Most families will eventually need to hire a caregiver to help provide support for an aging or disabled family member. There are many ways to avoid The Dangers of Hiring Caregivers. One of the most important is to always pay by the hour and never pay a daily rate, shift rate or other salary. In this article I will explain why.
California Employment Law and Caregiver Pay Requirements
The law also says that payment of a fixed salary to a nonexempt employee “shall be deemed to provide compensation only for the employee’s regular, nonovertime hours, notwithstanding any private agreement to the contrary.” Labor Code §515(d)(2).
This means if you agree to pay a caregiver a daily rate of $650 per day and the employee is required to remain on the premises or with the care recipient 24 hours a day, the salary only compensates the caregiver for the first 9 hours in a day. It doesn’t matter if the caregiver asked to be paid a salary or if the parties sign an agreement saying the salary compensates the caregiver for all hours. Under California law, a salary does not compensate the employee for the nonovertime hours. Therefore, the employee received no compensation for 15 of the 24 hours worked.
The Legal Implications of Paying a Fixed Salary
Courts have not addressed whether Labor Code §515(d)(1) applies to anything other than a weekly salary. Attorneys who only represent employees will argue that you must divide a “daily” salary by the maximum daily nonovertime hours. So, in our example, if you divide the $650 daily rate by 9, you get a regular rate of pay of: $72.22 per hour. This means the employee’s overtime rate of pay is $108.33 per hour (1.5x the regular rate of pay).
Why Paying Hourly Saves You Money and Reduces Risk
Let’s look at what that means over the course of a year. Let’s assume the employee works 5 days per week, 50 weeks a year. The employer already paid the employee $169,000 ($650 x 5 days x 50 weeks). By paying a salary, the employer may be required to pay an additional $406,237.50 ($1,624.95 x 5 days x 50 weeks). The family could end up paying the caregiver over $575,000 per year for the caregiver’s services. And this number does not include the various penalties and interest that attorneys will seek when there is a dispute.
Now let’s say the family read my article about the Dangers of Hiring Caregivers or they attended one of my seminars on how to hire and pay domestic workers correctly. That family knows they need to pay an hourly rate, track and pay for all hours worked, and pay the caregiver overtime. The family agrees to pay the caregiver $21.00 per hour for all regular hours and $31.50 per hour for all overtime hours. The caregiver works the same schedule (24 hours a day, 5 days a week).
That employee will work 45 regular hours and 75 overtime hours. The employee will receive $189.00 each day in regular wages ($21.00 x 9 hours) plus $472.50 per day in overtime wages) ($31.50 x 15 hours) for a total daily wage of $661.00. This is an annual wage of $165,375.00 (assuming the caregiver works 50 weeks). By paying the caregiver correctly (i.e. paying an hourly rate and paying for all hours worked at the correct regular and overtime rates), the family saves over $400,000 per year in wages alone.
Conclusion: Why Hourly Pay is Best for Caregivers
Caregivers perform vital and important work, particularly for families who do not live close to aging or disabled relatives. Almost all caregivers want to help families, just as the vast majority of families want to pay caregivers correctly. If I could identify the single greatest thing families could do to avoid costly mistakes, it would be to get everyone to pay caregivers an hourly rate rather than a daily or weekly rate.
If you have questions about hiring or paying caregivers, or if you’ve received a demand letter or lawsuit from an attorney representing your household worker, call Robert Nuddleman so we can talk about ways to improve your situation.
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