The U.S. Department of Labor (DOL) recently proposed a significant rulemaking effort aimed at reinstating longstanding Fair Labor Standards Act (FLSA) exemptions for “companionship services” and live-in domestic service employees. This change could have major implications for home health care providers, staffing agencies, and private households employing caregivers. If finalized, the rule would exempt many home care workers from federal minimum wage and overtime protections that were extended under a 2013 rule during the Obama administration.
For small and mid-sized businesses in the home health and residential care industry, this proposal warrants immediate attention.
Background: FLSA and Domestic Worker Exemptions
The FLSA’s Historical Framework
The FLSA, enacted in 1938, established federal minimum wage and overtime pay standards. Historically, domestic service workers providing companionship services or living in the household where they worked were excluded from these protections. Congress codified these exemptions in 1974 when amending the FLSA to cover most domestic service employees under 29 U.S.C. § 213(a)(15).
In 2013, the DOL issued the Home Care Final Rule, narrowing these exemptions and extending minimum wage and overtime protections to many home health aides and caregivers. That rule survived legal challenge in Home Care Association of America v. Weil, 799 F.3d 1084 (D.C. Cir. 2015), significantly increasing labor costs for home care providers nationwide.
The 2025 DOL Proposal
What Is Changing?
The newly proposed DOL rule seeks to restore the pre-2013 regulatory interpretation of companionship and live-in domestic service exemptions. According to the DOL’s July 2025 notice, the rule would:
Allow third-party employers (e.g., home care agencies) to again utilize the companionship and live-in exemptions.
Clarify the definition of “companionship services” to include fellowship and protection as primary duties.
Limit the application of minimum wage and overtime requirements for live-in caregivers, regardless of the number of hours worked.
DOL’s Rationale
The DOL states that the 2013 rule “placed regulatory burdens on families and home care providers” and led to increased costs and reduced caregiver availability, particularly in rural and underserved areas. By reinstating these exemptions, the DOL argues it will increase flexibility for employers and help alleviate the national caregiver shortage.
Impact on Employers
Home Care Agencies
For home care agencies, reinstating these exemptions would reduce wage and overtime obligations, potentially lowering payroll costs significantly. According to the Home Care Association of America, labor costs can account for up to 80% of operating expenses for home care providers. Eliminating mandatory overtime pay could improve margins and expand service capacity.
Private Households
Families employing caregivers for elderly or disabled loved ones may benefit from reduced payroll complexity and cost. This could make it more financially feasible to hire in-home care versus institutional placement.
Worker Considerations
Worker advocacy groups have expressed strong opposition, arguing the rule will disproportionately impact women and minority caregivers, who make up the majority of the home care workforce. According to the Paraprofessional Healthcare Institute (PHI), the median hourly wage for home care workers was $14.50 in 2024, already among the lowest in the healthcare sector.
Legal and Compliance Risks
Retroactivity
Employers should note that the rule is prospective only; it will not excuse any prior noncompliance since 2015. Wage claims already filed or pending under current law will not be affected.
State Laws May Still Apply
Even if the federal exemptions are reinstated, employers must comply with state wage and hour laws, many of which impose more stringent requirements. For example, states such as California, New York, and Illinois have wage laws exceeding federal minimums and overtime protections for domestic workers.
Litigation Risk
Employers should prepare for potential legal challenges. Worker advocacy groups and unions may litigate, as they did in 2015. Courts will review whether the DOL’s reversal meets the Administrative Procedure Act’s (APA) standards for reasoned decision-making, as interpreted in Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (1983).
What Should Employers Do Now?
Monitor the Rulemaking Process
The DOL’s proposal will be open for public comment for 60 days. Employers should consider submitting comments, individually or through trade associations.
Audit Current Pay Practices
Evaluate how caregiver compensation is structured under existing federal and state law. Ensure that any changes in pay policies upon rule finalization are clearly documented.
Update Employment Agreements
Employers planning to use these exemptions if finalized should review and update caregiver contracts and handbooks to reflect the new classifications.
Train Management and Payroll Staff
Ensure HR and payroll professionals understand how the exemptions work and where they do not apply.
Conclusion
The DOL’s proposed rule to reinstate the FLSA companionship and live-in exemptions could mark a major shift for the home care industry and private households employing caregivers. While it promises reduced costs and increased flexibility for employers, it also raises equity and wage concerns for workers. Employers should stay informed, evaluate their pay practices, and be prepared to adjust policies quickly if the rule is finalized.
Are you ready to adjust your wage and hour policies to meet these potential changes?
Sources
- U.S. Department of Labor, “Notice of Proposed Rulemaking, Domestic Service Exemptions” (July 2025).
- Home Care Association of America v. Weil, 799 F.3d 1084 (D.C. Cir. 2015).
- PHI, “Direct Care Workforce Data Center” (2024).
- Littler Mendelson P.C., “DOL Proposes Rule to Reinstate Companionship & Live-in Exemptions” (2025).
- Thomson Reuters Tax & Accounting, “DOL Proposes Rule to Reinstate FLSA Exemptions for Domestic Workers” (2025).
Disclaimer
The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. It does not establish an attorney-client relationship, and any reliance on the information contained herein is done at your own risk. For specific legal guidance tailored to your business and jurisdiction, it is recommended to consult with a qualified attorney who can provide professional advice based on your unique circumstances.
