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Childcare Centers & Preschools: Employee Classification for Payroll (2026)
Employee classification in childcare centers is two questions: whether lead teachers and assistant teachers are employees or contractors, and whether the employees are exempt from overtime. BEG runs childcare center payroll for $45 per employee per month inside the payroll software you already use, all-inclusive, live in 3 to 5 business days.
Employee or contractor: how childcare centers get it wrong
DOL lists classifying staff who do not meet all the exemption tests as exempt teachers and then not paying them overtime as a typical problem in daycare centers. Other listed problems are taking an employee off the clock for lunch while they must still supervise children and paying a flat fee for early or late time instead of overtime.
The teaching professional exemption covers an employee whose primary duty is teaching, tutoring, instructing or lecturing as a teacher in an educational establishment, and the regulation expressly lists teachers of kindergarten or nursery school pupils. The salary level and salary basis requirements of Part 541 do not apply to these teachers.
Exempt or non-exempt
Since the 1972 FLSA amendments, preschools and daycare centers are covered enterprises regardless of annual dollar volume and whether public, private, for profit or nonprofit. Every nonexempt employee must be paid at least $7.25 per hour for all hours worked and overtime after 40 hours in each workweek, not after 80 hours in two weeks.
The salary floor for the executive, administrative and professional exemptions is $684 a week, restored to the 2019 level after the 2024 rule was vacated. Childcare workers at the May 2025 national median of $34,980 a year earn under it on a weekly basis, so the role is non-exempt on salary alone whatever the duties.
What misclassification costs
An employer that had at least 50 full-time employees, including full-time equivalent employees, on average during the prior year is an applicable large employer for the current calendar year and is subject to the ACA employer shared responsibility and information reporting provisions.
Reclassifying a contractor as an employee means back FICA at 15.3 percent split between the parties, back FUTA, penalties and interest, and often back overtime under the FLSA at time and one half for two or three years.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- DOL lists classifying staff who do not meet all the exemption tests as exempt teachers and then not paying them overtime as a typical problem in daycare centers. Other listed problems are taking an employee off the clock for lunch while they must still supervise children and paying a flat fee for early or late time instead of overtime. [DOL Fact Sheet #46]
- The teaching professional exemption covers an employee whose primary duty is teaching, tutoring, instructing or lecturing as a teacher in an educational establishment, and the regulation expressly lists teachers of kindergarten or nursery school pupils. The salary level and salary basis requirements of Part 541 do not apply to these teachers. [29 CFR 541.303]
- Since the 1972 FLSA amendments, preschools and daycare centers are covered enterprises regardless of annual dollar volume and whether public, private, for profit or nonprofit. Every nonexempt employee must be paid at least $7.25 per hour for all hours worked and overtime after 40 hours in each workweek, not after 80 hours in two weeks. [DOL Fact Sheet #46]
- An employer that had at least 50 full-time employees, including full-time equivalent employees, on average during the prior year is an applicable large employer for the current calendar year and is subject to the ACA employer shared responsibility and information reporting provisions. [IRS Determining if an employer is an applicable large employer]
Read the full guide to the employee versus contractor test, and the rest of the childcare center payroll library.
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Frequently Asked Questions
Are lead teachers in a childcare center employees or contractors?
DOL lists classifying staff who do not meet all the exemption tests as exempt teachers and then not paying them overtime as a typical problem in daycare centers. Other listed problems are taking an employee off the clock for lunch while they must still supervise children and paying a flat fee for early or late time instead of overtime.
What does the second test look at?
The teaching professional exemption covers an employee whose primary duty is teaching, tutoring, instructing or lecturing as a teacher in an educational establishment, and the regulation expressly lists teachers of kindergarten or nursery school pupils. The salary level and salary basis requirements of Part 541 do not apply to these teachers.
Which childcare center employees can be exempt from overtime?
Since the 1972 FLSA amendments, preschools and daycare centers are covered enterprises regardless of annual dollar volume and whether public, private, for profit or nonprofit. Every nonexempt employee must be paid at least $7.25 per hour for all hours worked and overtime after 40 hours in each workweek, not after 80 hours in two weeks.
What does managed payroll cost for a childcare center?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Licensing-tied payroll records, subsidy payment coordination and part-time variable-hour staff are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including Childcare Centers & Preschools. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: IRS: Independent Contractor or Employee
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