According to research by the AARP, about 90 percent of our rapidly-growing senior population would like to stay in their own home as they age. Furthermore, 82 percent maintain their desire to age at home – even if they require day-to-day assistance with activities of daily living. With a rapidly increasing senior population, demand for quality in-home care is beginning to skyrocket.
For the past 40 years, in-home care has been delivered predominantly by home care agencies who employ caregivers and dispatch them to homes. However, recent regulations are changing the cost structure for home care agencies, especially for certain types of cases like Alzheimer’s disease and other conditions involving cognitive decline.
These types of cases call for care continuity – one or two caregivers who work with the patient every day and fully understand the complex and unique needs of the patient. Importantly, this also serves to calm the patient as a revolving door of new faces can be very upsetting to those with cognitive decline.
These types of cases invariably have high hours (more than 40 in a week), which, under the new regulations, now triggers overtime requirements for home care agencies. In most states, first-party employers (families), are exempt from overtime requirements if the caregiver is a live-in employee or qualifies as a companion. This allows them to get the care continuity they need without the additional cost. Given that most memory disorder cases progress toward around-the-clock care, this overtime exemption can reduce the cost by as much as 50%, or tens of thousands of dollars per year. This radical cost disparity is creating a gravitational pull toward private employment.
What Exactly Has Changed?
At the end of 2015, the Department of Labor (DOL) repealed two Wage & Hour Law exemptions that had been in place since 1974 – the Companion Care exemption and the Live-In exemption. The repeals impacted only third-party employers of direct care workers (i.e. staffing agencies), no longer allowing them to pay workers less than minimum wage and forcing them to adhere to overtime standards.
As a result, many home care agencies now handle high-hour cases differently. They either get the family to accept a rotation of many different caregivers or pay for the associated overtime with a major increase in their hourly rate.
The Private Employment Solution
Private employers are still exempt under federal law and most state law. These exemptions make private (direct) employment a much more affordable alternative to the traditional home care agency model – especially for cases that are chronic, high hour and require care continuity.
Even after adding in payroll taxes, insurance and all other employer-related expenses, the savings can be staggering.
A Simple Budget Scenario
A family needs care for a loved one suffering from dementia. Family members are able to provide care on the weekends, but during the work week, they need around-the-clock caregivers. The local home care agency had recently increased their hourly rate to $25 per hour, which meant they would need to budget for $2,000 per week ($25/hr X 16 hrs/day X 5 days/wk).
Note: This takes into account the federal sleep time exemption where employers may deduct up to 8 hours of sleep time if an employee works a shift of 24 hours or more.
With this information in hand, the family decided to compare the cost to employing privately and found several caregivers with similar qualifications that would work for around $12 per hour. Because the caregiver was required to be on-site for 120 hours per week, this qualified as a live-in employment situation in the eyes of the law, meaning the family would not be responsible for overtime – on top of the savings they’d receive from taking the sleep time exemption.
The all-in hourly cost for private employment (taxes, insurance and payroll service) ended up being $13.45. As you can see in the illustration below, this saved the family more than $48,000 - nearly half the cost of going through their local staffing agency.
|Agency Costs||$25 per hour x 80 hours x 52 weeks||$104,000
|Private Employment||$13.45 per hour x 80 hours x 52 weeks||$55,952
|Savings Per Year||$48,048|
It’s important to note that cost is not the only factor to consider when deciding on a care solution. Home care agencies charge more because they manage several important aspects of the hiring process as well as the employer responsibilities. Some families will want to retain an agency for all those tasks, while others will opt for the consistency and savings of a private caregiver. For those who opt for private employment, here’s what they need to know.
Household Employment Basics
Hiring a senior caregiver privately means the worker is now a household employee. And just like any other employment situation, payroll, tax and labor laws must be followed. There are three primary wage reporting responsibilities families have for their caregiver:
1) Withhold payroll taxes from the caregiver each pay period. Normally, this includes Social Security & Medicare (FICA) taxes, as well as federal and state income taxes. Some states are different and you can consult this state-by-state guide for more information.
2) Remit household employment taxes. These generally consist of FICA taxes as well as federal and state unemployment insurance taxes. Again, some states have additional taxes, so it’s important to consult the state-by-state guide beforehand.
3) File federal and state employment tax returns. These are due throughout the year – rather than just at tax time – and go to the IRS and state tax agencies.
In addition, there are a number of employment law matters that need to be handled at the time of hire. Depending on the state, a family may be responsible for providing things like a written employment agreement/contract, detailed pay stubs, paid time off/paid sick leave, workers’ comp insurance, etc.
The good news is there are household employment specialists, like HomePay, that take full accountability for all of the employer responsibilities so families are free of paperwork and risk – enabling them to focus on caring for their loved one.
There is no one size fits all solution to caring for our older adult population. Home care agencies, assisted living facilities, independent living facilities and skilled nursing facilities all have a role to play. And, now with the recent regulatory changes, so does privately-employed in-home care – especially for those patients suffering from cognitive conditions who need many hours of consistent care.
When this type of case arises in your practice, please feel free to contact us for a free budget consultation so you can present your client with all their care options.
- By Tom Breedlove, Director of Care.com HomePay
Tom brings more than 30 years of business experience, including more than a decade as Director at Breedlove & Associates – now known as Care.com HomePay – the nation's leading household employment specialist. Co-author of The Household Employer’s Financial, Legal & HR Guide, Tom has led the firm’s education and outreach efforts on this complex topic. His work has helped HomePay become the featured expert on dozens of TV and radio shows as well as countless business, consumer and trade publications.
“Publication 926 (2017), Household Employer's Tax Guide,” 2017, IRS.
“Fact Sheet: Application of the Fair Labor Standards Act to Domestic Service, Final Rule,” Sept. 2013, Department of Labor, Wage & Hour Division.
“The United States of Aging Survey” 2012, AARP.
“The United States of Aging Survey” May, 2016, Bureau of Labor Statistics.
“Cost of Care Survey 2016” 2016, Genworth.