An insider's view of the changes to the companionship law

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Bill McPherson
Bill McPherson

If the U.S. Department of Labor's changes to the companionship exemption law are upheld, many home healthcare employees may soon get a raise.

For decades, as a result of the Fair Labor Standards Act companionship exemption law, home healthcare agencies haven't had to pay overtime to caregivers who assist the elderly in their homes.

The ruling by the Department of Labor, which was upheld by the U.S. Court of Appeals for the D.C. Circuit in August and went into effect in October, requires employers to pay caregivers minimum wage plus overtime.

Opponents to the law say this will limit seniors from receiving the care they need.

Upholding the ruling

First, some history. In 1938, Congress passed the FLSA, which provided minimum standards of living for workers by requiring that employers pay at least a minimum wage, plus overtime for employees who worked more than 40 hours per week.

Some job categories, however, including domestic service workers, weren't covered by the requirements. So in 1975, Congress changed the law to include domestic service workers with the exception of babysitters and companions for the elderly.

In 2013, due to the extensive changes in the home healthcare industry, the Department of Labor narrowed its definition of companionship services. It cited the expanded duties of home healthcare workers and granted them the same wage protection as domestic service workers.

In September 2015, after the ruling was upheld, three industry trade groups — the Home Care Association of America, International Franchise Association and National Association for Home Care and Hospice — asked the Supreme Court to overturn the decision, saying it will put home healthcare out of the financial reach of many seniors who need it and could potentially destabilize the industry. The new rule doesn't apply to caregivers hired directly by seniors or their families; they remain exempt.

In addition to having potential effects on seniors, this change also will affect companies. Those that have taken advantage of the previous companionship services loophole are going to get hit with higher payroll (and associated taxes).

When companies argue that the ruling will affect seniors, it's because they will have to pass that cost on to the families. The other options are to reduce profit margins or cut employees' wages.

Staffing shortages and high turnover

The home health industry is one of the fastest-growing sectors of the American economy. The industry, however, has one of the highest turnover rates in the United States — from 60% to 100%, depending on the state. This turnover has been directly tied to low wages.

A 2004 study showed that companies pay $3,362 (more than $4,200 in today's dollars) for each turnover, which includes recruiting, onboarding and termination (exit interviews, etc.). Turnover also can cause losses in productivity and morale, as well as increased stress, among employees.

The solution seems to be, in part, paying caregivers higher wages. Companies that already have adopted higher wages, overtime and benefits for employees have demonstrated a turnover reversal. At FirstLight HomeCare, we are retaining up to 80% of our employees.

In addition to higher retention rates, paying caregivers more means companies can attract better workers, improving care for seniors. But what about seniors?

The industry already is starting to change due to the updated caregiver exemption law. And though three trades have asked the Supreme Court to overturn it, the rule already is being enforced by the Department of Labor.

Getting seniors the care they need and paying caregivers a fair wage are the tasks that lie before us. In an industry devoted to caregiving, a solution should be within our reach.

Bill McPherson is executive director of franchise development at FirstLight HomeCare, which has been awarded Entrepreneur Top 500 franchises, Top Franchisee Satisfaction, Franchise Business Review, Top Veterans Franchise, Franchise Business Review and Forbes Top Franchises. He may be reached at bmcpherson@firstlighthomecare.com.

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