Payroll Compliance for Home Health Agencies: 7 Rules to Check

Quick answer: Payroll compliance for home health agencies comes down to seven rules. Pay overtime on the right rate, count travel time, classify clinicians correctly, deposit and file taxes on time, and keep records. Then tie your payroll to your Medicare cost report.

The 2026 Social Security wage base is $184,500 (SSA, IRS Publication 15). In our experience, payroll tax errors and overtime errors cost agencies the most, because they carry back pay, penalties and interest.

This guide is for owners of established Medicare home health agencies. Nurses and therapists often get paid per visit. That pay style makes overtime and cost reports harder than a plain hourly payroll. For aide-only home care, see our post on caregiver payroll.

Key takeaways

• Per-visit pay: Overtime still applies. Divide all pay by all hours worked to find the regular rate (29 CFR 778.111).
• Travel time: Drive time between patients is paid work time (29 CFR 785.38).
• Third-party employers: The companionship exemption is not available to agencies (29 CFR 552.109).
• 1099 or W-2: The IRS weighs control and the type of relationship, not the label.
• Deposits: Employment tax deposits follow a monthly or semiweekly schedule. Taxes of $100,000 or more in a day are due the next business day.
• 2026 numbers: Social Security wage base $184,500. FUTA wage base $7,000.
• Forms: Form 941 each quarter, Form 940 and Form W-2 by January 31.
• Records: Keep payroll records at least 3 years.
• Cost report: Wages and paid hours by job category feed your Medicare cost report.

Not sure your payroll would hold up in an audit? Book a free 20-minute call. We look at payroll, books and taxes together.

Rule 1: Pay overtime on the correct rate

Overtime is 1.5 times the regular rate after 40 hours in a workweek. The regular rate is not always the hourly wage on the offer letter. By DOL rule, it is the total pay for the week divided by the hours worked in that week (29 CFR 778.109).

Per-visit pay is the tricky case. The DOL piece-rate rule fits it. You add all pay for the week, including bonuses and pay for waiting time. You divide by all hours worked. That gives the regular rate. For hours over 40, you then owe an extra half of that rate (29 CFR 778.111).

Who gets overtime? DOL Fact Sheet 17N says registered nurses paid hourly should receive overtime. Licensed practical nurses and similar health care employees generally do too. A nurse can be exempt as a professional only if the duties and the pay method meet the test, including pay of at least $684 per week on a salary or fee basis.

Illustrative example (not a real nurse):

Now see what happens if payroll counts only the 38 visit hours. The nurse looks like a 38-hour employee, and no overtime is paid. That is a $86.09 error for one nurse in one week. Repeat it across a staff and a year, and the back pay is real.

What to do: Pull one full workweek for your three busiest nurses. Rebuild the regular rate from all pay and all hours. Compare it to what payroll paid.

Rule 2: Count travel between patients

Time spent traveling from one job site to the next during the workday must be counted as hours worked (29 CFR 785.38). For a field clinician, that is the drive from patient 1 to patient 2.

Mileage reimbursement is separate from this. A mileage check does not replace paying for the time. Both can be due.

Your visit software may show visit start and end times only. Drive time and charting time may sit outside the system. If payroll pulls from the visit log alone, the hours are short.

What to do: Ask how your payroll captures drive time and charting. If the answer is "it does not," fix that first.

Rule 3: Do not lean on the companionship exemption

Some agencies hear that home care workers are exempt from overtime. The federal rule says otherwise for agencies. Third-party employers may not use the companionship services overtime exemption, even when the worker is also jointly employed by the family (29 CFR 552.109). The same section blocks third-party employers from the live-in domestic service exemption.

That text is what the eCFR shows today. Rules in this area can change, so ask your employment lawyer to confirm the current status before you change pay practices. The caregiver payroll post linked above covers the aide side in more detail.

For a Medicare home health agency, the safe plan is simple. Treat aides, nurses and therapists as non-exempt unless a lawyer confirms an exemption for a specific role.

What to do: List every role. Mark which ones you treat as exempt. Get a written reason for each.

Rule 4: Classify clinicians correctly

Many agencies use therapists and nurses as 1099 contractors. The IRS says the facts fall into three groups:

• Behavioral: Do you control what the worker does and how?
• Financial: Do you control the business side of the job?
• Type of relationship: Are there contracts or benefits like insurance or vacation pay?

You weigh all three. No single factor decides it. The IRS reviews the facts and circumstances, and you can ask it for a determination on Form SS-8. The IRS says that may take at least six months.

A therapist who works your schedule, uses your forms and follows your visit rules looks more like an employee. A therapist who sets their own hours, serves other agencies and bills you as a business looks more like a contractor. Misclassification puts back payroll taxes and, if the worker is an employee, overtime on you.

What to do: Review each 1099 clinician on the three groups. Write down the answer for each one.

Rule 5: Deposit payroll taxes on time

Payroll taxes you withhold from paychecks are trust fund taxes. If they are not deposited, the trust fund recovery penalty can apply. The penalty is 100% of the unpaid trust fund tax. It can fall on the people responsible for paying it, not just the agency (IRS Publication 15).

Your deposit schedule depends on a lookback period:

• $50,000 or less of taxes in the lookback period: monthly schedule. Deposit by the 15th of the following month.
• More than $50,000: semiweekly schedule.
• $100,000 or more accumulated in a day: deposit by the next business day, on either schedule.

Illustrative example: Your four lookback quarters add up to $48,000 on Form 941, line 12. You deposit monthly. A year later they add up to $52,000, so you deposit semiweekly. That is a big change in cash timing.

What to do: Check which schedule you are on, and which lookback quarters set it for next year.

Rule 6: File the right forms on the right dates

Pub 15 lists these due dates:

If a date falls on a weekend or legal holiday, the due date is the next business day.

The 2026 numbers to load into payroll:

• Social Security wage base: $184,500 (SSA).
• FUTA wage base: $7,000 for 2026 (IRS Publication 15).
• Additional Medicare Tax: withholding begins when wages pass $200,000 in the year.

What to do: Check that your payroll system has the 2026 wage base. Calendar the January 31 filings now.

Rule 7: Keep records and tie payroll to the cost report

DOL requires employers to keep payroll records for at least 3 years (29 CFR 516.5). Keep time records, visit logs, pay rates and the support for any exempt status.

Payroll also feeds your Medicare cost report. On the home health cost report (Form CMS-1728-20), Worksheet S-3, Part V asks for paid wages by job category, plus fringe benefits, paid hours and the average hourly wage. Wages include overtime, paid time off and bonuses. Contract labor goes on separate lines. Worksheet A also takes your gross salaries, including overtime and bonuses, from your books (CMS Provider Reimbursement Manual, Chapter 47).

So an overtime error is not only a labor problem. If wages by discipline in payroll do not match the books, the cost report can be wrong. And that report can be audited. Our home health cost report audit guide shows what reviewers ask for.

This is why we treat payroll as one part of the full back office. Your books, taxes and payroll have to agree. Our home health accounting team keeps them in one set of numbers. When payroll is built in that same system, wages by discipline are ready at year-end.

What to do: Ask whether your payroll report breaks wages out by nurse, therapist and aide, with paid hours. If not, the cost report will take extra work.

Your payroll compliance checklist

1. Rebuild one week of per-visit overtime for three clinicians.
2. Confirm drive and charting time reach payroll.
3. List which roles you treat as exempt, with written support.
4. Review each 1099 clinician against the IRS three groups.
5. Confirm your deposit schedule and the lookback period.
6. Load the 2026 wage bases and calendar the January 31 filings.
7. Check that payroll, the books and the cost report wages agree.

If two or more of these fail, book a free 20-minute call and we will review them together.

Frequently asked questions

Do home health agencies have to pay overtime?

Yes, for non-exempt employees. Overtime is due after 40 hours in a workweek. DOL says registered nurses paid hourly should receive overtime, and licensed practical nurses generally do too.

How is overtime figured for per-visit pay?

DOL's piece-rate rule fits this pay style. Add all pay for the week, divide by all hours worked to get the regular rate, then pay half that rate for each hour over 40 (29 CFR 778.111). Your employment lawyer should confirm how it applies to your staff.

Is drive time between patients paid time?

Yes. Travel from job site to job site during the workday counts as hours worked (29 CFR 785.38). Those hours also count toward the 40-hour overtime line.

Can I treat my therapists as 1099 contractors?

Only if the facts support it. The IRS looks at behavioral control, financial control and the type of relationship. The label in your contract does not decide it. Review each person, not just the job title.

What is the 2026 Social Security wage base?

$184,500 for 2026 (SSA and IRS Publication 15). Social Security tax stops on wages above that amount. Medicare tax has no cap, and the FUTA wage base is $7,000 for 2026.

How long do I keep payroll records?

At least 3 years for payroll records under the DOL rule (29 CFR 516.5). Keep time records that show visits, drive time and hours worked, because they support both pay and the cost report.

Next step

Book a free 20-minute call with Christian Soriaga, CPA. We are a CPA firm with 20+ years in healthcare accounting, including home health and hospice. We will look at your books, taxes and payroll as one back office and show you where they do not agree. See our home health accounting services for how the pieces fit. Payroll is one piece of that, and our payroll services work best alongside the books and tax work, not on their own.

Sources

• eCFR, 29 CFR 778.109, The regular rate is an hourly rate
• eCFR, 29 CFR 778.111, Pieceworker
• eCFR, 29 CFR 785.38, Travel that is all in the day's work
• eCFR, 29 CFR 552.109, Third party employment
• eCFR, 29 CFR 516.5, Records to be preserved 3 years
• DOL Wage and Hour Division, Fact Sheet #17N, Nurses and the Part 541 exemptions
• IRS, Independent contractor (self-employed) or employee?
• IRS, Publication 15 (2026), Employer's Tax Guide (due dates, deposit schedules, trust fund recovery penalty, wage bases)
• SSA, Contribution and benefit base
• CMS, Provider Reimbursement Manual Part 2, Chapter 47, Form CMS-1728-20 (Worksheet S-3 Part V, Worksheet A salaries)

Last updated: October 2026.

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

Soriaga & Associates, LLC is a CPA firm founded in 1985 in Lisle, Illinois, serving home health, hospice, home care, wound care and dental providers nationwide. (630) 491-1268.