DOL Proposes Rule to Reinstate Companionship & Live-in Exemptions from Minimum Wage and Overtime for Third-Party Employers

On July 2, 2025, the U.S. Department of Labor’s Wage and Hour Division issued a proposed rule that would reinstate the Fair Labor Standards Act’s (FLSA) minimum wage and overtime exemption for home care workers employed by third-party home care agencies. The proposed regulation’s comment period closes on September 2, 2025. 

History of the “Companionship” and “Live In” Exemptions to the FLSA – From Exempt in 1975 to Non-Exempt in 2013/2016 to Exempt Again in 2026?

In 1974, when extending FLSA coverage to “domestic service” workers, Congress exempted employees who provide “companionship services” from the minimum wage and overtime requirements and also exempted live-in domestic service employees from overtime.¹ Congress granted the labor secretary authority to define the terms in the exemption through regulation. 

The DOL exercised that authority in 1975 by issuing the regulations at 29 C.F.R. Part 552 to define the scope of this “companionship exemption.” Section 552.109 of the 1975 regulations established that the exemption applies to employees “who are engaged in providing companionship services” and “who are employed by an employer or agency other than the family or household using their services.” “Companionship services” meant fellowship, care, and protection, including related household tasks like cooking, laundry, and bed making. General household work (e.g., cleaning unrelated to the client) was capped at 20% of weekly hours. Importantly, home care workers employed by third-party home care agencies and other employers (rather than directly by the individual or household receiving the services) were included with the exemption. Attempts were made in 1993, 1995, and 2001 to narrow the scope of the companionship services exemption. Most focused on limiting the exemption to cover only those home care workers employed directly by the individual or family receiving the home care services. None of these proposed changes became final. Bills were also introduced in Congress, but failed to pass.

In 2007, the U.S. Supreme Court rejected a challenge to section 552.109 and confirmed that the companionship exemption extended to home care workers employed by “an employer or agency other than the family or household using their services.”²

In 2013, however, the DOL undid almost 40 years of status quo by revising section 552.109 to narrow the definition of companionship services (limiting “care to no more than 20% of hours worked per week”) and to prevent third-party employers from claiming either exemption. Subsequent legal challenges to the DOL’s changes under “Chevron deference”³ were unsuccessful. More recent U.S. Supreme Court decisions, including Encino Motorcars, LLC v. Navarro,⁴ E.M.D. Sales, Inc. v. Carrera,⁵ and Loper Bright Enterprises v. Raimondo,⁶ however, rejected Chevron deference and instead instructed courts – not agencies – to (1) determine the “best reading” of a statute; and (2) give the FLSA’s exemptions a fair reading and interpretation rather than a narrow one. These decisions have caused the DOL to reconsider its interpretation of these exemptions. 

The DOL’s new proposed rule seeks to return the companionship services and live-in exemptions to the 1975 standards. Importantly, the proposed changes seek to restore the ability of third-party employers (like home care agencies) to classify caregivers as exempt from the FLSA under the companionship and live-in domestic service exemptions. 

What Is the DOL’s Justification for Proposing to Return to the 1975 Rule?

The DOL has tentatively determined that, contrary to the policy goals that motivated Congress’ decision to include the companionship and live-in exemptions in the 1974 FLSA Amendments,⁷ the 2013 rule has had negative effects that are hindering consumer access to home- and community-based services and come without corollary benefits for consumers, providers, or caregivers. For example, one study by the U.S. Government Accountability Office (GAO) found that home care providers and states administering Medicaid-financed home care programs responded to the 2013 rule by imposing hours restrictions to avoid overtime costs. GAO also observed that the 2013 rule made it harder for consumers to obtain home care and to find enough workers to cover their needs. 

The DOL also acknowledged that although spreading employment is a major policy goal of the FLSA’s overtime requirement, Congress enacted numerous exemptions in occupations and industries where spreading employment is difficult, unnecessary, or otherwise undesirable. The DOL observes that the shortage of qualified home care workers and the importance of trust and continuity between home care worker and consumer supports the exemptions for the home care industry. 

GAO noted that the 2013 rule has also increased costs for providers through increased costs of recruiting, hiring, and training. Citing the GAO report, DOL stated that the complicated definitions and recordkeeping requirements have been burdensome to implement and have discouraged some individuals from engaging in caregiving. GAO also determined that the 2013 rule has not caused a significant increase in hourly wages or weekly earnings, and the turnover rate for home care workers remains near 80% in 2024. Although the DOL predicted that the 2013 rule would attract more workers to the home care industry, it reports that the home care workforce has actually declined by 11.6% between 2013 and 2019.⁸ The need for home care, however, continues to increase with some estimates indicating the demand for home health and personal care aide workers will grow 21% from 2023 to 2033. According to a 2023 report from the Home Care Association of America & National Association for Home Care & Hospice, the workforce shortage in home-based care has reached crisis proportions with some providers reporting that they turn away over 25% of referred patients due to staff shortages.⁹

The DOL expects that its proposed rule will reduce the cost of home care services by providing home care agencies with greater scheduling flexibility and reduced labor costs. The rule is also expected to eliminate much of the recordkeeping obligation and other costs for home care providers, and thereby expand access to home care services. The DOL does not expect that losing the right to receive federal minimum wage would have much if any impact on most workers, as the median hourly wage for home health and personal care aides was $16.12 per hour in 2023 – well above the $7.25 per hour federal minimum wage. The DOL recognizes, however, that losing the right to overtime pay could negatively impact pay and morale of affected home care workers, which in turn could lead to increased turnover and difficulty attracting skilled workers to the industry.  

What Happens Next and What Can Home Care Employers Do Now?

The proposed rule provides a 60-day period – until September 2 – for the public to submit comments. The DOL has specifically requested comments regarding:

• Whether the DOL’s original 1975 interpretation of the companionship and live-in exemptions is the best reading of the FLSA’s statutory text.
• Whether the 1975 definition of “companionship services” should be restored, including specifically whether to restore “care” alongside “fellowship” and “protection” as an example of exempt services.
• Whether any portion of the 2013 rule should be retained.
• How many home health and personal care aides are employed in the United States and would be affected by this rule.
• Will earnings significantly increase or decrease as a result of this rulemaking?
• Will the cost of care to consumers and state Medicaid plans increase or decrease as a result of this rulemaking?
• Would returning to the 1975 rule increase worker supply and decrease burdens on providers?

The DOL will then review comments and decide whether to move forward with the proposed rule as drafted or to modify in response to comments provided. If it moves forward, the Department will publish a final rule that also includes an effective date for the new regulations. 

So what does this mean for a home care agency employer? While the scope of any final rule remains to be seen, reinstating the companionship and live-in exemptions for third-party employers represents a significant change and opportunity for employers that operate in states that follow the FLSA. Home care employers in those states would be able to allow consumers to choose their caregiver again without having to staff higher-hour cases with multiple caregivers. Employers should begin by determining if they operate in such a state, and if so begin reviewing their existing compensation structure(s), potential compensation options, and any electronic visit verification or other timekeeping obligations. If the rule is finalized, such employers may be able to adopt new pay policies, reprogram payroll systems to code workers as exempt, and revisit offer letters and live-in agreements. Such changes may also require updates to any state-required notices. Employers considering changes should also consider creating a plan to communicate changes to impacted workers and their supervisors, and creating a plan to train impacted workers and their supervisors on the new pay practices and expectations moving forward. These steps can take months to complete. 

Home care employers that operate in states with their own wage and hour laws should review state law to determine whether it still requires a caregiver employed by a third-party agency to be classified as non-exempt. In those jurisdictions, we recommend reviewing pay practices to ensure employees are tracking their time accurately and being compensated for all “hours worked” (as that term is defined under state law), employees are not working off-the-clock, non-discretionary bonuses and additional remuneration are included in the overtime rate (where required), overtime rates are calculated correctly when paying multiple rates of pay for different types of work in overtime weeks, and any other pay methods (e.g., day rates, pay per visit, etc.) meet the requirements of state wage law for a non-exempt employee. These recommendations are also true for employers who do not wish to reclassify caregivers who would otherwise qualify as exempt under the revised companionship and live-in exemptions.