Regulatory Changes Driving Consumer Directed Care for In-Home Senior Care
Private employment can be a more cost-effective solution for families than using a traditional agency
In-home senior care is one of the fastest-growing segments of the care industry. The high cost of facility-based care, coupled with the almost universal desire to age at home, makes in-home care an increasingly popular option for families.
Additionally, recent legislative forces, such as the Department of Labor's repeal of the Companion Care Exemption for third-party employers (i.e. home care agencies), have driven up agency costs and, therefore, hourly rates for clients. This is especially true for high-hour cases that require continuity of care due to cognitive impairment (i.e. Alzheimers disease/Dementia).
While hourly rates for agency-employed caregivers have risen significantly for these high-hour cases, families in most states are able to take advantage of one of the overtime exemptions (the federal exemption for live-in employees or the Companion Care Exemption for first-party employers).
Using one of the overtime exemptions can save tens of thousands of dollars each year. In the graph below, you can see that, as hours rise, the cost differential between agency-directed care and consumer-directed care grows dramatically.
* Costs are determined by national averages and research via Genworth and the US Census Bureau. Private employment figures include caregiver wages ($11.35/hr), payroll taxes, hiring a payroll & tax service, and workers compensation insurance. Agency costs include agency rate ($20/hr), overtime, insurances and business overhead.
If you are looking for a more affordable option for in-home care, you should consider a consumer direct personal care approach. If you decide to privately hire your own caregiver(s), here are some of the household employment issues that will likely come into play.
Employee vs. independent contractor
There is a common misconception that senior caregivers privately employed in the home can be treated as independent contractors so that payroll taxes can be avoided. However, the IRS has ruled that these workers should be classified as employees because the family has the right to control how, what, when or by whom the work should be performed. It doesnt matter how many hours they work, how much they are paid or what they are called in a work agreement. Misclassifying a household employee as an independent contractor is considered tax evasion in the eyes of the IRS and can create significant penalties and problems for your clients.
Families that employ a caregiver and pay him/her legally can take advantage of tax breaks that can largely offset their employer payroll taxes. For many, the tax savings can significantly offset their employer costs. The tax breaks available to most families with caregiving needs are:
- Dependent Care Account (a type of Flexible Spending Account specifically for dependent care needs)
- Dependent Care Tax Credit (IRS Form 2441)
- Medical Flexible Spending Account (used only for medical care)
- Medical Care Tax Deduction (itemized deduction for qualifying medical expenses)
As with most tax breaks and rules, there are a few notes and exceptions:
- To capitalize on either of the dependent care tax breaks, families must pass the work-related test, meaning both spouses must be employed or full-time students and the person receiving care must pass the qualifying persons test (generally a dependent).
- To qualify for either of the medical tax breaks, the care must be prescribed by a licensed healthcare professional. (The care does not have to be performed by a nurse or healthcare professional).
- The same expenses cannot be applied to more than one tax break.
Other ways to save money
As families budget for their care needs, its important to know if certain benefits will kick in to help pay for the cost of hiring a caregiver. Many seniors can qualify for assistance through Long Term Care Insurance plans or Veterans Administration (VA) programs.
The VA can provide pension benefits that can allocate funds to be used for home care services for a veteran and/or their spouse. Similarly, if a long-term care insurance policy is in place, benefits can be paid out by the insurance company to help offset the costs associated with private care. Talk to your clients and see if they are eligible for any of these benefits as they can have a major impact on the cost of care.
Wage and hour law
Senior caregivers are classified as non-exempt workers under the Fair Labor Standards Act as well as many state Domestic Worker protection laws. As such, families need to be aware of, and comply with, the following labor laws:
- Employees must be paid at least the federal minimum wage of $7.25 per hour for each hour in the standard workweek. Many states (and some municipalities) have a minimum wage that is higher than the federal minimum wage. In these areas, employees must be paid at the highest rate.
- Except for the Live-in and Companion Care Exemptions noted previously, domestic employees generally must be paid overtime for each hour over 40 in a seven-day workweek. Please note that some states have special overtime provisions that override these overtime exemptions. Additionally, the Department of Labor has created a fairly narrow definition of companion an individual whose primary purpose of employment is to provide fellowship and protection. That means no more than 20% of their time can be spent on work activities such as dressing, meal prep, cleaning, etc. The rest of the time is spent on fellowship activities, such as watching TV, playing games, taking walks, etc. and ensuring the safety and well-being of the patient. If this definition of companion is not met, the caregiver is entitled to overtime pay.
- Household employers are generally not required to provide benefits such as paid sick days, holidays or vacation days (although a growing number of states and municipalities have special requirements for paid sick leave and paid time off).
- In many states, household employers are required to carry a workers compensation insurance policy. Workers comp pays for lost wages and medical expenses if the employee has a work-related injury or illness. Although not required in all states, families need to understand that whether required or not employers can be held liable for the benefits that would have been awarded in a workers comp claim. This can create tremendous financial exposure, so we recommend that all families employing a caregiver consider workers comp insurance.
Understandably, families may feel overwhelmed by all the household employer obligations. Its a lot to manage which is why, if left to their own devices, most families will make mistakes and oversights that expose them to audits and wage disputes. Stewardship and guidance from an expert - hopefully at the time of hire before mistakes have happened - will likely save families a significant amount of money and frustration.
This need for guidance is true for all types of domestic workers. And now it is particularly important in senior care, where regulations have made consumer directed care cost-advantageous vs. the traditional home care agency model and may save families tens of thousands of dollars each year. Contact HomePay for guidance on your specific situation. There are many state-specific tax and labor law nuances that we'll be happy to go over so you'll feel comfortable hiring someone to work in you or your loved one's home.
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