24-HOUR SHIFT HOME CARE WORKERS

By Philip Davidoff

Executive Summary

Wage and hour claims in the home care industry are on the rise. One of the reasons is 24 hour shift home care workers are claiming they should be paid for more than 13 hours work, as is the practice in New York. Federal and state courts and the New York State Department of Labor generally have reached different conclusions on how many hours pay must be paid to 24 hour shift workers. This article explains the laws and conflicting interpretations and the steps employers can take to minimize their exposure to wage and hour claims.

DISCUSSION

Minimum Wage Rate

The federal Fair Labor Standards Act (FLSA) and the New York State Labor Law (NYLL) govern the wages paid and hours of work rules for home care workers. While similar in many respects they are not identical. The differences in these laws can result in costly missteps for employers.

It has been generally accepted that home care workers employed by home care agencies fall within the “companionship services” exemption of the FLSA.[i]. Under this exemption, home care workers are exempt from both the minimum wage and overtime requirements of the FLSA. Also, under the FLSA, a “live-in” worker is one who either has no residence other than the client’s home or works a minimum of five 24-hour shifts each workweek in the client’s home. In contrast, under the FLSA, a “sleep-in” worker works one or more 24 hour shifts each workweek in the client’s home, but does not work a minimum of five-24 hour shifts each workweek.

Independent of the FLSA, the minimum wage provisions of the NYLL provide, with few exceptions, that employers must pay at least the State’s minimum wage rate (currently $8.75 per hour in New York, $9.00 as of January 1, 2016) to all employees. New York courts and the New York State Department of Labor (“NYSDOL”) have said that home care workers employed by home care agencies are covered by this minimum wage provision.[ii],

Overtime Pay

Under New York’s Minimum Wage Order for Miscellaneous Industries and Occupations (“Miscellaneous Wage Order”), which governs overtime compensation in New York for most workers, home care workers are entitled to overtime pay at one and one-half time the State minimum wage rate, or $13.13 per hour.[iii] The Miscellaneous Wage Order provides:

An employer shall pay an employee for overtime at a wage rate of 1-1/2 times the employees regular rate in the manner and methods provided in and subject to the exemptions of sections 7 and 13 [of the FLSA] . . . . In addition, an employer shall pay employees subject to the exemptions of Section 13 [which includes the companionship services exemption of the FLSA] . . . overtime at a rate of 1-1/2 times the basic minimum hourly rate. (Emphasis added.)

Wage and Hour Lawsuits

Twenty-four hour shift employees are commonly referred to in the home care industry interchangeably as “live-in” or “sleep-in” workers. Each of these terms has a unique meaning, however, and they are not interchangeable. This difference in terminology has led to substantial confusion between decisions of the federal and state courts in New York and administrative interpretations by the NYS Department of Labor.

NYSDOL Opinion Letter

The NYSDOL, in a March 11, 2010 Opinion Letter (the “NYSDOL Opinion Letter”) contributed to the confusion over what term to use for 24-hour shift workers in New York, when it said:

[I]t is the opinion and policy of this Department that live-in employees must be paid not less than for thirteen hours per twenty-four hour period provided that they are afforded at least eight hours of sleep and actually receive five hours of uninterrupted sleep, and that they are afforded three hours for meals. If an aide does not receive five hours of uninterrupted sleep, the eight-hour sleep exclusion is not applicable and the employee must be paid for all eight hours. Similarly, if the aide is not actually afforded three work-free hours for meals, the three hour meal period exclusion is not applicable.

Counsel Opinion Letter, N.Y. Dep’t of Labor, RO-09-00169 Live-In Companions.

Note that the NYSDOL used the term “live-in” when enunciating this rule; a term that itself is not defined in the NYLL or its regulations. Under the NYLL, a home care worker who is directly employed by a client, household or family and who has no residence other than the client’s home is deemed a “residential” employee. By contrast, a home care worker who has her own residences is a “non-residential” employee. Although it is clearly lawful under NYLL to pay a “residential” employee 13 hours’ wages for a 24 hour shift (deducting 8 hours for qualified sleep-time and 3 hours for three hours for qualified mealtime), and only pay overtime after 44 hours worked in a workweek (instead of the usual 40 hours), there is no explicit statutory authority to apply this concept to a non-residential employee. Nonetheless, the NYSDOL Opinion Letter added “the Department applies the same test for determining the number of hours worked by all live-in employees,” irrespective of whether or not the employee resides in the home of the employer (i.e., is a “residential” or “non-residential” employee). In short, the NYSDOL conflated the terms “residential” and “non-residential” for purposes of determining the number of hours worked, and payable, to 24-hour shift employees, and, in so doing, also used the term “live-in” synonymously with the term “sleep-in” as it concerns 24-hour shift workers.

Federal and NYS Courts

Recently, two cases – one in a federal district court and the other in the New York Supreme Court, Kings County have addressed the interplay of the FLSA and NYLL in the context of 24-hour workers and have come to different conclusions on essentially the same questions concerning “hours worked” and overtime compensation for 24-hour shift workers.

In the first decision, Severin v. Project OHR, 10 Civ. 9696 (S.D.N.Y. June 20, 2012), 24-hour shift home care workers asserted class-wide claims for minimum wage and overtime violations under both the FLSA and the NYLL. The Court, after considering the sleep and meal time rules outlined in the 2010 NYSDOL Opinion Letter, applied these rules. The Court deferred to the NYSDOL’s opinion that their sleep and meal time rules applied whether the worker’s was a “residential” or “non-residential” employee under the NYLL; that is, to all home care workers assigned 24-hour shifts, whether or not the worker’s sole residency was the client’s home or the worker was employed by a third-party agency.

In the second decision, Andryeyeva v. New York Health Care Inc. d/b/a/ New York Home Attendant Agency et al., 2014 WL 4650233 (N.Y. Sup. Ct., Kings Cty. Sept. 16, 2014), the Court declined to follow the reasoning in Project OHR particularly as it concerned the NYSDOL Opinion Letter. In fact, the Court ruled that the NYSDOL Opinion Letter did not apply at all to “non-residential” employees, and totally rejected the NYSDOL policy that home care agencies can exclude from “hours worked” eight hours for sleep and three hours for meal time where the worker maintained a residence other than the client’s home. In short, the Court did not view the terms “live-in” and “sleep-in” synonymously, as did the NYSDOL and the Project OHR Court. Rather, it viewed the term “live-in” to be synonymous with “residential.”

According to this Kings County Court, because the workers “did not ‘reside’ in the home of their clients . . . the issue of the hours afforded for sleep or meals is irrelevant.” The Court concluded that “non-residential” home care workers must be paid for all 24 hours of a 24-hour shift to the extent they are required to remain in the client’s home.

Two additional decisions from another judge in the same court in Kings County have held the same. These decisions also required overtime pay if the worker worked more than 40 hours in a workweek. The Andryeyeva decision is presently on appeal.

Proactive Measures Employers Can Employ to Protect Themselves

The most significant issue for home care agencies employing home care workers on 24-hour shifts concern “hours worked” principles. Will the approach taken in the NYSDOL’s Opinion Letter, and followed in the Project OHR case, prevail, thereby permitting employers to satisfy applicable law if they pay the worker not less than for thirteen hours per twenty-four hour period, provided the workers are afforded at least eight hours of sleep and actually receive five hours of uninterrupted sleep, and that they are afforded and actually receive three duty-free hours for meals? Or, will the Andryeyeva approach to sleep and meal time ultimately prevail, and will home care employers in New York will be required to compensate their non-residential home care workers assigned to 24-hour shifts for all 24-hours?

Here are proactive measures employers can take to protect themselves:

  • Develop better policies and procedures to manage work hours.
    1. Agencies need policies and procedures that determine how 24-hours shift cases will be assigned and how the hours worked on these shifts will be monitored.
  • Use as much electronic technology as they can afford.
    1. Agencies need time-tracking software to require 24-hour workers to electronically record their work hours, sleep hours and duty-free hours and any interruption of those hours.
  • Bolster the employer’s credibility and the weight to be given facts favorable to the employer in rebutting wage and hour claims.
    1. Implement “hours worked” procedures that require verbal notice by the worker to the agency if the worker is unable to receive five continuous hours of sleep and three duty free hours during a twenty-four hour shift, or any interruptions in sleep or duty free time, and a written report by the worker to the agency on receipt of the worker’s payroll check that does not take this into account. Agencies also need to obtain worker sign-offs on policies and procedures stating these rules.
  • Warn workers that hours worked must be recorded accurately and that falsifying a time record is grounds for disciplinary action.5. Maintain complete and accurate wage and hour records for at least seven years.
  1. If using an outside payroll company, an agency must ensure the contract states that the payroll records are the agency’s property, the records will be maintained at a predetermined location in a readily accessible computer format for a minimum of seven years, the agency has the right at any time to inspect, audit, or request production of its records, and the records will be transferred to a new company immediately upon the agency’s request.
  2. Agencies must also practice what they preach, including disciplinary measures in their Codes of Conduct for violating recording and reporting rules. And, they must discipline violators consistently and uniformly.

[i] The FLSA companionship exemption is defined to include “an employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves.” The exemption covers employees that provide “fellowship, care and protection” to such individuals, and has been interpreted to include engaging in “household work related to the care of the individual” (e.g., meal preparation, bed making, laundry, etc.), as well as other “general household work” provided such work is “incidental” to caring for the individual (i.e., does not exceed 20% of their total weekly hours worked). 29 C.F.R. § 552.6.
[ii] Although the NYLL excludes from its definition of “employee” “someone who lives in the home of an employer for the purpose of serving as a companion to a sick, convalescing or elderly person and whose principal duties do not include housekeeping.” (12 N.Y.C.R.R § 142-2.14(c)(1)(II).   New York courts and the New York State Department of Labor (“NYSDOL”) have said that home care workers employed by home care agencies, by definition, fall outside of the NYLL companionship exclusion, because they do not “live in the home of an employer.” Therefore, all home care workers employed by third party agencies are “employees” under the NYLL entitled to be paid at least the state minimum wage for all hours worked.
[iii] Courts have interpreted this interplay between the FLSA and NYLL “companionship” provisions, to mean that home care workers, are, by virtue of the FLSA’s companionship services exemption, entitled under the Miscellaneous Wage Order to receive at least the State’s minimum wage rate, as well as overtime compensation at a rate of 1-1/2 times the state’s minimum wage rate. See Ballard v. Community Home Care Referral Servs., Inc. 264 A.D.2d 747 (1999).

BENEFITS YOU CAN OFFER ON A NON-TAXABLE BASIS UNDER THE WPA

By Jeffrey S. Ashendorf

Executive Summary

The Wage Parity Act (the “Act”) states that covered benefits include, but are not limited to, “health, education or pension benefits . . .”[i] Further guidance in Home Care Worker Wage Parity Frequently Asked Questions (“FAQs”) states that this definition “does not exclude” (i) those benefits that may be elected under Section 193 of the NY Labor Law, and (ii) those benefits that may be provided under plans regulated under ERISA. This article discusses these categories in detail and also suggests other benefits that may be allowable under the Act and whether they can be provided on a non-taxable basis to home care workers.

DISCUSSION

Under the Wage Parity Act, “total compensation” is defined as “direct compensation paid to or on behalf of the employee including but not limited to wages, health, education or pension benefits, supplements in lieu of benefits and compensated time.”[ii] An initial FAQ said that employers may take credit for “health, education or pension” benefits “without regard to whether such benefits are provided directly by the employer or through a plan or program,” as well as “other employee benefits that an employer may provide through a plan or program”. An FAQ a month later explained that “qualifying benefits are those which primarily benefit the employee” (as distinguished from those that are primarily for the employer’s benefit). An FAQ two years later added that the Act’s definition of “total compensation” did not exclude other benefits that employers may choose to provide through employee benefit plans regulated under the Employee Retirement Income Security Act. Nor, said the FAQ, did it exclude other benefits that employees may choose to obtain through wage deductions permitted under New York State Labor Law §193. From a literal reading of “included but not limited to” in the definition of “total compensation” and the FAQs use of the phrase “does not exclude”,   it is arguable that in addition to those listed benefits, other benefits are allowable under the Act, as long as they “primarily benefit the employee.”

Benefits through “Plans Regulated Under ERISA”

Under ERISA, the term “employee benefit plan” includes “pension benefit plans” and “welfare benefit plans.” A “pension benefit plan”, or “pension plan”, is defined as:

a program established or maintained by an employer (or an employee organization, or both) to the extent that, by its express terms or as a result of surrounding circumstances, it (i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of their covered employment or beyond, regardless of the method of calculating contributions to or benefits under the plan, or the method of distributing benefits from the plan[iii]

An “employee welfare benefit plan” or “welfare plan” includes plans providing:

“(A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 302(c) of the Labor Management Relations Act, 1947 (other than pensions on retirement or death, and insurance to provide such pensions).

Under this definition, only plans that provide benefits described in section 3(1)(A) of the Act or in section 302(c) of the Labor-Management Relations Act, 1947 (hereinafter “the LMRA”) (other than pensions on retirement or death) constitute welfare plans.

*         *         *

. . . [Under Section 302(c) of the LMRA] only paragraph (6) describes benefits not described in section 3(1)(A) of the Act. The benefits described in section 302(c)(6) of the LMRA but not in section 3(1)(A) of the Act are “* * * holiday, severance or similar benefits.” Thus, the effect of section 3(1)(B) of the Act is to include within the definition of “welfare plan” those plans which provide holiday and severance benefits, and benefits which are similar (for example, benefits which are in substance severance benefits, although not so characterized). “[iv]

Distilling this definition down to a simple list, “welfare benefits under ERISA” includes: (i) health benefits (in all forms), (ii) disability benefits, (iii) death benefits (including life insurance), (iv) unemployment, (iv) vacation benefits, (v) apprenticeship and training programs, (vi) holiday benefits, (vii) severance benefits, and (viii) benefits that qualify as “similar” to holiday or severance benefits.

Benefits Employees “May Choose to Obtain” Under NYLL Section 193

Section 193 of the New York Labor Law exists to limit the types of deductions employers can take from employee wages. Other than deductions made in accordance with law (e.g., tax withholding), the only authorized deductions are specified in a list that groups categories of like items. For purposes of the Wage Parity Act, the benefits most likely to be chosen by home care employees for wage deduction are:

(i)     insurance premiums
(ii)     prepaid legal plans
(iii)     pension benefits
(iv)     health and welfare benefits (see “ERISA benefits”, below)
(v)     U.S. bonds
(vi)     discounted parking or transit fare media
(vii)     gym/health club membership
(viii)     day care expenses
(ix)     tuition, room, board and fees for (A) pre-school, (B) nursery, (C) primary,   (D) secondary, or (E) post-secondary education items.

Though there is a catchall item for “similar types of benefits,” the NYS Department of Labor has not given any guidance on what this includes.

Because all the items on the list are, by definition, for the primary benefit of the employee, they would all be allowable under the Wage Parity Act. But there are two caveats to consider.

First, an employer cannot provide the benefit to employees in addition to cash wages. The employee must elect the benefit instead of cash wages. This could be desirable to an employee if a benefit, like a gym membership, could be received at a corporate discount rate. Otherwise, the employee would likely want the cash wages.

Second, the benefit could also be attractive to the employee instead of cash wages, if its value were non-taxable to the employee. If the employee would be buying the benefit anyway, like a Metrocard, the employee saves money by not paying with after tax dollars. It can also make a benefit, like childcare assistance, more affordable. Most of the benefits on the list above can be made non-taxable to the employee if provided in the proper manner. In most instances, this will require creation of an Internal Revenue Code plan for the benefit. This has some administrative and operational cost to the employer, but usually not enough to offset the tax benefit to the employee as well as the advantage to the employer who is making this benefit available tax-free and may even be saving employment taxes.

For example, an employer may provide commuting tickets (i.e., transit passes) or parking (or under certain circumstances reimburse employees’ own purchases) on a nontaxable basis, subject to monthly limitations and subject to certain rules prescribed by the Internal Revenue Code. So long as the rules and the limitations are followed, the amounts provided to employees would be both (i) nontaxable, and (ii) fully includible as “supplemental wages,” i.e., benefits, for purposes of the Wage Parity Act.

A significant amount of overlap exists among the Section 193 items and welfare plan benefits. For example, “insurance premiums” will most often be paid in connection with a “welfare benefit”, prepaid legal plans are welfare benefits, day care expenses may be welfare benefits depending upon the details, a health club membership may be part of a health plan, etc.

Other Benefits

From a literal reading of the Wage Parity Act and the FAQs, it also appears that benefits other than those provided by plans regulated under ERISA or those listed in NYLL Section 193 may be allowable as “supplemental wages” under the Act. The only requirement is that the benefit must primarily benefit the employee, not the employer. Yet this requirement creates a conflict with income tax law principles, if the employer also wants the benefit to be non-taxable to the employee. A benefit that is primarily for the benefit for the employee will usually be taxable to the employee.

For example, where an item such as reimbursement for cell phone charges is offered, it is taxable compensation subject to income tax withholding and FICA taxes (both employer and employee), and is includible in the employee’s gross wages. The reimbursement is not tax-free to the employee because it is not covered by any fringe benefit exclusion under the Internal Revenue Code that so provides; and absent such an exclusion, the fringe benefit is taxable to the employee who performs the services for which the employee is paid, in cash or in kind.[v] (There are circumstances under which an employer-provided cell phone – but not cash reimbursement of cellphone plan expenses – can be tax-free to an employee when a phone is provided to the employee for “substantial non-compensatory business reasons.”[vi]) IRS auditors will also allow tax-free reimbursement of business-related cell phone expenses where the employer, again for “substantial non-compensatory business reasons”, requires the employee to use her own phone for business purposes, provided that the reimbursement is not paid as wages, or in place of wages or as a substitute for additional wages. However, such a reimbursement would not be “primarily for the benefit of the employee”, but for the employer. Also, it could not be said that the reimbursement of cellphone plan expenses was a non-wage payment, when the employer is simultaneously seeking to take credit for the reimbursement as constituting “supplemental wages”. Therefore, reimbursement for cell phone charges for a home care worker cannot qualify both as “supplemental wages” under the Wage Parity Act, and as a tax-free benefit. With reimbursement of cell phone plan expenses, therefore, the employer could just as well give the additional amount as cash wages with no restrictions on how it could be used. Thus, a taxable benefit is obviously more expensive to both the employee and the employer, since the employee is liable for income tax on the value of the benefit, and both employer and employee are liable for employment taxes.

The only way in which a taxable benefit is preferable to additional cash wages is if the benefit could be provided at a discounted value compared to its standard price (the price at which the employee could purchase the item herself). For example, if the employer were to arrange for discounted cellphone plans for its employees, that could be better than cash in the same amount. However, this will not always have the desired effect. When a fringe benefit is taxable, it is the fair market value of the benefit (reduced by whatever the employee pays for the benefit) that is considered income to the employee – the amount actually paid by the employer to purchase the benefit is irrelevant.[vii]

Four Steps to Offering Allowable Benefits to Your Employees

  1.  Identify and quantify (i.e., value) all benefits you believe your employees would want and that would help you to retain them and recruit new employees who may join you because of the desirable benefits you offer.
  2.  Determine which of those benefits may or may not be primarily for the benefit of the employee.
  3.  Determine which benefits may be delivered under a plan so they would be non-taxable to the employee.
  4.  Develop the required plan under the Internal Revenue Code to provide the benefit on a non-taxable basis to the employee and keep your administrative and operational cost for the plan as low as possible.

[i] N.Y. Public Health Law section 3614-c(1)(b)
[ii] Id.
[iii] ERISA section 3(2) [29 USC 1002(2)]
[iv] U.S. Labor Dept. Reg. 2510.3-1 [29 CFR 2510.3-1]
[v] Internal Revenue Code section 61(a)(1) [26 USC 61(a)(1)]
[vi] IRS Notice 2011-72
[vii] Income Tax Reg. 1.61-21(b)(1) [26 CFR 1.61-21(b)(1)]