The Prevailing Wage and Increased Costs for Nursing Home Providers

Beginning January 1, 2015 long-term care providers may be required to pay employees a higher minimum wage if providers enter into new contracts with the US Department of Veterans Affairs (“VA”) for veteran admissions. On October 7, 2014, the US Department of Labor (“DOL”) published a final rule that requires employers to pay workers who provide services under federal contracts a prevailing wage of at least $10.10 an hour. The wage will increase every year based on the Consumer Price Index. Providers should review their contracts with the VA to determine if they are subject to this new wage and should be aware which employees are entitled to the increased wage to avoid penalties.

The prevailing wage requirement applies to two categories of contracts, both considered “new” by the DOL. The first category includes entirely new contracts solicited and accepted after January 1, 2015. The second category includes contracts that began prior to January 2015 but are extended or renewed by bilateral negotiations between providers and the VA. Contracts existing before January 1, 2015 are not “new,” however, if the option to renew or extend is a unilateral contract right held by the VA.

Providers with “new” contracts from either category must pay employees the mandated wage if the employees perform “on” or “in connection with” a VA contract. An employee who “performs on” a contract provides services that are specifically called for under the contract’s terms. This would include medical services provided to the resident veteran. Thus, a nursing facility would have to pay the higher wage to any CNAs, RNs, LPNs or health care workers providing direct medical care services to veterans who not already receive over $10.10 an hour.

Employees performing “in connection with” a contract provide services that are necessary to support the performance of the services listed in the contract. Examples of workers performing “in connection with” VA nursing home contracts include cooks, janitorial workers, billing services, and any other employees who provide indirect care services in nursing facilities. Because workers who provide services “in connection with” a contract may be numerous and paying the prevailing wage to this large group would be burdensome for an employer, the DOL has carved out an exception to this requirement. If a worker provides less than 20% of his or her services “in connection with” a Federal contract, then the employer is not required to pay that worker the prevailing wage.

The DOL gives the following example to illustrate this exception. A nursing home serves 100 patients, five of whom are veterans under a “new” contract with the VA. The nurses and nurse’s aides who provide direct services to any of the veterans must receive the new minimum wage. However, janitorial, cooking, and other indirect care staff only provide 5% of their services to the veterans (i.e. 5 veterans out of 100 total patients) under the Federal contract, and therefore are exempt from the new minimum wage requirement.

If the wage and hour division (WHD) of the Department of Labor determines that an employer has not complied with the new rule, the WHD will request that the employer remedy the violation by paying back-wages to employees who are entitled to a higher wage. To accomplish retroactive payment, the WHD may direct the VA to withhold payments due under the contract to the long-term care provider to the extent necessary to make up the wages owed. The VA would then transfer the funds to the WHD and the WHD may disperse to the affected employees. A nursing home’s failure to comply in any of these situations could lead to debarment or the loss of not only the VA provider contract but other federal contracts as well. In addition, if the amount paid under the contract to the provider is not enough to cover the wages or if no more money is due under the contract, the DOL may bring a civil action against the provider to recover the remaining amount of underpayment.

Because of the potential financial burden, long-term care organizations should use caution when entering into or renewing any VA contracts. Renewing or entering into new contracts may obligate providers to increase the wages of many workers and drive up employee wage costs, especially if veterans constitute more than 20% of the provider’s residents. The American Health Care Association (“AHCA”) has also noted that the rule does not address expired contracts under which the facility may still be operating and recommends that providers make note of all expired Federal contracts to prevent surprise violations.

Should you or your organization have any questions regarding the new minimum wage for federal contractors, please contact Peter Mellette (Peter@mellettepc.com), Harrison Gibbs (Harrison@mellettepc.com), Nathan Mortier (Nathan@mellettepc.com), or Elizabeth Dahl (Elizabeth@mellettepc.com) or call Mellette PC at (757) 259-9200.

This Client Advisory is for general educational purposes only. It is not intended to provide legal advice specific to any situation you may have. Individuals desiring legal advice should consult legal counsel for up to date and fact specific advice.
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