There are several very important, very specific ways. Before we get to that, let’s talk briefly about why it’s important:

1. The Department of Labor (DOL) has significantly ramped up its audits of home care agencies over the past several years.
   

   Here’s what happened: with several major legislative changes to home care in the 2010s, such as removing companion care overtime exemption and mandating that home care workers be treated as W-2 employees rather than 1099 contractors, home care become a Wild West as agencies tried to adapt to the new landscape.

   In 2021, the DOL became aware of this and announced a new Home Care Initiative aimed specifically at wage and payroll compliance within our industry. As of September 2022, 7% of all DOL audits in the last year have been within the home care industry. Many of these resulting in settlements in the hundreds of thousands of dollars or more.

   The bottom line is that litigation against home care agencies is ramping up, and it’s more important than ever to run a tight ship.

2. It’s the right thing to do.

   While no one is obligated to agree with every point of legislation regarding their business (and let’s face it, does anybody?), these laws are generally enacted to protect caregivers and their livelihoods. Failing to comply with payroll laws typically hurts the caregiver’s paycheck long before it hurts the agency.

   So, what are the main areas where agencies often fail to comply with laws and what can you do to make sure you’re operating within the law?

   Misclassifying your employees as 1099 contractors.
   

   Your employees need to be classified as W-2 employees, not 1099 independent contractors. Home care registries, as opposed to agencies, are allowed to classify their employees as 1099s. However, registries are a very different business model from agencies, and they involve sacrificing a great deal of the control that agency owners have over their business.

   It’s not unusual to hear an agency owner wonder if they’re allowed to classify employees as 1099s based on the fact that their competitor down the street is doing so.

   If your competitor is classifying their employees as 1099s, there are only two reasons: they’re either a registry, or they’re breaking the law. There are no other alternatives.

   Not including all relevant types of pay when you’re calculating their overtime pay.
   

   You’re aware that overtime is 1.5x an employee's effective pay rate—but the effective rate isn’t always the same as their hourly base pay rate.

   The effective rate is calculated as the total renumeration (legally relevant/includable pay) divided by the hours they worked. As such it can often be a little higher than the employee’s base hourly rate, resulting in a slightly higher overtime rate.

   The effective rate isn’t only an employee’s normal wage; it should also include various types of other compensation that they may or may not be receiving.

   If, for example, you’re paying a caregiver on-call pay, performance bonuses, and shift differentials, those should be added to their pay as the renumeration to determine the overtime rate for the designated time period.

   For a list of what should and shouldn’t be included in these calculations, go to the DOL website and/or consult your own legal counsel.

   For Careswitch payroll customers, you can ensure that renumeration expenses are included in overtime calculations by adding them to the Non-Discretionary Earnings field.

3. Not paying for travel time between shifts.
   

   This one gets DICEY.

   Travel time between clients during the workday is legally compensable as hours worked. Thus, if you’re requiring caregivers to drive between multiple clients in a day, you’re required to pay them for the travel time—and possibly the break between, if it’s not long enough to pursue personal activities.

   If there is a long break (typically 30 minutes or more uninterrupted) between two client visits AND the caregiver is completely free to pursue personal activities, you can exclude the break time from hours worked. Otherwise, you’re required to pay for the entire time between shifts.

   However, DOL has taken the position that you must still pay for estimated travel time driving between the two clients.

   Avoid any problems with this by making sure your caregivers know that you want to pay for all time worked. Write the travel time into their contracts – “if at any point the travel time increases, make us aware immediately and we’ll pay you for the additional time.” You need to have a reasonable process in place to ensure that caregivers can get paid for an increase in travel time if it changes.

4. Engaging in rate manipulation.
   

   Rate manipulation is essentially any changing of rates to evade paying your employees full overtime. This may include reducing hourly rates when they start working overtime, or changing rates on a weekly basis in order to pay a set target amount every week.

   Rate adjustments are permissible if it’s paying the caregiver for a different type of work (they’re working as a mentor or in the office in addition to caregiver, for example), or premiums for certain types of shifts (24-hr shifts, weekends, holidays, etc.).

   If you’re in any doubt as to whether what you’re doing is legal, contact your legal counsel. Don’t take the risk.

5. Failing to properly pay on-call shifts.
   

   This can include:

   • Not having a written agreement about compensation for live-in and 24-hour shifts. (Relying on verbal agreements is a steep uphill legal battle.)
   • Failure to track working time. You have recordkeeping obligations – records showing the same clock in/out times every day aren’t credible.
   • Lack of robust time certification. This includes the lack of an easy method to report work-related interruptions to sleep and meal time.
   • Paying for a fixed day rate. 
   • Manipulating pay rates to make the math work out to the same day rate.
   • Failure to pay for work beyond the scheduled shifts. You should know when additional work is performed, have time records, and pay the appropriate hourly or overtime rate for that work.

If you haven’t realized yet, it’s all too easy to miss the mark on compliance with payroll laws.

There are two things we strongly recommend:

1. Get your own legal counsel with state-specific knowledge to ensure that you’re staying legit.

2. Invest in a solid payroll processing software rather than trying to wing it all yourself.

Careswitch's payroll processing is the most affordable on the market. Like other payroll providers, Careswitch charges per employee. Unlike other payroll providers, we know that home care agencies often get the short end of the stick with this pricing model,  because they tend to have a high volume of part-time employees—so we prorate your cost per employee down if employees work less than 40 hours a week.

The result is a uniquely affordable payroll solution for home care agencies. Estimate your cost with us here and request a demo of Careswitch's payroll software here.

This is legal content so we gotta include our legal disclaimer: the above content was adapted in part from a presentation by Josh Vaughn of Littler, a law firm focused on labor law. Josh specializes in defending home care agencies, and Littler is among the leading firms in the space. The above content is educational in nature and in no way replaces the advice of your own legal counsel; likewise, this content doesn’t represent Littler in any way.