Department of Labor Updates

Final Rule Issued to Clarify Independent Contractor Status Under Fair Labor Standards Act
The U.S. Department of Labor announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA), which will streamline and clarify the test to identify independent contractors to reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility. The Final Rule includes the following clarifications: 

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• Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee). 
• Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.
• Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are: 
  • The amount of skill required for the work.
  • The degree of permanence of the working relationship between the worker and the potential employer.
  • Whether the work is part of an integrated unit of production.
• The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible. 

The rule will take effect 60 days after publication on the Federal Register, on March 8, 2021.  

DOL Issues Opinion Letter on Live-In Shift Rates
The U.S. Department of Labor (DOL) issued an opinion letter related to the "shift rate," inclusive of the pre-payment of overtime, some agencies pay their caregivers who work live-in and extended shifts of 24 hours or more. Littler requested this opinion on behalf of a group of providers because some caregivers and clients have an expectation that live-in and extended shifts should be paid a consistent amount per shift, if a caregiver works the same number of hours. They frequently discuss compensation for such shifts on a "per-shift" basis, and some agencies have found they need to quote pay rates in this way to encourage caregivers to take certain assignments. 

This opinion letter is helpful for those agencies. And given the ongoing pandemic, the demand for such arrangements will likely only increase making it more likely that other agencies can take advantage of this opinion letter.

The complication is with the way caregivers view their pay; it isn’t consistent with the federal Fair Labor Standards Act (FLSA). Under the FLSA, nonexempt employees (such as caregivers employed by home care agencies) must be paid at least the minimum wage for all hours worked and an overtime rate of at least 1.5 times their regular rate for hours worked over 40 in a workweek (we are putting aside more restrictive state laws, such as those in California and Colorado). So the amount a caregiver technically earns in the first few days of working a live-in shift is actually much less than she earns in the last few days of a workweek, as the first few shifts will be paid almost exclusively at the regular rate, and the last few shifts will be paid almost exclusively at the overtime rate. (Suppose a live-in caregiver is expected to work 16-hour shifts over a five day workweek and be paid $10/hour. The first two and a half days will be paid at $10 per hour (2.5 X 16 = 40) and the second half of the third day, and the fourth and fifth days will be paid at $15 per hour (the overtime rate). Overall, she earns $1,000 for the workweek - $400 (40 X $10) in straight time and $600 (40 X $15) in overtime.)

If an agency simply tells a caregiver she will earn $200 per shift ($1,000 divided by 5 days) without explaining this is a blend of regular and overtime rates, the caregiver may misunderstand her effective hourly rate to be $12.50 ($200 divided by 16 hours). If the caregiver talks with a lawyer and explains how she understands the situation, the attorney may file a lawsuit on her behalf (and on behalf of all the other employees of the agency) claiming that she and the others were never paid overtime. The claim suggests they deserve $6.25 in additional pay (that would be the overtime premium due on $12.50 regular rate) for every hour worked over 40 hours in a workweek. If the caregiver succeeded in such a lawsuit, she could recover $250 per workweek she worked a regular schedule of five 16-hour shifts. If the agency had multiple employees in such a situation, that could become a big number quickly! (This is a good reason to have an arbitration program with a class action waiver.)

For years, we have discouraged quoting pay in these terms for just this reason. However, we understand the practical pressures you face and therefore have structured our template live-in and extended shift agreements to explain exactly how the caregiver is actually paid. This opinion letter now buttresses that explanation, verifying this approach follows the DOL’s understanding of the FLSA.

To take advantage of this opinion letter, an agency MUST properly explain its pay method in a written agreement with the caregiver. As you can see, this can get confusing. And if the arrangement isn’t written down and explained, it will be difficult for the agency to explain to a court that the caregiver was mistaken in her belief. 
Another complicated area, which must be addressed in the agreement, is happens when a caregiver works more or less than the number of hours the parties expect she will work. The opinion letter speaks to the situation where she works more; she should be paid at her overtime rate. But, it is silent on what happens when she works less. In the letter requesting the opinion, Littler provided an example (based on much the same scenario as in this alert) where the employee would be paid the same rate if she worked two of the five shifts in a week. Thus, in our example, she would be paid $400 for working two shifts. This is technically an overpayment, given that the employee actually worked only 32 hours and therefore technically would have earned $320 for those shifts. But, this is the tradeoff for this arrangement and the DOL did not flag the overpayment as an issue. 

The final important point to note from the opinion letter is the need to maintain accurate records. As an employer, the agency must track actual hours worked each week. In a lawsuit, it is the agency’s word against the caregiver. And if the agency cannot produce records to substantiate its position, the caregiver’s recollection of how much she worked will control. It is important that an agency not just track the start and end of each workday, but also track any other periods when a caregiver isn’t supposed to be on-the-clock. Similarly, the agency needs a method to track any interruptions when the employee is not supposed to be working, but is called to work (such as the client’s middle of the night trip to the restroom that the caregiver must assist with).

For more information, contact Angelo Spinola, Littler Shareholder, at ASpinola@littler.com.