For the past seven years, Julie and her sister (who did not want to use their last names) have relied on Eleanor to care for their 87-year-old father who suffers from dementia. Eleanor provides 24/7 care to Julie’s father in his suburban Chicago home. Her services include cooking, light housekeeping and personal care.
“My dad really likes her and she is good to him,” Julie told McKnight’s Home Care Daily Pulse.
Julie wants to remain anonymous because Eleanor is part of what economists call the gray workforce. In general terms, these are workers who receive cash pay under the table for their services and usually don’t pay taxes on it. While this arrangement is more affordable for Julie’s family than using a home care agency, Julie admits it makes her nervous.
“My sister explained that she would owe taxes and she said she understood [that] when we hired her,” Julie explained. “But we found out later she hadn’t been paying them as an independent contractor.”
What does this mean for Julie? Not much, as Julie provided a 1099 form to Eleanor. But the caregiver now may be on the hook for penalties to the Internal Revenue Service or face charges of tax evasion.
A growing problem
The gray workforce is becoming a growing problem for the long-term care industry, which is struggling to attract and retain caregivers. PHI National, which tracks the long-term care industry, estimates there are 4.6 million direct care workers nationally working for skilled nursing facilities, home care firms or as independent providers through state Medicaid programs. But it’s impossible to estimate how many direct care workers are part of the gray economy, according to Robert Espinoza, vice president of policy for PHI National. Nevertheless, the gray economy affects the home care industry, he said.
“It pulls away possible candidates from agency employers, and I think it further devalues the direct care job because the direct care job — a high-quality one — should not only have a good wage. It should have good training, advancement opportunities and benefits,” Espinoza said.
Several factors are fueling the gray economy. These include low worker wages, regulations, immigration barriers and difficulty financing long-term care.
Higher pay is a huge incentive for workers to go “gray.” A home care agency might charge $30 an hour and pay caregivers an hourly rate that is half that amount. Caregivers who work for cash might charge $20 an hour, a rate that is higher for them and lower for the client. Additionally, home care agencies are now required to pay workers overtime beyond 40 hours under the Fair Labor Standards Act. But people working for cash typically charge only straight time.
Griswold Home Care franchisee Stephen Rymal said the overtime law has been especially costly to many of his private-pay clients.
“In some cases, if you are looking for round-the-clock care, it may be cheaper for you to hire someone privately than to use an agency,” Rymal said.
Regulations are also contributing to the problem in some states. In a recent McKnight’s Newsmakers podcast, Howard Gleckman, senior fellow at the Brookings-Urban Tax Policy Center, said state nurse delegation laws sometimes require a nurse to supervise the administration of medications. Gleckman said that is prompting some caregivers to skirt the laws and work for cash.
“If you’re a caregiver in a rural area … there may not be a nurse to provide that direct supervision,” Gleckman explained. “Some of the aides that I’ve talked to said the reason they aren’t licensed is because they know it’s necessary to administer these medications, and with a license they can’t. So perversely, they don’t get licensed.”
More stringent immigration laws are also prompting some undocumented caregivers to work under the radar for cash. Although undocumented immigrants can work legally in the U.S and pay taxes, some who are here illegally fear that could tip off immigration officials and put them at risk for deportation. Both LeadingAge and the Home Care Association of America have called for immigration reform that would potentially provide special worker visas to foreign caregivers.
“We feel that is an important niche that hasn’t been represented in today’s immigration laws,” HACAO lobbyist Patrick Cooney said during a press conference earlier this year.
Long-term care support
Espinoza agrees immigration reform is part of the solution to circumvent the gray workforce. But he also thinks the nation needs policies supporting long-term care, which increase caregiver wages while making care affordable to consumers. Espinoza said the Biden administration’s Build Back Better plan is a step in the right direction by increasing funds to states to support better caregiver wages through higher Medicaid reimbursement rates. But Espinoza wants reimbursement rates tied closely to the cost of living in a community or region.
“That would allow employers with some federal guidance to understand what is the competitive and livable wage that we should be offering direct care workers to maximize recruitment and retention,” Espinoza said.
Making home care affordable so seniors and their families don’t have to search for cheaper caregiving options is another solution to the gray economy, according to Espinoza.
The state of Washington recently took a step in that direction, becoming the first state to pass a law creating a long-term care benefit for people who pay into a fund. That could be a blueprint for other states to follow.
“Until we as a country figure out the financing question that supports employers, workers and consumers we are not going to resolve the crisis,” Espinoza said.
Editor’s note: In terms of labor problems, there has never been a time like today. In this ongoing series, McKnight’s Home Care will explore the various facets of the workforce shortage, how home care is responding to it and the innovation that is propelling the field forward with new and sometimes unconventional solutions.
Coming Thursday: A podcast with Dave Totaro, government affairs officer for Bayada, one of the founding members of the Home Care Workforce Action Alliance.
Learn more: McKnight’s online Workforce Development Forum is happening this Wednesday and Thursday. Sign up for free!