Home care providers are now on the hook for overtime pay for caregivers working over 40 hours a week. This change in the Wage & Hour rules had been in the works since 2013. Despite several judicial appeals, it came into effect on October 13th.
So a month on, it’s time to examine how overtime pay is affecting business for home care agencies. Around the country, providers need to figure out :
- Whether overtime pay significantly impacts their business model,
- How to handle the additional labor cost,
- When to communicate the cost increase to their clients.
Reality of overtime cost not as bad as feared
Although the specter of overtime pay was worrisome for most home care providers, the reality is not as bad. First, overtime is not a big part of how the work gets done in homecare. Only 9% of care workers work more than 40 hours a week according to the Bureau of Labor Statics.
Home care providers have to understand how much overtime impact their costs. As I work with private duty providers, the projections are consistently showing a 10% to 12% increase in direct labor cost. Although this is not negligible, it’s manageable and providers breathe a sigh of relief. “It’s not as bad as I thought,” confides the owner of a private duty agency in Virginia.
How home care providers response to this increase in labor cost depends on the financial situation of the business. In most cases, providers have decided to pass the additional cost to their clients. A Rotarian approached me recently and shared how the 24/7 care of her mother has suddenly become a lot more expensive. As a home care client, she decided to stay with the same provider and pay the extra cost for the sake of continuity of care to her mother.
Agencies with good profitability are able to partly absorb the cost, “especially for our long-term clients” explained Carmen in South Carolina. In all cases, providers are reviewing their business model with an eye to keeping caregiver hours within 40 hours a week as much as possible.
“Don’t waste a good crisis”
The change in overtime pay is also an opportunity to consider increasing rates. Most private duty agencies have not increased theirs in two or three years. Although this may seem counter-intuitive but now might be to the time to bite the bullet. By focusing on the value of high quality care and the peace of the mind it brings to families, home care providers have a strong case to make.
At a minimum, it is time to increase rates for new clients. No one likes to get a rate increase shortly after signing a new contract. Set new client rates with an eye to profitability. As for the existing clients, it’s time to inform them that an increase in coming in 2016. According to a recent survey by Home Care Pulse, providers who plan to raise rates expect to increase, on average, by $1.50 for hourly and $55 a day for live-in care.
Providers who have sent such letters have not experienced negative comments from their clients. So if you are considering increasing your rates in 2016, know that you are not alone.
If you have questions on how to implement the new rules for your agency, call me for your free consultation. I have helped providers like you to crunch the numbers and make recommendations specifically for your agency.
So a month after the end of exemption from overtime pay, most private duty providers have been able to adapt their business, limit the hours and pass on some of the cost to their clients.
Next blog post, we will consider the caregiver’s perpective.
