Dungarvin, Inc. Shared Living: Legal and Tax Considerations Scope - - PowerPoint PPT Presentation

Presented by:

Dave Toeniskoetter President and CEO Dungarvin, Inc.

Shared Living: Legal and Tax Considerations

Scope of this Presentation: Shared Living arrangements (not staffed group homes) supporting people with I/DD.

Shared Living: Legal and Tax Considerations

Definitions of terms used in this presentation:  Shared Living: A residential alternative to group homes or other “staffed” models of support.  Host Home: A form of Shared Living, in which support is provided in the caregiver’s home (independent contractor model).  Companion Program: A form of Shared Living, in which support is provided in the consumer’s home, or a shared home (employment model).

Shared Living: Legal and Tax Considerations

Definitions of terms used in this presentation: Consumer: A person with I/DD receiving supports.  Provider: An individual who directly provides supports.  Agency: A private organization that employs

• r contracts with Providers.

The Home Care Rule

 Promulgated September 2013  Effective January 2015

The Home Care Rule

Prior to the Home Care Rule, Agencies operating companion programs could take advantage of the Companionship Exemption to the Fair Labor Standards Act (FLSA), if certain conditions were met. After the Home Care Rule, the Companionship Exemption is no longer available to Agencies, primarily due to elimination of the option of joint employment.

DOL’s 2014 Shared Living Guidance

Following release of the Home Care Rule, DOL recognized the need for further guidance to Shared Living providers. After consultation with ANCOR, NASDDDS and others, DOL published Wage and Hour Division (WHD) Administrator’s Interpretation No. 2014-1 and Fact Sheet #79G: Application of the Fair Labor Standards Act to Home Care Services Provided Through Shared Living Arrangements, Including Adult Foster Care And Paid Roommate Situations. (March 27, 2014)

DOL’s 2014 Shared Living Guidance

The 2014, Shared Living guidance describes two options for Shared Living arrangements after the Home Care Rule:

 Host Home/Independent Contractor Model

• r

 Companion Program/Employment Model

DOL’s 2014 Shared Living Guidance

Host Home

 Provider is an independent contractor  FLSA does not apply

DOL’s 2014 Shared Living Guidance

Companion Program

 Provider is an employee of the Agency and/or

Consumer

 FLSA requirements apply (minimum wage; overtime

wage)

DOL’s 2014 Shared Living Guidance

 The law favors employment over independent

contractor status.

 Substance of the relationship prevails over form or

labels.

 The general standard to legitimize an independent

contractor relationship is the “economic realities” test, but WHD has provided more specific guidance for Shared Living/Host Homes.

DOL’s 2014 Shared Living Guidance—Host Homes

Key requirements for a Host Home/independent contractor relationship:

 The Provider must have control over (investment in)

the residence (not the agency or the consumer).

 The Provider must have risk and potential for reward.  The Provider must have substantial control over day-

to-day activities in the Host Home arrangement.

Analogy to Children’s Foster Care

 WHD long ago established that Children’s Foster Care

qualifies for independent contractor status, even though such arrangements may not strictly satisfy all aspects of the “economic realities” test.

 In its Shared Living guidance, WHD extended the

interpretation applied to children’s foster care, to recognize adult Host Homes as appropriate independent contractor relationships.

Host Home Model Contract

The Host Home Model Contract is intended to correspond to the key elements that permit a Host Home to operate as an independent contractor relationship, as described in WHD’s 2014 Shared Living guidance.

Practical Advice—Host Homes

 Neither the Agency nor the Consumer should

have any investment or control in the home in which care is provided (no subleasing, co- leasing, or guaranteeing of a mortgage).

 The Agency should take care not to treat

Providers as employees, nor “commingle” Providers and employees.

Practical Advice—Host Homes

 The Agency should take care to not exercise any

more control than necessary over the day to day

• peration of the Host Home.

 The Agency should structure the Host Home

relationship in a manner that allows the Provider to experience risk and reward in the

• peration of the Host Home.

DOL Enforcement Focus on Misclassification

• f Employees as Independent Contractors

In recent years, DOL/WHD has very publicly criticized the misclassification of employees as independent

• contractors. Most significantly, WHD issued

Administrator’s Interpretation No. 2015-1: The Application Of The Fair Labor Standards Act’s “Suffer Or Permit” Standard In The Identification Of Employees Who Are Misclassified As Independent Contractors. (July 15, 2015)

DOL Enforcement Focus on Misclassification

• f Employees as Independent Contractors

What impact does the 2015 WHD “Misclassification” guidance have upon the 2014 “Shared Living” guidance? I understand it to be merely a restatement of the economic realities test

 This guidance is not focused on human services.  This guidance does not limit or reverse WHD’s 2014

guidance on Shared Living.

 The 2014 guidance describes how a Host Home can meet

requirements of the economic realities test.

DOL Enforcement Focus on Misclassification

• f Employees as Independent Contractors

Economic Realities test factors reviewed in the 2015 WHD guidance:

 Is the work an integral part of the employer’s

business?

 Does the worker’s managerial skill affect the

worker’s opportunity for profit and loss?

 How does the worker’s relative investment

compare to the employer’s investment?

DOL Enforcement Focus on Misclassification

• f Employees as Independent Contractors

Economic Realities test factors reviewed in the 2015 WHD guidance:

 Does the work performed require special skill and

initiative?

 Is the relationship between the worker and the

employer permanent or indefinite?

 What is the nature and degree of the employer’s

control?

DOL’s 2014 Share Living Guidance: Companion Programs/Employment

If a Shared Living program does not qualify to be an independent contractor relationship, or the Agency chooses to treat it as an employment relationship:

 FLSA applies, including minimum wage and overtime

wage.

 Need to account for all 168 hours per week.

DOL’s 2014 Share Living Guidance: Companion Programs/Employment

 Reiteration of existing rules concerning “hours

worked.”

• Sleep time exemption for employees who have their

domicile at the worksite.

• Free time exemption for employees who may leave the

worksite.

• Employer and live-in employee may enter into a

“reasonable agreement” (in writing) concerning hours worked.

Federal Income Tax Exemption of Certain Host Home Payments

 Applicable law is Internal Revenue Code Section 131.  Law changed in 2002, as a result of a four-year

sustained effort by ANCOR.

 “Qualified foster care payments” to a Provider are

entirely exempt from federal taxable income.

Federal Income Tax Exemption of Certain Host Home Payments

 Before 2002 law change: Only Children’s Foster Care

payments may qualify for exemption from taxable income.

 After 2002 law change: Both Children’s and Adult

Foster Care payments may qualify for exemption from taxable income.

Federal Income Tax Exemption of Certain Host Home Payments

Key Requirements for Tax Exempt Status:

 Funding originates with government (but may pass

through a private agency intermediary).

 Program is licensed or certified by government.  Care is provided in the Provider’s home.  No more than five individuals are served by the

Provider.

Federal Income Tax Exemption of Certain Host Home Payments

Effect of Internal Revenue Bulletin 2014-4 (January 21, 2014)

 IRS had historically denied Section 131 tax

exemption for payments to Providers for the care

• f a family member.

 With this bulletin, IRS announced that it would

recognized Section 131 tax exemption for such payments provided under a Medicaid waiver program.

Referenced Laws and Publications

Employment/Independent Contractor: U.S. Department of Labor, Wage and Hour Division:

 Administrator’s Interpretation No. 2014-1 and Fact Sheet

#79G: The Application of the Fair Labor Standards Act to Home Care Services Provided Through Shared Living Arrangements, Including Adult Foster Care and Paid Roommate Situations

 Administrator’s Interpretation No. 2015-1: The Application

• f the Fair Labor Standards Act’s “Suffer or Permit”

Standard in the Identification of Employees Who Are Misclassified as Independent Contractors

Referenced Laws and Publications

Federal Income Taxation:

 Internal Revenue Code, Section 131: Certain Foster

Care Payments

 Internal Revenue Bulletin 2014-4: Foster Care

Payment, Medicaid Waivers

Contact:

Dave Toeniskoetter, President and CEO Dungarvin, Inc. 1444 Northland Drive, Suite 200 Mendota Heights, MN 55120 (651) 789-5903 dtoeniskoetter@dungarvin.com