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Eliminating Exemption For Companion Care Workers May Have Negative Impact And Unintended Consequences

Published by on March 15, 2012

The U.S. Department of Labor recently proposed eliminating the exemption from minimum wage and overtime coverage for companion care workers and the overtime exemption for live-in domestic help.  The comment period on the proposed rules closed earlier this week and the commentary shows strong opposition to the change, in large part because the DOL’s assumptions […]

The U.S. Department of Labor recently proposed eliminating the exemption from minimum wage and overtime coverage for companion care workers and the overtime exemption for live-in domestic help.  The comment period on the proposed rules closed earlier this week and the commentary shows strong opposition to the change, in large part because the DOL’s assumptions and cost estimates underlying the proposed rulemaking are not accurate.  Even the Administration’s Small Business Administration weighed in with concerns about the proposed rules.  More after the break.

The SBA’s comments on the proposed rule change express concerns about the impact on small business.  One observation it made is that “a substantial portion of companion care services are provided by the private-pay sector.”  This apparently is contrary to one of the DOL’s assumptions — that these care costs are paid by Medicare and Medicaid.

The concerns about the potential negative impact of the rule change are also supported by a report released by the International Franchise Association on the economic impact of eliminating the exemption from minimum wage and overtime provisions for workers who provide companionship services.  The IFA study concluded that:

  • The Department of Labor’s economic impact analysis of the proposed rule changes substantially understated the extent of overtime work among companion care workers, at least among those working for franchise-operated companion care businesses. The average amount of overtime worked is three times greater than estimated in the Department of Labor analysis.

 

  • Other costs of the proposed rule change may also be understated in the Department of Labor economic impact analysis, including management costs of adding staff to avoid the cost of overtime pay (assumed zero) and the cost of travel time for employees travel between work sites.

 

  • We believe the Department of Labor’s assumption about the sensitivity of the demand for companion care services to price increases (the demand price elasticity) is based on incomplete data on the source of payment for these services and is, therefore, significantly understated.

 

  • As a result of the underestimation of costs and the price elasticity, the Department of Labor has significantly understated some of the economic impacts (transfer costs and the dead-weight loss) that will result from the proposed changes in regulations.

 

  • The impact of the proposed rule changes on employment is less clear. Businesses that responded to our survey indicate a strong intention to avoid paying higher overtime costs, which may lead to sufficient hiring of additional employees to offset job loss due to reduced demand. To the extent this occurs, the effect of the proposed Department of Labor regulations may be to create a certain number of additional (primarily low-wage) jobs, while at the same time reducing the earnings of a substantial number of workers who are already low-wage workers.

 

Some commentators see the proposed rule as an attack on seniors. 

As noted in the final bullet point in the IFA conclusions above, one unintended consequence of eliminating the exemption would be to actually reduce the wages of workers in the industry.  Given that a substantial portion of the industry is privately funded by clients (and not paid for by the government), rational employers will avoid incurring overtime expenses and will instead hire additional workers.  This will suppress the wages of current employees by limiting them to 40 hours a week.

The Department of Labor’s site on the proposed rule can be found here.  We will have to wait and see what the DOL decides to do after reviewing public comment on the proposed rulemaking.

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