Home Care Agency Taxes: Caregiver Overtime, Travel Time Between Clients, the Medicaid Waiver Lag, and the Companionship Exemption You Can't Use

Home care is a labor business in which the labor law does most of the tax work. The agency and the registry. A home care agency employs caregivers (companions, homemakers, personal care aides, and — in a licensed home health agency — nurses and therapists) and places them with clients: the agency hires, trains, schedules, supervises, and pays the caregivers, sets the rates, and bills the clients — the caregivers are the agency's employees under every test (the carpet cleaning classification guide), on payroll with withholding, the employer's payroll taxes, unemployment, and workers' compensation (a high rate for home care — lifting, transfers, driving, and the client's home as the worksite). A registry (a "nurse registry" or caregiver referral service, a licensed category in some states — Florida's nurse registries are the familiar example) refers independent caregivers to clients, who hire them directly; the registry charges a referral or matching fee and the caregivers are the clients' household employees or independent contractors — the registry model survives only where the registry genuinely doesn't control the work (no scheduling, no supervision, no setting the caregiver's pay), and the Department of Labor and the state agencies look through registries that operate like agencies; a registry that sets rates, assigns shifts, and handles the payroll is an employer by another name. The companionship exemption — gone for agencies: the Fair Labor Standards Act's exemption from minimum wage and overtime for companionship services, and its overtime exemption for live-in domestic workers, cannot be claimed by third-party employers (agencies) since the Department of Labor's 2015 rule (a July 2025 Department of Labor proposal would restore the pre-2015 exemptions for third-party employers; until a final rule takes effect, the 2015 rule governs) — an agency must pay its caregivers at least the minimum wage and time-and-a-half for hours over forty in a workweek, including the live-in caregivers (with the federal rules allowing agreed sleep and meal time to be excluded, and any stricter state rules); the individual, family, or household that employs a caregiver directly may still claim them — the companionship exemption only if care (help with daily living and fairly incidental tasks) is no more than 20 percent of the caregiver's weekly hours, and the live-in exemption from overtime but not from minimum wage. Travel time — compensable: a caregiver who works for several clients in a day is paid for the travel time between clients (hours worked under the wage-and-hour rules — the commute to the first client and home from the last is not), and the mileage driven between clients in the caregiver's own car is reimbursed (an accountable plan at the standard mileage rate — deductible to the agency, not wages to the caregiver — the courier deductions guide's reimbursement point; an agency that doesn't reimburse may push a minimum-wage caregiver's effective pay below the minimum, a violation); the scheduling software's travel-time and mileage tracking is the payroll's input and the wage-and-hour defense. The payroll's shape: caregivers are paid hourly (often the agency's largest cost at 60 to 70 percent of revenue), with overtime for live-in and heavy-schedule caregivers, the shift differentials for nights and weekends, the holiday pay, and the state's paid-sick-leave accruals; the agency's gross margin is the difference between the bill rate and the pay rate plus the burden (payroll taxes, workers' compensation, benefits, and the overtime premium) — an agency that doesn't price the overtime premium into its live-in rate loses money on its most demanding clients. Revenue — the payer mix and the lag: private pay (the family pays the agency — weekly or biweekly invoicing, often by card or ACH — income when received under the cash method), long-term care insurance (the client's policy reimburses — the agency often bills the insurer on assignment, and the insurer pays weeks later after its elimination period and documentation review), the Veterans Affairs programs (the aid and attendance benefit paid to the veteran, or the VA's community care contracts paying the agency directly), and Medicaid home and community-based services waivers (the state's program — or its managed care organizations — pay the agency for authorized hours at the state's rate, 30 to 90 days after the service, with authorizations, electronic visit verification, and billing rules that deny claims for documentation errors); the cash method's income is what arrives, and the Medicaid-heavy agency's receivables are the working capital problem — the agency pays its caregivers weekly and waits months for the state. The electronic visit verification requirement: federal law requires states to use electronic visit verification for Medicaid personal care and home health services — the caregiver clocks in and out at the client's home through an app or a telephony system, and the claim is paid only if the visit's data matches — so the agency's EVV system is both a compliance cost and the revenue's gatekeeper. The other deductions: the caregivers' training (the state's required hours for home care aides, the dementia and specialty training, the CPR — deductible), the background checks and the drug tests (mandatory — deductible), the licensing (the state's home care or home health license, the Medicaid provider enrollment, the accreditation some payers require), the scheduling and EVV software, the office (a small one — home care is delivered in clients' homes), the recruiting (a large and constant cost — caregiver turnover in the industry is very high: the job boards, the sign-on bonuses — wages when paid — and the referral bonuses), the insurance (general liability, professional liability, abuse and molestation coverage, the non-owned auto coverage for caregivers driving clients, workers' compensation, and the fidelity bond — theft from clients is the sector's reputational risk), and the marketing (referral relationships with hospitals, discharge planners, senior living communities, and elder law attorneys — the referral rules for Medicaid-funded services prohibit paying for referrals). Entity and the specified service question: non-medical home care (companionship, homemaking, personal care) is not "health" under the regulations (the regulations' health field is medical services provided directly to patients by physicians, nurses, therapists, and similar healthcare professionals — an aide's companionship and personal care isn't); a licensed home health agency providing skilled nursing and therapy is in the health field (an SSTB) — so an agency that does both reviews the de minimis rule or separates the lines (the home care entity guide). Sales tax: home care services are exempt in nearly every state. The bookkeeping: revenue by payer (private, long-term care insurance, VA, Medicaid waiver by program or managed care organization) with the receivables aged by payer; payroll with overtime, travel time, and mileage reimbursements under the accountable plan; EVV records reconciled to billed hours; training, background checks, and licensing; the recruiting line; insurance by policy. The errors: live-in caregivers paid a flat day rate with no overtime (a frequent Department of Labor home care finding); travel time between clients unpaid; mileage unreimbursed; the registry that schedules and pays like an agency; Medicaid claims denied for EVV mismatches and never rebilled; and the Medicaid receivables projected as if they were private pay.

Key takeaways

• Caregivers placed, scheduled, and paid by the agency are its employees; a registry avoids employer status only if it genuinely doesn't control the work.
• Agencies can't use the companionship exemption or the live-in overtime exemption — minimum wage and overtime apply to every caregiver, live-ins included; price the overtime premium into the live-in rate.
• Travel time between clients is compensable, and mileage in the caregiver's car is reimbursed under an accountable plan — the scheduling software's records are the defense.
• Revenue follows the payer mix: private pay weekly; long-term care insurance and VA weeks later; Medicaid waivers 30–90 days after service, gated by electronic visit verification — the Medicaid-heavy agency's receivables are its working capital problem.
• Training, background checks, licensing, recruiting, and abuse and fidelity coverage are the sector's mandatory costs; referral payments for Medicaid-funded clients are prohibited.
• Non-medical home care is not a specified service trade; skilled home health is — a mixed agency reviews the de minimis rule or separates the lines.

The home care agency's deduction file

Classification: agency employees, or a registry's documented non-control. Payroll: hourly, overtime (live-ins included), travel time, shift differentials, sick leave. Mileage reimbursements (accountable plan). Revenue by payer; receivables aged by payer. EVV records reconciled to billed hours; denials and rebills. Training, background checks, drug tests. Licensing, Medicaid enrollment, accreditation. Recruiting; sign-on bonuses as wages. Insurance (GL, professional, abuse, non-owned auto, workers' comp, fidelity bond). Marketing within the referral rules. SSTB review for skilled lines. The overtime and travel-time lines are the Department of Labor's first questions.

Worked example

A home care agency with 85 caregivers bills US$3.4 million: US$1.5 million of private pay (weekly invoices — income when received), US$620,000 of long-term care insurance on assignment (US$95,000 outstanding at year-end — next year's income), US$240,000 from the VA's community care contract, and US$1.04 million from two Medicaid managed care organizations (US$210,000 of receivables at year-end aged 30 to 90 days; US$38,000 of claims denied for EVV mismatches — corrected and rebilled). Payroll: US$2.2 million of caregiver wages including US$190,000 of overtime (twelve live-in caregivers paid for all hours over forty — the agency's live-in bill rate was raised this year to price the premium), US$64,000 of travel time between clients, and US$41,000 of mileage reimbursements at the standard rate under the accountable plan (not wages). Training for 140 new caregivers (turnover), background checks and drug tests for every hire, the state license and the Medicaid enrollments, US$85,000 of recruiting (job boards, US$22,000 of sign-on bonuses paid through payroll). Insurance: workers' compensation at the home care rate, abuse coverage, non-owned auto, a fidelity bond. Net profit lands in the low six figures — an S corporation with the owner's salary from a home care administrator's wage (the entity guide), non-medical home care treated as non-SSTB. The registry across town that set its caregivers' rates, assigned their shifts, and ran their pay through its own account: a Department of Labor finding that it was the employer, and back overtime for three years of live-in shifts (the willful-violation look-back).

Official sources

The Department of Labor states: “However, travel from job site to job site during the workday, such as travel between several clients during the workday, is compensable hours worked. The third-party employer is responsible for ensuring that travel time from job site to job site is paid.” — U.S. Department of Labor, Wage and Hour Division, Travel Time, https://www.dol.gov/agencies/whd/direct-care/travel-time

The IRS states: “To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.” — Internal Revenue Service, Topic no. 510, Business use of car, https://www.irs.gov/taxtopics/tc510

Practitioner note

A home care agency's return is a payroll with the labor law written into it: the companionship exemption is gone for agencies, live-in caregivers are owed overtime, and travel time between clients is hours worked — so the gross margin is the bill rate minus a pay rate that includes all three. Our home care files reconcile the electronic visit verification records to the billed hours, age the Medicaid receivables by payer because the state pays in ninety days while the caregivers are paid every week, and reimburse mileage under an accountable plan — because the registry that sets rates and assigns shifts is an employer the Department of Labor will find.

See also: For related guidance, see staffing agency taxes: the payroll you carry for clients and workers' compensation by class code; and browse every small business tax guide, by situation.

Next step

Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk handles home care agency returns and planning — caregiver classification and registry analysis, overtime and travel-time payroll compliance, accountable-plan mileage reimbursement, payer-mix revenue timing including Medicaid waivers and long-term care insurance, EVV reconciliation, and licensing and recruiting cost tracking. See pricing or book a call.