July 20, 2001


VIA FACSIMILE &
REGULAR MAIL

Thomas Markey
Acting Administrator
Wage and Hour Division
Employment Standards Administration
U.S. Department of Labor
Attn:     Fair Labor Standards Team
Room S-3516
200 Constitution Avenue NW
Washington, DC 20210
Facsimile: (202) 693-1432

Re:  Supplemental Comments on the Application of the Fair
     Labor Standards Act to Domestic Service

Dear Mr. Markey:

By way of introduction, the Office of Advocacy of the U.S.
Small Business Administration (SBA) was established by
Congress under Pub. L. No. 94-305 to represent the views of
small business before Federal agencies and Congress.
Advocacy is also required by the Regulatory Flexibility Act
(RFA) to monitor agency compliance with the RFA. 5 U.S.C.
612. The Chief Counsel of Advocacy is authorized to appear
as amicus curiae in regulatory appeals from final agency
actions, and is allowed to present views with respect to
compliance with the RFA, the adequacy of the rulemaking
record with respect to small entities, and the effect of the
rule on small entities.  Id.

On January 19, 2001, the Employment Standards Administration
(ESA) of the Department of Labor published a proposed rule
on Application of the Fair Labor Standards Act to Domestic
Service, in the Federal Register, Vol. 66, No. 13, p. 5481.
The purpose of the proposed rule is to amend the existing
regulations under the Fair Labor Standards Act (FLSA) that
pertain to the exemption for companionship services.

Under the current law, domestic companions are exempt from
the requirements of the FLSA with regard to minimum wage and
overtime.  The proposed rule amends the regulations to
revise the definition of companionship services; clarifies
the criteria used to judge whether employees qualify as
trained personnel; and amends the regulations to third party
providers of companionship services to pay minimum wage and
overtime.  It also extends the FLSA to live in domestics, if
they are employed by someone other than a member of the
family in whose home they reside and work.  In the proposal,
ESA performed an initial regulatory flexibility analysis
(IRFA) and determined that the rule would not have a
significant economic impact on a substantial number of small
entities.

The Office of Advocacy submitted comments on the proposal in
March 2001.  In its comments, Advocacy asserted that ESA had
not met its obligations under the RFA.  Specifically,
Advocacy argued that the information provided in the RFA
section of the preamble was insufficient to meet the
requirements of the RFA, in that there was not enough
information to provide an adequate basis to support a
finding of no significant economic impact.  Moreover,
Advocacy asserted that the information provided in the
proposed rule lacked some of the fundamental elements of an
IRFA.  Advocacy posed several questions ESA needed to
address in order to perform an adequate IRFA with regard to
the issue of minimum wage.  Those comments are incorporated
by reference and attached to this letter as Exhibit #1.  ESA
reopened the comment period for the proposed rule on April
23, 2001.

Requiring the Home Health Care Industry to Comply with FLSA
May Have a Detrimental Impact on the Industry

Recently, members of the home care industry contacted
Advocacy about the potential impact of the rule.  According
to the industry, the requirement that domestic companions be
paid overtime will be harmful to small home health care
providers.  This is an industry where employees often work
twelve-hour shifts and overnight shifts.  Requiring overtime
pay could be extremely burdensome on the industry.  For
example, in the overnight shifts, the companion often spends
the majority of the time asleep.  Under the proposal, a
small business may be required to pay employees for sleeping
as well as working.  If the employee works other shifts as
well, it is quite possible for the small business to have to
pay overtime wages to an employee who is sleeping.

In order to overcome the economic burden of the
requirements, third party providers will need to increase
their rates substantially to pay the overtime or hire
additional workers to fulfil the needs of their customers.
Both options are costly to the industry.  The former may
increase rates to the point where customers will decide not
to utilize the services, therefore causing the small
businesses to lose revenue.  The latter will increase costs.

The RFA Requires ESA to Perform a Thorough Analysis of the
Impact of the Proposal on the Industry

Like the minimum wage issue, the economic impact of the
requiring small home health care agency services to pay
overtime for companionship service was not evaluated fully
by ESA as required by the RFA.  As we stated in our previous
comments regarding this rule, the RFA requires regulatory
agencies to consider the effect of their actions on small
entities, including small businesses, small non-profit
enterprises, and small local governments. See 5 U.S.C.
601, et. seq.; Northwest Mining Association v. Babbitt, 5 F.
Supp. 2d 9 (D.D.C., 1998).   Among other things, this
includes providing the public with information about the
nature of the industry, the impact of the action on small
entities, and a discussion of the alternatives that the
agency considered.  See, 5 U.S.C.  603 (b), 607.

Advocacy asserts that, in addition to the questions posed in
Advocacy's previous correspondence, there are a number of
questions that need to be addressed regarding the impact of
requiring overtime payment for companionship services.
Those questions include:

ú    How many home healthcare agencies employ domestic
  companions that provide overnight services, twelve-hour
  shifts, or live-in services?
ú    On average, how many hours do those companions work?
ú    How much time do the companions spend awake versus
  asleep?
ú    How much are the agencies charging their customers for
  overnight service and extended shifts?  Is there an
  additional charge for such services? If so, how much?
ú    Will requiring third party providers to pay employees
  overtime substantially increase their operating costs?  If
  so, by how much?  If not, why not?
ú    Are there alternatives to removing the overtime
  exemption that would minimize the economic impact on third
  party providers?

Those are some of the questions that need to be answered for
ESA to comply with the requirements of the RFA.

Conclusion

While it is important to assure that workers receive fair
wages for the work that they provide, it is also important
for the public to understand the economic impact of imposing
the requirements of the FLSA on an industry that was
traditionally exempt.  Requiring third party providers to
pay overtime pay may cause the companies to pass the
additional costs on to consumers through price increases.
If the consumers cannot absorb the costs, some will have to
go without such services.  If the consumers go without the
services,  small home health care providers will lose
revenue and possibly cease operations.

Performing a thorough regulatory flexibility analysis will
allow the ESA and the public to comprehend fully the
possible impact of the proposal on the consumers and the
providers of home health care services.  Moreover, it will
provide ESA with an opportunity to consider meaningful
alternatives to the proposal that may mitigate the impact on
small entities.

The intent of the RFA is to assure that the economic impacts
of regulatory actions are fairly weighed in the regulatory
decision making process.  This information assists small
entities in understanding the impact of the proposal so that
they can provide ESA with meaningful comments and
suggestions for possible alternatives.  Failure to provide
the necessary information at the proposed rule stage
undermines the intent of the RFA.  Accordingly, as stated in
its earlier correspondence, Advocacy maintains that ESA
should publish an amended IRFA to provide the public with
the information it needs to determine the impact of the rule
prior to its finalization.

Thank you for the opportunity to comment on this proposal.
If you have any questions, please feel free to contact this
office.

Sincerely,

Susan M. Walthall
Acting Chief Counsel
Office of Advocacy

Jennifer A. Smith
Assistant Chief Counsel
 for Economic Regulation

Enclosure