Free Payroll Tool
See what your payroll provider really charges
Most providers hide per-run and add-on fees. Audit your real cost per employee in about 30 seconds, free.
Run the Payroll Fee Auditor →Blog · Payroll Management · Home Health
Home Health Agencies: Payroll Mistakes to Avoid (2026)
The costliest payroll mistakes in home health agencies are misclassifying registered nurses and LPNs, leaving visit-based aide pay out of the overtime regular rate, and missing the home health agency tax rule cited here, IRS Notice 2014-7 Q&A (Q11, Q16. BEG: $45 per employee per month inside the payroll software you already use, live in 3 to 5 days.
Mistake 1: classification
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.
Mistake 2: hours and the regular rate
Travel between clients during the workday is hours worked and the agency must pay for it; ordinary travel from home to the first client and home from the last is not. In the fact sheet example, the 30 minutes an aide spends driving from one client's home to the next is paid time.
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.
Mistake 3: the home health agency tax item
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.
What catches them
A pay code review at setup, an exemption file per employee, a regular-rate flag on every pay component, and a deposit calendar that does not depend on one person remembering. Failure-to-deposit penalties run 2 to 15 percent; back overtime runs at time and one half plus an equal amount in liquidated damages.
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]
- Travel between clients during the workday is hours worked and the agency must pay for it; ordinary travel from home to the first client and home from the last is not. In the fact sheet example, the 30 minutes an aide spends driving from one client's home to the next is paid time. [DOL Fact Sheet #79D]
- 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 how to correct a payroll error, and the rest of the home health agency payroll library.
Managed Payroll, Handled.
BEG manages payroll at $45 per employee per month, all-inclusive. Get an instant cost comparison for your business.
Frequently Asked Questions
What is the most common classification mistake in home health agencies?
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 wage and hour mistakes does DOL see in home health agencies?
Travel between clients during the workday is hours worked and the agency must pay for it; ordinary travel from home to the first client and home from the last is not. In the fact sheet example, the 30 minutes an aide spends driving from one client's home to the next is paid time.
Which home health agency tax rule is most often missed?
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.
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: U.S. Department of Labor: Wage and Hour Division
From the blog