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Run the Payroll Fee Auditor →Blog · Payroll Management · Home Health
Home Health Agencies: Signs Your Business Needs to Outsource Payroll (2026)
A home health agency outsources payroll when the compliance work outgrows the processing work: a first penalty notice, a second state, a classification question about registered nurses and LPNs, or a rule specific to home health agencies that nobody in-house owns, such as DOL Fact Sheet #79A. BEG: $45 per employee per month inside the payroll software you already use, live in 3 to 5 days.
Triggers specific to home health agencies
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.
A live-in domestic worker is one who resides on the premises permanently or for extended periods, meaning 5 days a week or 120 hours or more. Since January 1, 2015, agencies may not claim the live-in overtime exemption and must pay overtime after 40 hours; workers on 24-hour shifts who do not reside on the premises are not live-in workers.
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.
Triggers common to every employer
An IRS or state notice, which means the process already has a gap; an employee in a second state, which doubles the registrations; a garnishment order, which carries employer liability if mishandled; the person who ran payroll leaving; and headcount reaching a federal threshold, e-filing at 10 returns, COBRA and the ADEA at 20, FMLA and the ACA at 50. Any one of these turns a home health agency payroll from a task into a compliance function.
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.
- 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]
- A live-in domestic worker is one who resides on the premises permanently or for extended periods, meaning 5 days a week or 120 hours or more. Since January 1, 2015, agencies may not claim the live-in overtime exemption and must pay overtime after 40 hours; workers on 24-hour shifts who do not reside on the premises are not live-in workers. [DOL Fact Sheet #79B]
- 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 signs you need to outsource payroll, and the rest of the home health agency payroll library.
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Frequently Asked Questions
What is the clearest sign a home health agency should outsource payroll?
A penalty notice. It is evidence the current process has a gap, and it rarely closes itself. 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.
Does a home health agency with visit-based aide pay need a managed service?
Not always, but visit-based aide pay is the pay structure most often configured wrong in self-service software for home health agencies, and the errors compound every pay cycle until an audit or a wage claim finds them.
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
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