Home Health and Caregiving Businesses

A home health or caregiving business is really one of two different businesses - a licensed home HEALTH agency delivering skilled medical care, or a non-medical companion/homemaker care business - and each carries its own state license, while both sit on top of a federal wage-and-hour rule that trips up agencies more than almost anything else in this field. Get the classification and pay rules wrong and the exposure is not a fine on paper - it is back wages, back payroll taxes, and personal liability for the owner. This guide walks through both sides.

Two different businesses under one label

"Home care" covers two legally distinct kinds of business, and which one you are running determines your license, your staffing rules, and often your reimbursement source.

• A home health agency delivers skilled, medically necessary care - nursing, physical or occupational therapy, wound care - ordered by a physician. States generally require a home health agency license from the state health department, and if you want to bill Medicare (or many Medicaid or private insurance programs), you generally need Medicare certification, which means meeting federal Conditions of Participation and passing a survey conducted by the state or an approved accrediting organization on behalf of the Centers for Medicare & Medicaid Services (CMS).
• A non-medical companion, homemaker, or personal-care business provides help with bathing, dressing, meal prep, light housekeeping, transportation, and company - not medical care. Many, but not all, states separately license or require registration of these agencies through the state health department or a state aging agency, even though no clinical care is involved. Some states have detailed non-medical licensing rules; others have very little. There is no single national answer - check your state health department or department of aging before you open.

Some owners eventually run both lines side by side, which usually means holding two separate licenses and following two separate rulebooks under one roof. Do not assume that being licensed for one covers the other.

The federal wage rule that catches agencies off guard

This is the part of the industry most likely to blindside a new agency owner. The Department of Labor's wage-and-hour rules for home care work turn on a specific, and currently contested, federal question: can a third-party employer - meaning an agency, not the family itself - treat a home care worker as exempt from federal wage protections under the "companionship services" exemption, or the separate "live-in" exemption?

It helps to know that these two exemptions do different things. The companionship-services exemption exempts a qualifying worker from both the federal minimum wage and overtime. The live-in exemption is narrower: it exempts a live-in domestic worker from overtime only, and the employer still owes at least the federal minimum wage for all hours worked. Agencies sometimes assume "live-in" means the pay rules stop applying. It does not.

Since 2013, the Department of Labor's regulation (29 CFR 552.109) has provided that a third-party agency generally may not claim either exemption for the caregivers it employs, even when the work is companionship-only - so most agency-employed caregivers must be paid at least the federal minimum wage and time-and-a-half overtime for hours worked over 40 in a week. A family that hires and directly employs a caregiver in their own home is in a different position and may still be able to use these exemptions if the requirements are met.

Flag this prominently: the rule is genuinely unsettled right now. In July 2025 the Department of Labor proposed rescinding the third-party restriction and reinstating the companionship and live-in exemptions for agency employers, and later that month its Wage and Hour Division issued a field bulletin (FAB 2025-4) telling its own investigators to stop enforcing the 2013 rule against third-party agencies claiming those exemptions while the proposal is pending. But as of this writing no final rule has been issued: the comment period closed in September 2025, the Department's regulatory agenda projects a final rule but has not delivered one, and the 2013 regulation remains on the books as the governing law.

That distinction matters enormously to you as an owner. An enforcement pause by the Department of Labor is not a change in the law. It does not stop a caregiver from suing you directly under the federal wage law - private lawsuits are unaffected by the bulletin - and it does not touch your state's own overtime and minimum wage requirements, which apply independently of whatever the federal rule ends up saying and are stricter in several large home care markets. Do not set your pay practices from memory or from this article - confirm the current rule directly at dol.gov (Wage and Hour Division, home care / direct care resources) and talk to an employment attorney before you decide how to classify and pay your caregivers, especially if you employ live-in or 24-hour-shift staff.

Live-in and sleep-time pay are technical

If your caregivers work 24-hour shifts or live in a client's home, federal wage-hour rules allow certain sleep and meal periods to be excluded from paid hours only under specific conditions: there must be an agreement with the employee, the employer must furnish adequate sleeping facilities, and the employee must actually be able to get an uninterrupted night's sleep. Any call to duty during a sleep period must be counted and paid. And if a scheduled sleep period is interrupted enough that the caregiver cannot get a reasonable night's sleep, federal enforcement guidance treats the whole period as paid working time, not just the interruption. These rules are exacting, and agencies that assume overnight or live-in shifts are automatically low-paid or unpaid time routinely end up owing significant back wages. Put live-in and sleep-time agreements in writing, keep accurate time records, and get a wage-hour professional to check your pay structure before you schedule anyone this way.

Classification: employee, almost always - not contractor

Calling caregivers "independent contractors" to avoid overtime, payroll taxes, and workers' comp is one of the most common enforcement targets in this industry, at both the federal and state level. Worker classification is a legal test based on the real working relationship, not a label in a contract - and a home care agency that schedules the caregiver, assigns them to clients, sets their pay rate, trains them, and supervises the work will rarely survive scrutiny as a true independent-contractor relationship. Getting this wrong exposes the owner to back wages, back payroll taxes with interest and penalties, and in many states, workers' comp and unemployment insurance liability. Remember too that the payroll taxes you withhold are trust-fund money - if they go unpaid, the IRS can pursue owners and other responsible persons personally, even though you operate through an LLC or corporation.

Background checks, registries, and staffing rules

States commonly require criminal background checks - sometimes at both the state and federal level - before a caregiver can work unsupervised in a client's home, and many states maintain a registry (often tied to nurse aide or home care aide certification) that agencies must check before hiring. Some states set minimum training hours or require enrollment in a state aide registry as a condition of licensure. These requirements, and how often they must be renewed, vary by state and sometimes by the funding source (Medicaid-funded care often layers on extra requirements) - confirm the current rule with your state health department or aging agency before you hire.

Duty to report abuse and neglect

Caregivers and agency staff are commonly designated mandatory reporters under state adult protective services law, meaning they must report suspected abuse, neglect, self-neglect, or financial exploitation of an elderly or vulnerable client - usually to the state's Adult Protective Services agency, sometimes also to the licensing board. Exactly who is a mandatory reporter, what triggers the duty, and the reporting deadline vary by state. Build this into new-hire training and your policy manual, and confirm your state's specific rule rather than relying on a general description.

Workers' comp and insurance

Home care work involves physically demanding tasks - lifting and transferring clients, assisting with mobility - and is a high-injury field. Workers' compensation coverage requirements for employers are set at the state level and generally apply once you have employees, though the trigger and the exemptions differ; confirm your state's rule with your state workers' comp agency. (If you are the one who got hurt on the job, that is the injured-worker side of the law, covered separately.) Caregivers who drive between clients or transport clients in their own vehicles also raise auto-liability questions that ordinary personal auto policies often do not cover - talk to your insurance agent about commercial or non-owned auto coverage on top of your general business insurance.

HIPAA and client privacy

Whether HIPAA applies directly to your agency depends on whether you conduct certain standard electronic health-care transactions - for example, electronic billing to Medicare, Medicaid, or a managed-care plan. If you do, you are likely a HIPAA "covered entity" with its full compliance obligations. If you don't bill that way, HIPAA may not apply to you directly, but most contracts with hospitals, managed-care organizations, or referral partners will require you to sign a business associate agreement and handle client health information to HIPAA-level standards anyway - and your state is likely to have its own confidentiality law covering client records regardless of HIPAA's reach. Treat client health and personal information as protected either way: limit who can access records, secure devices, and train staff.

What to do

1. Decide, honestly, whether you are operating a home health agency, a non-medical care agency, or both - and confirm the licensing path for each with your state health department or aging agency.
2. If you want to bill Medicare, research CMS Medicare certification and the survey process before you count on that revenue.
3. Before you set caregiver pay, confirm the current federal wage-hour rule for third-party home care employers at dol.gov and get an employment attorney's read on your state's overtime rules, especially for live-in and 24-hour shifts.
4. Classify caregivers honestly as employees unless a genuine, verified independent-contractor relationship exists - do not choose the label to save money.
5. Confirm your state's background-check, registry, and training requirements before you place a caregiver in a client's home.
6. Build mandatory-reporting duties for suspected abuse or neglect into onboarding and policy, using your state's specific rule.
7. Line up workers' comp coverage and talk to your insurance agent about auto liability for caregivers who drive for work.
8. Put privacy safeguards and any needed business associate agreements in place before you start handling client health information.

Free help is available: the Small Business Administration (sba.gov), SCORE, and your state's Small Business Development Center can walk through licensing and hiring questions at no charge, and the Department of Labor's Wage and Hour Division answers wage questions directly.

This is general information, not legal, tax, or financial advice.