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February 1, 2016

Increased Wage And Overtime Requirements For Direct Care Providers May Be Harming Workers, Instead Of Protecting Them

A new rule from the United States Department of Labor that extends federal minimum wage requirements and overtime coverage to direct care providers, which went into effect January 1, 2015, may be indirectly harming employees, as opposed to protecting them.  Multiple news reports are citing that the change has already been harmful to the industry as a whole, causing widespread layoffs and reduction in hours.  Many home health care providers are reporting that in order to defray the increased cost on their businesses imposed by the rule, they are rescheduling employees to avoid paying overtime and travel time, as well as laying off employees altogether.  The rule appears to have the most significant impact on those companies who provide live-in care, with some of those companies even eliminating 24/7 services that they have been providing for years.

While the rule (which only applies to workers employed by third parties such as agencies) is certainly well-intentioned to protect workers and bring the industry current to federal wage requirements, the rule also makes it inherently difficult for employers who are unable to pass on the increased costs to their clients.  Some health care associations/providers have even gone as far as to cut positions and hours to avoid paying overtime, thereby undercutting the very purpose of the rule.  Home Care Pulse, a company that does research for the home care industry and helps them measure client satisfaction, conducted a survey of 444 home care providers in late 2015 prior to the rule going into effect. Nearly 68% of those who responded to the survey said they had cut caregiver hours to avoid overtime, 55% reported that they were rescheduling cases to avoid paying overtime, and more than 50% said they were raising fees to cover the additional costs.

New York providers will need to couple this new federal requirement with the possibility of the minimum wage increase to $15 per hour proposed by Governor Cuomo, which will create an additional level of uncertainty for New York providers.  Preliminary estimates are that the wage increase, if it goes into effect, could cost the industry at least $2.9 billion annually.  More specifically, according to Crain’s New York Business, “the projected costs to home care agencies alone would reach $1.7 billion annually.  For hospitals, the proposal would cost $570 million, and $600 million for nursing homes.”   The effect will especially be felt for non-profit entities, who usually rely on Medicaid and other federal sources to cover the reimbursement gap as it is still uncertain whether the state will cover the increased pay gap that would be created for many providers.

Without state funding to close the gap, the consequence for New York providers who already operate with very narrow margins could be even more cuts in positions and hours for their employees, as well as increased costs to the provision of services to their clients some of who are chronically ill patients.  In an already stressed industry due to governmental regulation and workers compensation requirements, these championed pro-employee measures may actually be the cause of employees losing income, as opposed to gaining additional income.  Thus, at this early stage of proposal, providers should contact their legislators and encourage them to seek funding sources from the State to cover the increase of costs for the health care industry.  Providers are also encouraged to carefully review their budgets and expenses to prepare for further increased employee costs.  Finally, human resource departments should also brace for increased employee complaints, if terminations are determined to be a measure to defray these increased costs.


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