In June 2007, the United States Supreme Court ruled that the US Department of Labor’s (DOL) regulation exempting employers of home care companions from both the minimum wage and the overtime (OT) requirements of the federal Fair Labor Standards Act (FLSA) is a permissible interpretation of the FLSA.

This decision, however, will have little impact on employers of home care companions in New Jersey and New York because the wage-hour laws in those two states are more stringent and require that home care companions be paid at least the minimum wage and OT. (As will be explained below, there is a slight twist under New York law regarding OT.)

In Connecticut, the Connecticut Department of Labor follows the federal rules when it comes to the minimum wage and overtime requirements applicable to domestic service employment.

As a general rule, in the area of wage-hour law, when federal and state laws differ, the law that is most employee-friendly applies.

This article outlines the applicable wage-hour rules relating to the payment of the minimum wage and OT to home care companions under federal, Connecticut, New Jersey, and New York laws. It reflects the state of the law as of July 2007.

Federal Law

Section 13(a)(15) of the FLSA exempts from the statute’s minimum wage and maximum hours rules any employee employed on a casual basis in domestic service employment to provide babysitting services or any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and de-limited by regulations of the Secretary [of Labor]).

The DOL regulations state that the term domestic service employment refers to services of a household nature performed by an employee in or about a private home (permanent or temporary) of the person by whom he or she is employed. The term includes employees such as cooks, waiters, butlers, valets, maids, housekeepers, governesses, nurses, janitors, laundresses, caretakers, handymen, gardeners, footmen, grooms, and chauffeurs of automobiles for family use. It also includes babysitters employed on other than a casual basis. This listing is illustrative and not exhaustive.

The DOL further defines the term “companionship services” for the aged or infirm to mean those services which provide fellowship, care, and protection for a person who, because of advanced age or physical or mental infirmity, cannot care for his or her own needs. Such services may include household work related to the care of the aged or infirm person such as meal preparation, bed making, washing of clothes, and other similar services. They may also include the performance of general household work: Provided, however, That such work is incidental, i.e., does not exceed 20 percent of the total weekly hours worked.

The term ``companionship services'' does not include services relating to the care and protection of the aged or infirm which require and are performed by trained personnel, such as a registered or practical nurse. While such trained personnel do not qualify as companions
[under FLSA §13(a)(15)], this fact does not remove them from the category of covered domestic service employees when employed in or about a private household [who might otherwise be exempt from OT pay, but not minimum wage requirements, under FLSA §13(b)(21) (live-in domestic services employees)]

The DOL has interpreted FLSA §13(a)(15) to extend to companionship workers including those “who are employed by an employer or agency other than the family or household using their services”. It is this interpretation that the Supreme Court upheld in the Long Island Care case.

The DOL has extensive regulations dealing with domestic service employment, including provisions defining and limiting the terms “babysitting services” and “companionship services”.

As hinted at above, there is a second FLSA exemption, relating just to OT, for live-in domestic services employees. See FLSA §13(b)(21) and DOL regulations there under.

Connecticut Law

There is no law or regulation in Connecticut that expressly exempts workers in domestic service employment from entitlement to receive at least the minimum wage and OT. Nonetheless, the Connecticut Department of Labor follows the federal minimum wage and overtime exemptions for such workers, based on its reading of the definition of “employee” in the Connecticut wage-hour law.

New Jersey Law

New Jersey does NOT have a home care companion exemption from an employer’s obligation to pay the minimum wage and OT. Thus, such workers are entitled to at least the minimum wage and 1 ½ times the employees’ regular hourly wage for OT hours in New Jersey.

New York Law

In the case of home care companions, New York follows the FLSA overtime exemptions, but with a twist. In New York, OT hours must be paid at no less than 1 ½ times the NY state minimum wage. The OT hours don’t have to be paid at the usual 1 ½ times the employee’s regular hourly wage if that rate is higher than the minimum wage.

Home care companions are NOT exempt from New York’s minimum wage requirements.

There are many ways that even an amicable parting between you and your nanny could result in you facing an investigation or audit. Just a few of the ways you could get caught include:

• Unemployment: You terminate your nanny's employment. She's now out of work and files for unemployment benefits. When asked about her last place of employment, she names you. There are no records of you paying employment taxes and YOU GET CAUGHT.
• Workers Compensation: Your nanny gets hurt while working in your home. Now she can't work but still needs to pay her bills, so she files for workers compensation. Because you hired your nanny illegally, you didn't/couldn't get workers compensation insurance, she reports you in order to obtain benefits, and YOU GET CAUGHT.
• Social Security: Your nanny is older and wants to retire. Upon retiring, she claims social security benefits. Her benefits are lower than she expected, and she realizes that for the time you employed her illegally, she wasn't contributing to social security. To obtain more benefits, she reports her employment with you to the Social Security Administration, and YOU GET CAUGHT.
• Taxes: You think you're smart and describe your nanny as an independent contractor responsible for her own taxes. Then your nanny's tax bill comes due and she realizes that she's responsible for both the employer's and employee's share of social security and medicare, resulting in a much larger tax bill than she expected. She complains to the IRS about the unfairness of it all and YOU GET CAUGHT.

Because you must report household employment taxes on your personal federal tax return, failure to pay the appropriate taxes constitutes federal tax fraud. Those three little words subject you to the following consequences:

• Payment of all back taxes, penalties and interest.
• Federal charges of fraud and tax evasion.
• Civil and criminal penalties, including fines, potential imprisonment, and a criminal record.
• Oh, and by the way, if you advise your nanny not to pay her own taxes, that results in additional charges of fraud and conspiracy, with penalties of up to three to five years, respectively, as well as fines of up to $250,000.
  
  Remember: There is no statute of limitations for failure to report and pay federal employment taxes.

In addition to these penalties, you undoubtedly will pay significantly more in professional fees to lawyers and accountants defending yourself in an audit or criminal prosecution than you ever would have spent paying your nanny legally.

Contact us for a free consultation today.