into account the resources available to small entities. The FLSA sets a 
floor below which employers may not pay their employees. As shown 
above, nearly all employers affected by the rule meet the criteria for 
small entities and the costs to the smallest of these employers are not 
overly burdensome; for example, the annualized cost of the rule is 
estimated to be $110 for an employer with 0-4 employees and $5,038 for 
an employer with 500 or more employees. See Table 22. To establish 
differing compliance or reporting requirements for small businesses 
would undermine this important purpose of the FLSA and appears to not 
be necessary given the small annualized cost of the rule. The 
Department makes available a variety of resources to employers for 
understanding their obligations and achieving compliance. Therefore the 
Department declines to establish differing compliance or reporting 
requirements for small businesses.
     Clarification, consolidation, or simplification of 
compliance and reporting requirements for small entities. This rule 
simplifies and clarifies compliance requirements for employers of 
workers performing companionship services. The rule imposes no 
reporting requirements. The recordkeeping requirements imposed by this 
rule are necessary for the employer to determine their compliance with 
the rule as well as for the Department and domestic service employees 
to determine the employer's compliance with the law. The recordkeeping 
provisions apply generally to all businesses--large and small--covered 
by the FLSA; no rational basis exists for creating an exemption from 
compliance and recordkeeping requirements for small businesses in the 
HHCS and SEPD industries. The Department makes available a variety of 
resources to employers for understanding their obligations and 
achieving compliance.
     Use of performance rather than design standards. Under the 
Final Rule, the employer may achieve compliance through a variety of 
means. The employer may: hire additional workers and/or spread 
employment over the employer's existing workforce to ensure employees 
do not work more than 40 hours in a workweek, and/or pay employees time 
and one-half for time worked over 40 hours in a workweek. In addition, 
the FLSA recordkeeping provisions require no particular order or form 
of records to be maintained so employers may create and maintain 
records in the manner best fitting their situation. The Department 
makes available a variety of resources to employers for understanding 
their obligations and achieving compliance.
     An exemption from coverage of the rule, or any part 
thereof, for such small entities. The FLSA contains no authority to 
allow the Department to create an exemption for certain employers based 
on size of their workforce. Furthermore, creating an exemption from 
coverage of this rule for businesses with as many as 500 employees, 
those defined as small businesses under SBA's size standards, is 
inconsistent with Congressional intent in expanding FLSA coverage to 
workers providing domestic services in private households and its 
creation of a

[[Page 60554]]

narrow companionship services exemption.

The Department notes that while it is not appropriate to employ all of 
these traditional alternatives to lessen the impact of this Final Rule 
on small entities, the delayed effective date of this Final Rule 
creates a transition period during which all entities potentially 
impacted by this rule, including small entities, have the opportunity 
to review existing policies and practices and make necessary 
adjustments for compliance with this Final Rule. This transition period 
coupled with the Department's compliance assistance efforts lessens the 
impacts of complying with this Final Rule, relative to a regulatory 
alternative in which compliance is required immediately upon 
finalization.

VIII. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1501, requires 
agencies to prepare a written statement that identifies the: (1) 
Authorizing legislation; (2) cost-benefit analysis; (3) macro-economic 
effects; (4) summary of state, local, and tribal government input; and 
(5) identification of reasonable alternatives and selection, or 
explanation of non-selection, of the least costly, most cost-effective 
or least burdensome alternative; for rules for which a general notice 
of proposed rulemaking was published and that include any federal 
mandate that may result in increased expenditures by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million ($141 million in 2012 dollars, using the Gross Domestic Product 
deflator) or more in any one year.

Authorizing Legislation

    This rule is issued pursuant to Sections 13(a)(15), 13(b)(21), and 
11(c) of the Fair Labor Standards Act (FLSA), 29 U.S.C. 213(a)(15), 
213(b)(21), 211(c). Section 13(a)(15) of the FLSA exempts from its 
minimum wage and overtime provisions 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).'' Section 13(b)(21) of the FLSA exempts from the overtime 
provision any employee employed ``in domestic service in a household 
and who resides in such household.'' The requirements to maintain the 
exemptions provided by these sections are contained in this Final Rule, 
29 CFR part 552. Section 3(e) of the FLSA defines ``employee'' to 
include an individual employed by the government of a state or 
political subdivision of a state, or interstate governmental agency. 
Section 3(x) of the FLSA, also defines public agencies to include the 
government of a state or political subdivision thereof, or any 
interstate governmental agency. Section 11(c) of the FLSA indicates 
that employers subject to minimum wage and/or overtime requirements 
must make, keep, and preserve records as the Administrator prescribes 
by regulation.

Cost-Benefit Analysis

    For purposes of the Unfunded Mandates Reform Act of 1995, this rule 
includes a Federal mandate that might result in increased expenditures 
by the private sector or state, local, and tribal governments of more 
than $100 million in any one year. The primary impact on state, local, 
and tribal governments may be through increased Medicaid reimbursement 
rates. The magnitude of that impact will depend on two factors: (1) How 
home care agencies adjust scheduling to reduce or eliminate overtime 
hours; and (2) how states adjust Medicaid budgets in response to the 
rule.
    On average, Medicaid expenditures are one of the most significant 
components of state budgets, second only to primary and secondary 
education as a source of expenditures from state general revenues. In 
fiscal year 2011, the National Association of State Budget Officers 
estimated that the state share of Medicaid expenditures accounted for 
17.4 percent of state general revenues.\222\ Although some direct care 
workers are employed, or jointly employed, by state or county agencies 
(e.g., California, Illinois), these state or county agencies primarily 
serve the states' Medicaid population. Impacts to these agencies and 
direct care workers are thus a subset of the impact of the rule on the 
state share of Medicaid expenditures; to analyze these impacts 
separately would constitute double-counting. Therefore the Department 
will focus this section on the potential impact of the rule on the 
state share of Medicaid expenditures.
---------------------------------------------------------------------------

    \222\ Office of the Actuary, Centers for Medicare & Medicaid 
Services, U.S. Department of Health & Human Services. 2012 Actuarial 
Report on the Financial Outlook for Medicaid. Available at: http://medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Financing-and-Reimbursement/Downloads/medicaid-actuarial-report-2012.pdf. 
Accessed April 17, 2013.
---------------------------------------------------------------------------

    The Department estimated a range of total transfers of overtime and 
travel wages based on three adjustment scenarios, depending upon the 
percentage of current overtime hours worked that employers continue to 
provide to employees (10 percent, 40 percent or 60 percent); the middle 
scenario (described in the Regulatory Impact Analysis as OT Scenario 2) 
results in payment of 40 percent of current overtime hours worked 
(average annualized value of $321.8 million per year). For the reasons 
discussed in the Regulatory Impact Analysis, the Department believes OT 
Scenario 2 represents the most likely impact of the Final Rule.
    As described in the regulatory impact analysis (with respect to the 
Agency Model in Section VI.D), home health care expenditures accounted 
for by Medicare and Medicaid range from about 75 to 90 percent of total 
home health care expenditures. However, as previously described, not 
all Medicaid expenditures on home care services are included in the 
standard Medicaid accounting classification; in 2009 the sum of State 
Home Health, PCS, and HCBS 1915(c) waiver programs\223\ ($50.0 billion) 
was about twice the size of the NHE line item for Medicaid home health 
care expenditures ($24.3 billion).\224\
---------------------------------------------------------------------------

    \223\ Kaiser Commission on Medicaid and the Uninsured. 2012 
Medicaid Home and Community-Based Services Programs: 2009 Data 
Update. http://statehealthfacts.org/comparetable.jsp?ind=242&cat=4.
    \224\ Centers for Medicare and Medicaid Studies, Office of the 
Actuary, National Health Expenditure Projections, 2011-2021. 
Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
---------------------------------------------------------------------------

    To avoid underestimating the Medicaid share of home care 
expenditures, the Department added these additional sources of home 
care spending to the NHE values and calculated that as much as 55 
percent of home care expenditures may be accounted for by 
Medicaid.\225\ Thus, perhaps $175.3 million of the $321.8 million in 
additional average annualized transfers under OT Scenario 2 might be 
attributed to Medicaid programs. It is unlikely that the entire amount 
will be expenditures from state budgets because the federal government 
also contributes to Medicaid expenditures. The CMS Office of the

[[Page 60555]]

Actuary projects that the federal share of Medicaid expenditures will 
average 60.2 percent through 2020; thus, the state share of additional 
wages under this scenario may be about 39.8 percent of the $175.3 
million, or $69.8 million in average annualized wages.\226\ Based on 
data from the CMS, we calculated that in 2011 state Medicaid 
expenditures totaled $158.6 billion and the average annualized value of 
projected state Medicaid expenditures is $232.5 billion per year from 
2011 through 2020 (after adjusting for inflation).\227\ Thus, if state 
Medicaid programs reimburse agencies for the entire amount of 
additional wages expected under OT Scenario 2, it will increase state 
Medicaid budgets by approximately 0.03 percent per year over that time 
horizon. This estimate represents an average across states; some will 
experience impacts greater than 0.03 percent and other less than 0.03 
percent depending on whether state-level laws already require overtime 
or travel time payments for direct care workers. Information about 
state-level requirements appears in Table 3.
---------------------------------------------------------------------------

    \225\ In 2009, the NHE listed total home health care 
expenditures as $66.1 billion, $29.9 billion (45 percent) of which 
were accounted for by Medicare, $24.3 billion by Medicaid (37 
percent), with the remainder attributed to a mix of other government 
programs, private insurance, and private out-of-pocket spending. The 
Department calculated its adjusted Medicaid percent of expenditures 
by adding $25.7 billion ($50.0 billion minus $24.3 billion) to both 
total and Medicaid expenditures, then dividing $50.0 billion by 
$91.8 billion ($66.1 billion plus $25.7 billion) to estimate that 
roughly 54.5 percent of home care expenditures may be attributable 
to Medicaid.
    \226\ Office of the Actuary, Centers for Medicare & Medicaid 
Services, United States Department of Health & Human Services. 2012 
Actuarial Report on the Financial Outlook for Medicaid. Available 
at: http://medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Financing-and-Reimbursement/Downloads/medicaid-actuarial-report-2012.pdf. Accessed April 17, 2013.
    \227\ Centers for Medicare and Medicaid Studies, Office of the 
Actuary, National Health Expenditure Projections, 2011-2021. 
Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf.
---------------------------------------------------------------------------

Macro-Economic Effects

    Agencies are expected to estimate the effect of a regulation on the 
national economy, such as the effect on productivity, economic growth, 
full employment, creation of productive jobs, and international 
competitiveness of United States goods and services, if accurate 
estimates are reasonably feasible and the effect is relevant and 
material. 5 U.S.C. 1532(a)(4). However, OMB guidance on this 
requirement notes that such macro-economic effects tend to be 
measureable in nationwide econometric models only if the economic 
impact of the regulation reaches 0.25 percent to 0.5 percent of the 
Gross Domestic Product,\228\ or in the range of $39 to $77 billion. A 
regulation with smaller aggregate effect, such as this one, is not 
likely to have a measurable impact in macro-economic terms unless it is 
highly focused on a particular geographic region or economic sector.
---------------------------------------------------------------------------

    \228\ Real Gross Domestic Product for the first quarter of 2012 
was $15.454 trillion. Bureau of Economic Analysis, News Release: 
National Income and Product Accounts Gross Domestic Product, 1st 
quarter 2012 (second estimate); Corporate Profits, 1st quarter 2012 
(preliminary estimate). Available at: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.
---------------------------------------------------------------------------

    This regulation is focused on two sub-industries (HHCS and SEPD) 
within the Health Care and Social Assistance industry (NAICS 62), which 
account for just over 10 percent of total employment in this 
industry.\229\ The Department's RIA estimates that the total first-year 
impacts of the rule on employers of workers providing home health care 
services will be approximately $20.7 million, with additional transfers 
of approximately $210.2 million, depending on the approach employers 
choose to manage overtime hours. However, given OMB's guidance, the 
Department has determined that a full macro-economic analysis is not 
likely to show any measurable impact on the economy.
---------------------------------------------------------------------------

    \229\ BLS Quarterly Census of Employment and Wages: 2011 Annual 
employment for NAICS 62 (18,368,506). Total annual employment in 
2011 for NAICS 6216 (HHCS) and 62412 (SEPD) was 1,912,306. Available 
at: http://www.bls.gov/cew/#databases.
---------------------------------------------------------------------------

    The total first-year costs of $20.7 million comprise 0.04 percent 
of payroll in the two industries nationwide, and total first-year costs 
as a percent of revenues are 0.02 percent nationwide. The total first-
year transfers of $210.2 million as a percent of HHCS and SEPD payrolls 
are 0.5 percent, and the total first-year transfers as a percent of 
revenues are about 0.2 percent.

Summary of State, Local, and Tribal Government Input

    Several state employers commented on specific aspects of the 
proposed rule. These comments have been addressed above in the preamble 
and Paperwork Reduction Act sections of the Final Rule. During the 
public comment period, representatives of the state of Washington, 
Tennessee, Arkansas, California, Virginia, and Oregon submitted written 
comments to the agency for review. Additionally, organizations such as 
the National Association of Medicaid Directors and the California State 
Association of Counties submitted written comments for review. While 
such associations are not representatives of specific states, many of 
their members are representatives of state and local government.
    Representatives of individual states expressed concern about cost 
(and income transfers). For example, the State of California Health and 
Human Services Agency referenced the state's budget issues and 
requested that the Department postpone acting on the requirement of 
overtime wages to be paid to home care workers who are employed by 
third parties, such as home care staffing agencies.\230\ The State of 
Washington, Aging and Disability Services Administration, stated that 
the proposed rule's discussion concerning costs requires further 
research. See State of Washington.\231\ The Arkansas Department of 
Human Services expressed the view that implementing these changes 
without also identifying additional funding sources is ``ill advised.'' 
See Arkansas Department of Human Services.\232\ In the same general 
category of cost, some representatives of individual states expressed 
concern over the requirement to pay overtime compensation to direct 
care workers. The Department also held a listening session with state 
Medicaid directors or their representatives where the state 
participants reiterated these concerns.
---------------------------------------------------------------------------

    \230\ WHD-2011-0003-9531.
    \231\ WHD-2011-0003-6166.
    \232\ WHD-2011-0003-9232.
---------------------------------------------------------------------------

    The Department notes that there was little objection among 
commenters that individuals providing companionship services be paid 
the minimum wage. Indeed, many commenters indicated that such employees 
are already receiving at least the federal minimum wage for hours 
worked. Additionally, as noted in the Department's Final Rule Defining 
and Delimiting the Exemptions for Executive, Administrative, 
Professional, Outside Sales and Computer Employees (April 23, 2004) (69 
FR 22122), Congress amended the FLSA in 1985 following the Garcia 
decision to readjust how the FLSA would apply to public sector 
employers by allowing compensatory time off in lieu of cash overtime 
compensation. Pursuant to the definition section of the Unfunded 
Mandates Reform Act, the term ``direct costs'' shall be determined on 
the assumption that state, local, and tribal governments and the 
private sector will take all reasonable steps necessary to mitigate the 
costs resulting from a Federal mandate. See 2 U.S.C. 658; Public Law 
104-4, (March 22, 1995). Further, nothing in the Final Rule requires 
that employers schedule employees for more than 40 hours per workweek. 
Employers can avoid the overtime premium payment (or in the case of the 
public sector, compensatory time off) merely by limiting the employee 
to 40 hours of work in a workweek. Limiting workers to 40 hours per 
week should affect very few consumers. The Department's analysis of 
overtime hours worked showed 88 percent of direct care workers do not

[[Page 60556]]

typically work more than 40 hours per week, and consumers served by 
those workers should not be affected by the rule. Although consumers 
served by those direct care workers who exceed 40 hours per week are 
likely to be affected, not all such workers will have their hours 
adjusted (e.g., agencies that voluntarily pay overtime compensation are 
less likely to adjust worker schedules, and other agencies may not 
completely eliminate overtime hours). Thus, only some subset of 
consumers cared for by direct care workers currently working overtime 
hours are likely to be affected by the rule.

Least Burdensome Option or Explanation Required

    The Department's consideration of various options has been 
described throughout the preamble and the Regulatory Flexibility 
Analysis. The Department believes it has chosen the most effective 
option that updates and clarifies the rule and which, given the changes 
made in the Final Rule in response to comments received, minimizes the 
burden to the extent possible. Based on the commenters' suggestions, 
among the options considered by the Department but not described in the 
NPRM, the least restrictive option was taking no regulatory action. A 
more restrictive option was to add to the provisions being finalized a 
limit on the personal care services that can be performed. NELP and the 
National Council on Aging among others suggested that the Department 
require an initial assessment be conducted to determine if a direct 
care worker is performing primarily fellowship and protection for the 
consumer. If it is found that the direct care worker is not engaged 
primarily in fellowship and protection, then the subsequent list of 
personal care services should not be considered at all and the worker 
should not be considered exempt. The National Council on Aging further 
expressed the view that toileting, bathing, driving, and tasks 
involving positioning and/or transfers be excluded from the list of 
permissible duties. ANCOR suggested that the list be made exclusive and 
include fewer tasks. The commenter added that the Department should 
consider providing an allowance for household work defined as no more 
than one hour in a seven day period. AFSCME expressed the view that 
those workers who regularly engage in mobility tasks should not be 
considered companions. The Department carefully considered such views 
in development of the Final Rule. The Department ultimately settled on 
a broader set of permissible care services than initially proposed as 
well as less restrictive than options suggested by some of these 
commenters. The Department views the inclusion of assistance with 
activities of daily living and instrumental activities of daily living 
as a compromise that allows for some delivery of care services under 
the companionship services exemption while at the same time recognizing 
and making an effort to tailor the types of permissible duties to 
Congress' original intent and to address the health and safety concerns 
of direct care workers and consumers. Taking no regulatory action does 
not address the Department's concerns discussed above under Need for 
Regulation. The Department found the most restrictive option to be 
overly burdensome on business in general and specifically small 
business.

IX. Executive Order 13132 (Federalism)

    The Final Rule does not have federalism implications as outlined in 
Executive Order 13132 regarding federalism. The Final 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.

X. Executive Order 13175, Indian Tribal Governments

    This Final Rule was reviewed under the terms of Executive Order 
13175 and determined not to have ``tribal implications.'' The Final 
Rule does not have ``substantial direct effects on one or more Indian 
tribes, on the relationship between the federal government and Indian 
tribes, or on the distribution of power and responsibilities between 
the federal government and Indian tribes.'' As a result, no tribal 
summary impact statement has been prepared.

XI. Effects on Families

    The undersigned hereby certifies that this Final Rule will not 
adversely affect the well-being of families, as discussed under section 
654 of the Treasury and General Government Appropriations Act, 1999.

XII. Executive Order 13045, Protection of Children

    Executive Order 13045, dated April 23, 1997 (62 FR 19885), applies 
to any rule that (1) is determined to be ``economically significant'' 
as defined in Executive Order 12866, and (2) concerns an environmental 
health or safety risk that the promulgating agency has reason to 
believe may have a disproportionate effect on children. This Final Rule 
is not subject to Executive Order 13045 because it has no environmental 
health or safety risks that may disproportionately affect children.

XIII. Environmental Impact Assessment

    A review of this Final Rule in accordance with the requirements of 
the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et 
seq.; the regulations of the Council on Environmental Quality, 40 CFR 
1500 et seq.; and the Departmental NEPA procedures, 29 CFR part 11, 
indicates that the Final Rule will not have a significant impact on the 
quality of the human environment. As a result, there is no 
corresponding environmental assessment or an environmental impact 
statement.

XIV. Executive Order 13211, Energy Supply

    This Final Rule is not subject to Executive Order 13211. It will 
not have a significant adverse effect on the supply, distribution, or 
use of energy.

XV. Executive Order 12630, Constitutionally Protected Property Rights

    This Final Rule is not subject to Executive Order 12630, because it 
does not involve implementation of a policy ``that has takings 
implications'' or that could impose limitations on private property 
use.

XVI. Executive Order 12988, Civil Justice Reform Analysis

    This Final Rule was drafted and reviewed in accordance with 
Executive Order 12988 and will not unduly burden the federal court 
system. The Final Rule was: (1) Reviewed to eliminate drafting errors 
and ambiguities; (2) written to minimize litigation; and (3) written to 
provide a clear legal standard for affected conduct and to promote 
burden reduction.

List of Subjects in 29 CFR Part 552

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

Laura A. Fortman,
Principal Deputy Administrator, Wage and Hour Division.

    For the reasons discussed in the preamble, 29 CFR part 552 is 
amended as follows:

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

0
1. The authority citation for part 552 continues to read as follows:


[[Page 60557]]


    Authority: 29 U.S.C. 213(a)(15), (b)(21), 88 stat. 62; Sec. 
29(b) of the Fair Labor Standards Act Amendments of 1974 (Pub. L. 
93-259, 88 Stat. 76).


0
2. Revise Sec.  552.3 to read as follows:


Sec.  552.3  Domestic service employment.

    The term domestic service employment means services of a household 
nature performed by an employee in or about a private home (permanent 
or temporary). The term includes services performed by employees such 
as companions, babysitters, cooks, waiters, butlers, valets, maids, 
housekeepers, nannies, nurses, janitors, laundresses, caretakers, 
handymen, gardeners, home health aides, personal care aides, and 
chauffeurs of automobiles for family use. This listing is illustrative 
and not exhaustive.

0
3. Revise Sec.  552.6 to read as follows:


Sec.  552.6  Companionship services.

    (a) As used in section 13(a)(15) of the Act, the term companionship 
services means the provision of fellowship and protection for an 
elderly person or person with an illness, injury, or disability who 
requires assistance in caring for himself or herself. The provision of 
fellowship means to engage the person in social, physical, and mental 
activities, such as conversation, reading, games, crafts, or 
accompanying the person on walks, on errands, to appointments, or to 
social events. The provision of protection means to be present with the 
person in his or her home or to accompany the person when outside of 
the home to monitor the person's safety and well-being.
    (b) The term companionship services also includes the provision of 
care if the care is provided attendant to and in conjunction with the 
provision of fellowship and protection and if it does not exceed 20 
percent of the total hours worked per person and per workweek. The 
provision of care means to assist the person with activities of daily 
living (such as dressing, grooming, feeding, bathing, toileting, and 
transferring) and instrumental activities of daily living, which are 
tasks that enable a person to live independently at home (such as meal 
preparation, driving, light housework, managing finances, assistance 
with the physical taking of medications, and arranging medical care).
    (c) The term companionship services does not include domestic 
services performed primarily for the benefit of other members of the 
household.
    (d) The term companionship services does not include the 
performance of medically related services provided for the person. The 
determination of whether services are medically related is based on 
whether the services typically require and are performed by trained 
personnel, such as registered nurses, licensed practical nurses, or 
certified nursing assistants; the determination is not based on the 
actual training or occupational title of the individual performing the 
services.

0
4. Amend Sec.  552.101 by revising the first three sentences of 
paragraph (a) to read as follows:


Sec.  552.101  Domestic service employment.

    (a) The definition of domestic service employment contained in 
Sec.  552.3 is derived from the regulations issued under the Social 
Security Act (20 CFR 404.1057) and from ``the generally accepted 
meaning'' of the term. Accordingly, the term includes persons who are 
frequently referred to as ``private household workers.'' See. S. Rep. 
93-690, p. 20. The domestic service must be performed in or about a 
private home whether that home is a fixed place of abode or a temporary 
dwelling as in the case of an individual or family traveling on 
vacation. * * *
* * * * *

0
5. Amend Sec.  552.102 by revising paragraph (b) to read as follows:


Sec.  552.102  Live-in domestic service employees.

* * * * *
    (b) If it is found by the parties that there is a significant 
deviation from the initial agreement, the parties should reach a new 
agreement that reflects the actual facts of the hours worked by the 
employee.

0
6. Revise Sec.  552.106 to read as follows:


Sec.  552.106  Companionship services.

    The term ``companionship services'' is defined in Sec.  552.6. 
Persons who provide care and protection for babies and young children 
who do not have illnesses, injuries, or disabilities are considered 
babysitters, not companions. The companion must perform the services 
with respect to the elderly person or person with an illness, injury, 
or disability and not generally to other persons. The ``casual'' 
limitation does not apply to companion services.

0
7. Amend Sec.  552.109 by revising paragraphs (a) and (c) to read as 
follows:


Sec.  552.109  Third party employment.

    (a) Third party employers of employees engaged in companionship 
services within the meaning of Sec.  552.6 may not avail themselves of 
the minimum wage and overtime exemption provided by section 13(a)(15) 
of the Act, even if the employee is jointly employed by the individual 
or member of the family or household using the services. However, the 
individual or member of the family or household, even if considered a 
joint employer, is still entitled to assert the exemption, if the 
employee meets all of the requirements of Sec.  552.6.
* * * * *
    (c) Third party employers of employees engaged in live-in domestic 
service employment within the meaning of Sec.  552.102 may not avail 
themselves of the overtime exemption provided by section 13(b)(21) of 
the Act, even if the employee is jointly employed by the individual or 
member of the family or household using the services. However, the 
individual or member of the family or household, even if considered a 
joint employer, is still entitled to assert the exemption.

0
8. Amend Sec.  552.110 by revising paragraphs (b), (c), and (d) and 
adding new paragraph (e) to read as follows:


Sec.  552.110  Recordkeeping requirements.

* * * * *
    (b) In the case of an employee who resides on the premises, the 
employer shall keep a copy of the agreement specified by Sec.  552.102 
and make, keep, and preserve a record showing the exact number of hours 
worked by the live-in domestic service employee. The provisions of 
Sec.  516.2(c) of this chapter shall not apply to live-in domestic 
service employees.
    (c) With the exception of live-in domestic service employees, where 
a domestic service employee works on a fixed schedule, the employer may 
use a schedule of daily and weekly hours that the employee normally 
works and either the employer or the employee may:
    (1) Indicate by check marks, statement or other method that such 
hours were actually worked; and
    (2) When more or less than the scheduled hours are worked, show the 
exact number of hours worked.
    (d) The employer is required to maintain records of hours worked by 
each covered domestic service employee. However, the employer may 
require the domestic service employee to record the hours worked and 
submit such record to the employer.
    (e) No records are required for casual babysitters.

[FR Doc. 2013-22799 Filed 9-30-13; 8:45 am]
BILLING CODE 4510-27-P