In the coming years, America's aging population will undergo a significant transformation. By the end of this […]
A lot of home care agencies are cruisin’ for a bruisin’, as they say.
As a home care agency owner, ensuring payroll compliance is essential for the financial health of your business. Failure to comply with payroll laws can lead to costly litigation and damages, as the Department of Labor (DOL) has ramped up its audits of home care agencies in recent years.
In fact, as of September 2022, 7% of all DOL audits in the last year have been within the home care industry, resulting in settlements in the hundreds of thousands of dollars or more.
By taking a few specific measures, you can ensure compliance with payroll laws and protect your business from potential legal issues and grow your agency safely.
1. Proper Employee Classification
One of the most important steps in ensuring payroll compliance is to properly classify your employees. In the home care industry, employees must be classified as W-2 employees, not 1099 independent contractors.
Only home care registries are allowed to classify their employees as 1099s. However, registries are a different business model from agencies and require sacrificing a great deal of control that agency owners have over their business.
To avoid costly litigation, it is important to make sure your employees are classified properly from the outset. Many agencies may be tempted to classify their employees as 1099s based on their competitors' practices. However, this is not a valid justification, and the DOL has taken a strong stance against such practices.
2. Correct Overtime Pay Calculation
Overtime pay calculation can be tricky, but it's essential to get it right. Overtime pay is 1.5 times an employee's effective pay rate, which isn't always the same as their hourly base pay rate. The effective rate is calculated as the total renumeration (legally relevant/includable pay) divided by the hours they worked. It often includes various types of other compensation that caregivers may receive, such as on-call pay, performance bonuses, and shift differentials.
To calculate overtime pay correctly, it's important to include all types of pay and compensation, not just base hourly rates. You can use payroll software to track and calculate overtime pay accurately. For Careswitch payroll customers, renumeration expenses can be included in overtime calculations by adding them to the Non-Discretionary Earnings field.
3. Proper Payment for Travel Time
Travel time between clients during the workday is legally compensable as hours worked. If your caregivers drive between multiple clients in a day, you're required to pay them for the travel time and possibly the break between, if it's not long enough to pursue personal activities. However, it can get tricky to determine when to pay for travel time, as the DOL has taken the position that you must still pay for estimated travel time driving between clients.
To avoid any problems with this, you should make sure your caregivers know that you want to pay for all time worked. Write the travel time into their contracts and have a reasonable process in place to ensure that caregivers can get paid for an increase in travel time if it changes. You can use payroll software to keep track of travel time and ensure that caregivers are paid correctly.
4. Proper Payment for On-Call Shifts
On-call shifts are another area where many home care agencies miss the mark on payroll compliance. If you have caregivers who are on-call, you must properly compensate them for their time. This includes having a written agreement about compensation for live-in and 24-hour shifts, tracking working time, and having robust time certification that includes reporting work-related interruptions to sleep and meal time.
You should also pay for work beyond the scheduled shifts and make sure you know when additional work is performed, have time records, and pay the appropriate hourly or overtime rate for that work. If you rely on verbal agreements, you may face legal challenges down the road. It's essential to keep accurate records and have a system in place to track and compensate caregivers for on-call shifts.
5. Avoiding Rate Manipulation
Rate manipulation is essentially any changing of rates to evade paying your employees full overtime. This may include reducing hourly rates when they start working overtime, or changing rates on a weekly basis to pay a set target amount every week. While rate adjustments are permissible if it's paying the caregiver for a different type of work or premiums for certain types of shifts, such as 24-hour shifts or weekends, it's important to ensure that the rate adjustments comply with payroll laws.
To avoid rate manipulation, it's crucial to work with a legal counsel or payroll provider who has a thorough understanding of payroll compliance laws. You can also use payroll software to keep track of payroll adjustments and ensure that you're paying your caregivers correctly.
Doing It The Right Way Always Pays Off
Whether you’re just starting out or growing an established agency, compliance is key. At the end of the day, paying a few (or many) extra dollars as you follow all payroll laws will save you money by protecting you from litigation. It’s also the right thing to do.
While we hope the information in this article is useful to you, ultimately it’s no substitute for getting your own legal counsel and following their advice to make sure you’re on the up-and-up.
Finally, doing it the right way involves investing in the right tools. Investing in payroll software can be a valuable tool in ensuring payroll compliance for your home care agency. With the right payroll software, you can automate many of the processes involved in payroll management, including employee classification, overtime pay calculation, and time tracking. You can also generate accurate and timely payroll reports and ensure that your agency is complying with payroll laws.
Careswitch's payroll processing software is an affordable option specifically designed for home care agencies. Unlike other payroll providers, Careswitch prorates the cost per employee down if employees work less than 40 hours a week, making it an affordable payroll solution for home care agencies with a high volume of part-time employees. Because Careswitch is a full-service agency management system, you’ll also save time by running your payroll from the same place as you’re doing things like scheduling, care documentation, and visit verification. Learn more at Careswitch.com.
By Connor Kunz, VP of Growth, Careswitch
Before coming to Careswitch, Connor ran two service businesses, growing their profits by 7 figures in less than three years. He also worked as head of marketing and education at Home Care Pulse, where he led the Home Care Benchmarking Study, founded the Home Care Growth Summit, and launched Home Care TV.