DOL Releases Guidance on Third Party Joint Employment in Consumer-Directed Medicaid Programs
The US Department of Labor (DOL) has created a new Administrator’s Interpretation (AI) and an updated fact sheet to help potential joint employers determine their obligations under the Fair Labor Standards Act (FLSA). The documents were created in response to questions from stakeholders regarding how the Final Rule on the Companionship Exemption may impact consumer-directed, Medicaid-funded programs. DOL points out that private agencies, non-profit organizations, or public entities may be third party joint employers direct support workers under the FLSA, and although the Final Rule did not change any of the Department’s guidance about joint employment, it may create new minimum wage and overtime obligations for provider or state agencies which “will require every potential employer to evaluate whether it may be a joint employer under the FLSA.” The fact sheet summarizes general longstanding joint employment principles established by case law, discusses how joint employment may arise in the home care context, and provides nine hypotheticals analyzing how these existing principles would apply in common home care scenarios, including both private-pay examples as well as Medicaid-funded consumer-directed programs.
The Final Rule on the Companionship Exemption modified the “third party employment” regulation to prohibit third party employers of domestic service employees from claiming the companionship services exemption from minimum wage and overtime or the live-in domestic service employee exemption from overtime. DOL emphasizes that “this regulatory change will require each public entity or private agency that administers or participates in a consumer-directed, Medicaid-funded home care program to evaluate whether it may be a joint employer under the Fair Labor Standards Act (FLSA).”
The Fact Sheet reiterates that “joint employment is determined by applying the “economic realities” test, which examines a number of factors to determine whether a worker is economically dependent on a purported employer, thus creating an employment relationship.” DOL lists the factors that are considered under the test:
- whether a possible employer has the power to direct, control, or supervise the worker(s) or the work performed;
- whether a possible employer has the power to hire or fire, modify the employment conditions or determine the pay rates or the methods of wage payment for the worker(s);
- the degree of permanency and duration of the relationship;
- where the work is performed and whether the tasks performed require special skills;
- whether the work performed is an integral part of the overall business operation;
- whether a possible employer undertakes responsibilities in relation to the worker(s) which are commonly performed by employers;
- whose equipment is used; and
- who performs payroll and similar functions.
DOL emphasizes that “a determination of whether joint employment exists must be based upon all the facts of the particular case” and that “no one factor is controlling.” The ultimate question, DOL explains, is one of economic dependence.
DOL asserts that “many home care providers are jointly employed by two or more entities,” which may include a consumer, a private home care agency, a non-profit organization, or a public entity. The Department particularly points out that “a public entity and a consumer may jointly employ a provider through a Medicaid-funded consumer-directed program.” Other third parties, such a s a provider agency or a Managed Care Organization (MCO), may also be joint employers in consumer-directed programs.
The Administrator’s Interpretation describes in detail many common aspects of consumer-directed programs, such as which entity retains the right to hire and fire, which entity controls the wage, schedule and other conditions of employment, and which entity performs payroll and other administrative functions, and provides guidance as to whether these various aspects are “strong,” “moderate,” or “weak” indicators of employer status.
Power to Hire and Fire The ability to hire and fire is generally considered a strong indicator of employer status. DOL indicates that this consideration extends to setting provider qualifications, clarifying that “the setting of very basic qualifications in order to assure consumer safety, such as requiring a criminal background check and First Aid or CPR certification, should be considered a weak indicator of employer status,” akin to licensing requirements common at the state and local level, which does not suggest the existence of an employment relationship. However, “more extensive provider qualifications, such as fulfilling comprehensive, state-administered training requirements (beyond training required for relevant licenses), should be considered a strong indicator of employer status.”
Further, if a public entity “permits the consumer to recruit, interview, and hire any provider who meets basic qualifications (or maintains an open registry to which the consumer can refer his or her preferred provider for inclusion), that fact will not weigh in favor of employer status of the public entity,” but if a public entity “permits a consumer to only hire from [a] closed registry,” that fact will be a moderate-strength indicator of employer status of the public entity. If the public entity must co-interview or approve a provider based on criteria beyond basic qualifications, those facts, DOL says, should be considered strong indicators that the public entity is a joint employer. If a public entity may exclude providers only in situations dictated in federal Medicaid requirements, that fact should be considered a weak indicator of employer status. If, however, a public entity reserves the right to remove a worker at any time from the household, or can fire a worker for poor performance, then these facts would be strong indicators of employer status. How often the state actually exercises this authority, DOL says, “is not particularly relevant to employment analysis.”
Control over the Wage or Other Employment Benefits The Department asserts that “setting a wage rate is so fundamental to the ultimate question of economic dependence that any entity that sets a wage rate will likely be considered an employer.” However, DOL immediately follows this assertion by re-emphasizing that “the economic realities test is a multi-factorial analysis in which all factors must be considered in order to analyze the ultimate question of economic dependence.” DOL also clarifies that “reimbursement rates included in a contract for consumer-directed home care services between a state and another third party entity, such as an agency or fiscal intermediary, do not directly correlate with worker wages.” Where the agency or fiscal intermediary ultimately controls the hourly wage paid to workers, “such reimbursement rates do not, by themselves, convert a public entity to a joint employer.” However, where there is no private agency or third party other than a public entity involved in determining the actual wage rate, DOL points out, “the reimbursement rate for home care workers is essentially what the hourly wage will be” and “likely only differs from the hourly wage in that it might include the employer’s social security or unemployment tax contribution that will later be deducted from the wage.” Since state plans also require providers to accept Medicaid reimbursements as payment in full, without any supplemental payments from consumers aside from applicable deductibles, coninsurance or copayments, DOL believes “the public entity is exerting considerable, if not complete, control over the amount of money a worker can earn,” which should be considered a strong indicator that the public entity is an employer.
Medicaid programs that include a wage range or “cap” on wages or reimbursement rates in order to comply with federal Medicaid regulations, in which a consumer has “meaningful discretion to determine how much to pay home care workers within his or her individual budget” and “choice in how to spend unused funds that are available as a result of using a lower wage rate,” on the other hand, should consider this a weak indicator of employer status. DOL emphasizes that if a cap/range “essentially functions as a wage rate, and the consumer has little discretion to actually set a wage, the Department would view this type of a cap as more similar to a predetermined wage rate, and thus would view this type of cap as a strong indicator of employment status of the public entity.”
Hours and Scheduling Where a consumer retains complete control (within his or her individual budget) over scheduling, including the number of work hours, for home care workers, this factor should be considered a weak indicator of employer status for the public entity. In programs in which the public entity sets an explicit number of hours for which the consumer may receive home care services from which the consumer may not deviate, and the consumer controls the scheduling within that timeframe, this fact should be considered a moderate indicator of employer status for the public entity. If the public entity specifies certain hours or specific weekly schedules to be worked, that fact is a strong indicator that the public entity is an employer.
Supervision, Direction, or Control of Work DOL indicates that “day-to-day supervision of providers is an important factor to be considered in conducting an economic realities analysis,” but emphasizes that “economic dependence rather than simple control is the ultimate inquiry.” In programs in which the consumer has sole control over the worker, the tasks that are performed (within the limits of Medicaid-authorized services), how the tasks are performed, and when the tasks are performed, and the public entity does not supervise or direct the day-to-day work in any manner, these facts would be weak indicators that the public entity is an employer. In programs in which the public entity more explicitly identifies and delimits specific permissible tasks, and engages in quality management activities that are more similar to daily supervision, DOL suggests these factors should be viewed as moderate indicators that the public entity is an employer. DOL identifies strong indicators that the public entity is an employer as: “if the public entity mandates the list of specific permissible tasks and the time allocated for performance of each task, if the provider is required to inform both the consumer and the program contact of tardiness or absences, if the program contact intervenes or mediates issues between the consumer and providers, if the program provides for a grievance procedure for workers, if the program conducts regular performance reviews, if the program requires ongoing public-sponsored training, or if the provider must sign in and sign out directly with the public entity.”
Performs Payroll and Other Administrative Functions Here, the AI reiterates language in the Final Rule that indicates that “functions that are similar to the tasks performed by commercial payroll agents for businesses, such as maintaining records, issuing payments, addressing tax withholdings, and ensuring that workers’ compensation insurance is maintained for the worker on behalf of the consumer, are weak indicators that the entity is an employer.” This explicit language indicates that Fiscal Intermediaries performing a “pure” FI function would not be considered joint employers.
The fact sheet spells out that third party employers of home care workers are not permitted to claim either the exemption for companionship services or the exemption for live-in domestic service employees, even when they jointly employ a worker with an individual, family, or household who may claim either exemption. Thus, any third party employer of a domestic service worker is obligated to pay not less than the minimum wage for all hours worked and overtime compensation for all hours worked over 40 in a workweek, and any third party employer of a live-in domestic service worker is required to pay overtime pay for all hours worked over 40 in the workweek. In addition, the fact sheet points out that all third party employers of domestic service workers will be required to pay for time spent traveling between consumers, as well as overtime generated by working for multiple consumers. It is important to note that even in Medicaid-funded consumer-directed programs where provider agencies, fiscal intermediaries, or MCOs, rather than state agencies, are third party employers, these costs will still be incurred and will ultimately be borne by the state’s Medicaid program. Guidance is expected soon from the Centers for Medicare and Medicaid Services (CMS) on how state Medicaid programs may structurally address the need to pay for overtime accrued serving multiple individuals and for drive time between different individuals receiving services.
FMI: The guidance is available at http://www.dol.gov/whd/homecare/joint_employment.htm.