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Home Health Agencies: Employee Classification for Payroll (2026)
Employee classification in home health agencies is two questions: whether registered nurses and LPNs are employees or contractors, and whether the employees are exempt from overtime. BEG runs home health agency 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 home health agencies get it wrong
Home health aides, personal care aides and nurses working in private homes are domestic service employees covered by the FLSA. A worker on 24-hour shifts who does not reside on the premises permanently or for extended periods is not a live-in worker and is owed overtime after 40 hours.
Under the DOL economic reality test, a nurse whose schedule, assignments and ability to work for other facilities are controlled by the employer is an employee, while a nurse who markets specialized services to several facilities, sets prices and works without supervision shows independent contractor status. Receiving a 1099 does not by itself make a worker a contractor.
Exempt or non-exempt
Since January 1, 2015, home care agencies and other third-party employers cannot claim the companionship services exemption and must pay minimum wage and overtime after 40 hours even when the worker is jointly employed by the household. The exemption itself covers fellowship and protection only, with care limited to 20 percent of hours per consumer per workweek and no medically related tasks.
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. Home health and personal care aides at the May 2025 national median of $35,800 a year clear that salary test, so the duties test decides.
What misclassification costs
Medicaid waiver payments for care of an eligible individual who lives in the caregiver's own home are excludable from federal income tax under Notice 2014-7, so no income tax is withheld, but an agency that employs the caregiver must still withhold and pay Social Security and Medicare taxes. Excluded amounts go on Form W-2 box 12 with code II rather than box 1.
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.
- Home health aides, personal care aides and nurses working in private homes are domestic service employees covered by the FLSA. A worker on 24-hour shifts who does not reside on the premises permanently or for extended periods is not a live-in worker and is owed overtime after 40 hours. [DOL Fact Sheet #79D]
- Under the DOL economic reality test, a nurse whose schedule, assignments and ability to work for other facilities are controlled by the employer is an employee, while a nurse who markets specialized services to several facilities, sets prices and works without supervision shows independent contractor status. Receiving a 1099 does not by itself make a worker a contractor. [DOL Fact Sheet #13]
- Since January 1, 2015, home care agencies and other third-party employers cannot claim the companionship services exemption and must pay minimum wage and overtime after 40 hours even when the worker is jointly employed by the household. The exemption itself covers fellowship and protection only, with care limited to 20 percent of hours per consumer per workweek and no medically related tasks. [DOL Fact Sheet #79A]
- Medicaid waiver payments for care of an eligible individual who lives in the caregiver's own home are excludable from federal income tax under Notice 2014-7, so no income tax is withheld, but an agency that employs the caregiver must still withhold and pay Social Security and Medicare taxes. Excluded amounts go on Form W-2 box 12 with code II rather than box 1. [IRS Notice 2014-7 Q&A (Q11, Q16, Q18)]
Read the full guide to the employee versus contractor test, and the rest of the home health agency payroll library.
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Frequently Asked Questions
Are registered nurses in a home health agency employees or contractors?
Home health aides, personal care aides and nurses working in private homes are domestic service employees covered by the FLSA. A worker on 24-hour shifts who does not reside on the premises permanently or for extended periods is not a live-in worker and is owed overtime after 40 hours.
What does the second test look at?
Under the DOL economic reality test, a nurse whose schedule, assignments and ability to work for other facilities are controlled by the employer is an employee, while a nurse who markets specialized services to several facilities, sets prices and works without supervision shows independent contractor status. Receiving a 1099 does not by itself make a worker a contractor.
Which home health agency employees can be exempt from overtime?
Since January 1, 2015, home care agencies and other third-party employers cannot claim the companionship services exemption and must pay minimum wage and overtime after 40 hours even when the worker is jointly employed by the household. The exemption itself covers fellowship and protection only, with care limited to 20 percent of hours per consumer per workweek and no medically related tasks.
What does managed payroll cost for a home health agency?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Visit-based aide pay, travel time reimbursement and Medicaid billing vs payroll 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 Home Health Agencies. 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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