In-Home Employees May Invite Heightened Wage Audit Risks

Successful families and individuals that employ fulltime in-home domestic staff may be facing an uptick in scrutiny of their pay practices. The U.S. Department of Labor’s Wage and Hour Division in February announced that it plans to add another 100 investigators to explore possible violations of the Fair Labor Standards Act (FLSA).

In fiscal year 2021, the division collected $230 million in wages owed to 190,000 workers. Given an additional 100 investigators on the job in 2022, now is a good time for families with fulltime nannies, personal assistants, chefs, chauffeurs, eldercare workers and other in-home employees to review current wage policies and other employment practices.

Most in-home employees, for example, are not exempt from the overtime provisions of the FLSA, meaning they are entitled to time-and-one-half of their regular rate of pay for every hour worked over 40 hours in a workweek. In other words, a staff member paid $20 an hour who works 50 hours per week must be paid $30 an hour for the additional 10 hours she worked.

If an employer fails to comply with these wage and hour requirements, they place themselves at risk for legal action. In 2013, a former personal assistant to a well-known entertainer claimed she routinely worked more than 60 hours per week. The assistant sued the employer for failing to pay her time-and-one-half overtime wages, as required under the FLSA. 

Similar claims have been made against other successful families and individuals. Often, the alleged wage improprieties come as a surprise, as the employers are not looking to pinch pennies. Since the related civil penalties (recently increased by the Labor Department) are accessible public records, the family’s reputation can potentially be damaged.

There are other nuances under the FLSA to consider, such as circumstances where an in-home employee may be exempt from overtime, but not the minimum wage requirements. For example, a nanny or a chauffeur who reads a book while awaiting directions from the family employer is considered under FLSA to be working during this period of inactivity. If, however, they are relieved from duty and free to use this time for their own purposes, such as running a personal errand, these hours do not count as overtime under FLSA.

If a domestic service staff member’s employment is terminated after making a complaint over unpaid overtime, the individual can sue the family employer for wrongful termination. Once the lawsuit is filed, other staff members performing the same job duties may reconsider the appropriateness of their paid wages and join the lawsuit.

An investigation by the Labor Department’s Wage and Hour Division can be time-consuming and stressful. A family employer alerted of an impending wage audit will likely be asked to produce multiple years of their employment records to investigators. In-home employees will be interviewed for possible violations of the FLSA.

To reduce the risks of an investigation and remain in compliance with applicable wage and hour laws, family employers should establish appropriate employment procedures in consultation with their attorney. They should implement processes for accurate recordkeeping and have these records annually audited by an attorney. They should require all staff members to clock in daily at work and track the number of hours worked. To avoid or minimize the possibility of unpaid overtime, require prior approval from employees to work overtime hours. If an employee neglects to obtain prior approval and works a certain number of overtime hours, consider paying the full amount to avoid a disciplinary action.

It is also prudent to assume in-home employees are non-exempt from the overtime provisions of the FLSA. If someone is classified as exempt, support the declaration with documentation. Lastly, contact the family’s insurance broker or agent to discuss the different types of insurance policies available to address employment practices liabilities. If there are any questions about wages, exempt/non-exempt status, or other employer practices that may result in liability, visit and/or seek the advice of an attorney.

Paula Sibal is Service Solutions Specialist, Chubb Personal Risk Services.

The opinions and positions expressed are the authors’ own and not those of Chubb. The information and/ or data provided herein is for informational purposes only and is not a substitute for professional advice. Insurance coverage is subject to the language of the policies as issued.