To set up a home care business, you form a legal entity, obtain a state license (required in most states), secure the right insurance, meet federal hiring and wage rules, and enroll in Medicaid or Medicare only if your service model calls for it. The sequence matters: hiring caregivers or marketing to clients before your license is issued is the most common way new owners waste months of work. Before any of that, decide which kind of agency you’re actually building, because the licensing track is different for non-medical personal care than for skilled home health.
Decide Which Kind of Agency You’re Running
A non-medical home care agency provides personal care: bathing, dressing, grooming, meal preparation, light housekeeping, medication reminders, and companionship. A home health agency delivers skilled medical services ordered by a physician, such as wound care, injections, and physical therapy, performed by licensed nurses or therapists. Most new entrants in this space are non-medical, and most of the steps below assume that model.
The licensing tracks diverge from day one. Non-medical agencies register through their state’s health or social services department under personal care or home care regulations. Home health agencies face a tougher certification process, including federal conditions of participation if they want to bill Medicare. Medicare only pays for skilled home health services delivered by a Medicare-certified home health agency, so a purely non-medical home care business cannot bill Medicare.1Medicare.gov. Home Health Services Coverage Medicaid-funded personal care is a separate enrollment path, covered later.
Form Your Business Entity
Choosing a legal structure is less about paperwork and more about shielding your personal bank account from lawsuits and business debts. A Limited Liability Company is the most common choice for new home care agencies because it creates a separate legal entity that owns its own assets and carries its own liabilities. If the business is sued or can’t pay its debts, creditors can generally pursue only the company’s assets, not your house or personal savings. Some owners choose an S-corporation or C-corporation instead, which involve more formal governance but offer different tax treatment. Either way, you need a registered agent in your state to receive legal documents on the company’s behalf.
Before filing with your Secretary of State, confirm your proposed business name isn’t already taken. Formation fees run from as low as $25 for a nonprofit to several hundred dollars for a standard LLC or corporation. Once the entity exists, apply for an Employer Identification Number through the IRS. The EIN is free, takes minutes online, and you’ll need it for everything that follows: opening a business bank account, filing tax returns, and hiring employees.2Internal Revenue Service. Get an Employer Identification Number
Once you hire your first caregiver, you become responsible for federal employment taxes: income tax withholding, Social Security, and Medicare. Most home care agencies file Form 941 quarterly, with returns due by the last day of the month following each quarter. If your total annual employment tax liability is $1,000 or less, the IRS may approve you to file annually using Form 944 instead.3Internal Revenue Service. Employment Tax Due Dates Missed deposits trigger penalties that compound quickly, so most new agencies run payroll through software or a service from day one.
Get Your State License
The vast majority of states require a license to operate a non-medical home care agency, though a handful do not. Rules are set at the state level, so specific requirements, fees, and timelines vary. Most applications share common elements.
You’ll typically need to designate an administrator or director who meets your state’s qualification standards. Some states require a degree in health care administration, nursing, or social work. Others accept a combination of education and management experience. The application usually asks you to describe the scope of services your agency will provide, detail your policies for handling emergencies and complaints, and supply proof that your office can securely store client records for inspection during business hours.
After submission, expect a review period. Some states process applications in a few weeks; others take 60 to 120 days, particularly when an on-site inspection is required before licensure. Inspectors look at your physical space, your written policies, and whether your recordkeeping systems meet regulatory standards. Licensing fees and renewal cycles vary too, with some states charging modest annual fees and others setting higher biennial fees based on the agency’s size.
Operating without a required license carries penalties that differ by jurisdiction and can include daily fines and orders to cease operations immediately. Don’t assume that because a neighboring state has a light regulatory touch, yours does. Check with your state’s health department or department of social services before spending money on anything else.
Certificate of Need
Some states require a Certificate of Need before approving a new health care provider, a formal determination that the community actually needs the services you plan to offer. CON requirements most commonly apply to home health agencies providing skilled medical services, nursing homes, and similar facilities.4National Conference of State Legislatures. Certificate of Need State Laws Whether your non-medical agency needs one depends on your state’s specific CON laws. If personal care is included in your state’s CON program, this step adds time and complexity, so check early.
Line Up Insurance and Bonding
Regulators, clients, and referral partners all expect a home care agency to carry proper insurance. Even in states that don’t mandate every policy below, going without them is reckless given the environments your staff works in.
- General liability insurance covers accidents on a client’s property, such as a caregiver knocking over furniture or a client tripping over equipment your staff brought into the home.
- Professional liability insurance protects the agency when a caregiver is accused of negligence in providing care. Industry-standard coverage is typically $1 million per claim and $3 million to $6 million in aggregate, though limits vary by insurer and agency size.
- Workers’ compensation insurance covers medical costs and lost wages when an employee is injured on the job. Nearly every state requires this once you have employees, with limited exceptions for sole proprietors or partnerships with no outside staff.
- Employee dishonesty surety bonds protect clients against theft or financial misconduct by your caregivers. Many states and contracts require them, and bond amounts depend on agency size and state rules.
To price these policies, carriers will ask for your estimated annual payroll, employee count, and the types of services you offer. Having coverage in place before you begin hiring signals financial stability to regulators and gives you an edge in contract bidding with hospitals, assisted living facilities, and managed care organizations.
Hire and Screen Caregivers Correctly
Your staff enters people’s homes, often caring for vulnerable adults who can’t advocate for themselves. Regulators take hiring protocols seriously, and negligent hiring is one of the fastest routes to losing your license and facing a lawsuit.
Most states require criminal background checks through fingerprint-based systems before a caregiver can work with clients. Beyond the state criminal check, any agency that participates in federal health care programs must screen employees against the Office of Inspector General’s List of Excluded Individuals and Entities. Hiring someone on that list and billing a federal program for their services can trigger claim denials, repayment demands, and civil monetary penalties.5U.S. Department of Health and Human Services, Office of Inspector General. Exclusions The OIG updates the list monthly, and the safest practice is to check it on the same schedule, both at hire and on an ongoing basis.
Many states also require health screenings before a caregiver can enter a client’s home. Tuberculosis testing is the most common. Each employee’s file should contain copies of all clearances, health screening results, and proof of work authorization. These records need to be available for state audits, which can happen with little advance notice.
Training mandates vary widely. Required initial training for non-medical home care aides ranges from as few as 8 hours to more than 100, depending on the state. If your agency pursues Medicare certification as a home health agency, federal regulations set a floor: at least 75 hours of combined classroom and supervised practical training for home health aides, including a minimum of 16 hours of classroom instruction before 16 hours of hands-on practice. After initial training, each aide must complete at least 12 hours of in-service training every 12 months.6eCFR. 42 CFR 484.80 – Home Health Aide Services Even if your agency only provides non-medical care, a structured training program protects you in negligent-training lawsuits and strengthens your reputation with referral sources.
Follow Federal Wage and Hour Rules
This is where new owners get blindsided. Home care workers are covered by the Fair Labor Standards Act, and the rules around overtime, travel time, and live-in workers are more nuanced than most employers realize.
The FLSA requires covered, nonexempt employees to receive overtime pay at one and a half times their regular rate for all hours worked over 40 in a workweek. The statute contains an exemption for employees providing companionship services to individuals unable to care for themselves due to age or infirmity.7Office of the Law Revision Counsel. 29 USC 213 – Exemptions Under regulations that took effect in 2015, however, third-party employers such as home care agencies generally cannot use that exemption and must pay their workers overtime. In July 2025 the Department of Labor published a proposed rule that would restore the exemption for third-party employers, but as of early 2026 that rule has not been finalized.8U.S. Department of Labor. Application of the Fair Labor Standards Act to Direct Care Workers Until it is, agencies should continue paying overtime for hours over 40 per week. Budget for it and track hours carefully, because wage and hour claims are among the most common lawsuits home care agencies face.
When a caregiver travels from one client’s home to another during the workday, that travel time counts as hours worked and must be paid. The agency is responsible for tracking it. An employee’s normal commute from home to the first client, and from the last client back home, is not compensable.9U.S. Department of Labor. Travel Time Failing to pay for between-client travel is one of the most common FLSA violations in this industry.
Different rules apply to caregivers who live in the client’s home. The employer and employee can agree in writing to exclude sleeping time, meal periods, and other blocks of complete freedom from duty when calculating hours worked. If a call to duty interrupts any of those periods, the interrupted time must be counted and paid. When actual hours consistently differ from the initial agreement, both parties need to renegotiate to reflect reality.10eCFR. 29 CFR 552.102 – Live-In Domestic Service Employees Live-in workers are exempt from overtime under the FLSA but must still receive at least the applicable minimum wage for every hour worked. The federal minimum is $7.25 per hour, though many states and localities set higher floors.
Enroll in Government Programs If You’ll Bill Them
Accepting Medicaid for personal care, or pursuing Medicare certification as a home health agency, adds several layers on top of your state license. If you plan to run strictly private-pay, you can skip this section.
Every health care provider that bills government programs needs a National Provider Identifier. You can apply online through the National Plan and Provider Enumeration System, by paper form (CMS-10114), or through a bulk enumeration organization. The online route is fastest.11Centers for Medicare & Medicaid Services. How to Apply – National Provider Identifier Standard
Only home health agencies providing skilled services can enroll in Medicare. The process requires completing the CMS-855A enrollment application and submitting it to your regional Medicare Administrative Contractor. The MAC reviews your application, a state survey agency or accreditation organization inspects your operations, and CMS makes the final eligibility decision. Home health agencies enrolling in Medicare on or after January 1, 1998, must also demonstrate they have enough reserve capital to operate for three months after receiving billing privileges.12Centers for Medicare & Medicaid Services. CMS-855A Medicare Enrollment Application – Institutional Providers Non-medical home care agencies that only provide personal care do not qualify.
If your agency provides Medicaid-funded personal care or home health services, federal law requires an Electronic Visit Verification system. Section 12006 of the 21st Century Cures Act mandates EVV for all covered Medicaid services that involve an in-home visit. The system must electronically record six data points per visit: the type of service, who received it, the date, the location, who provided it, and the start and end times.13Medicaid.gov. Electronic Visit Verification States that fail to implement EVV face reductions in their federal Medicaid matching rate. Your state Medicaid agency specifies which EVV system or vendor to use, so coordinate with them during enrollment rather than buying a system on your own.
Protect Client Information
Whether HIPAA applies to your agency depends on what you do and how you bill. HIPAA covers health care providers that transmit information electronically in connection with standard transactions, such as billing a health plan.14HHS.gov. Covered Entities and Business Associates If your agency bills Medicaid or any health insurer electronically, you’re a covered entity and must comply fully. If you provide strictly private-pay, non-medical care and never engage in electronic billing transactions with a health plan, HIPAA may not technically apply, but building your agency as though it does is the smarter approach. Client trust depends on it, and your business model could change.
Any time you share client information with a third party, such as a billing service, scheduling platform, or staffing agency, you need a Business Associate Agreement in writing. The BAA must require the vendor to protect client data under the same privacy and security standards your agency follows, and the vendor must notify you of any data breach.15HHS.gov. Model Business Associate Agreement Skipping this step is one of the most common compliance failures in home care, and it becomes a serious liability the moment something goes wrong.
A Workable Sequence
Pulling these threads together into a timeline helps prevent the most common mistake new owners make: spending months hiring and marketing before discovering they’re missing a regulatory prerequisite. Most agencies follow this order:
- Form your business entity with the Secretary of State and obtain your EIN from the IRS.16Internal Revenue Service. Employer Identification Number
- Secure insurance (general liability, professional liability, workers’ compensation) and any required surety bonds.
- Submit your licensing application to your state’s health department or department of social services, with administrator credentials, service descriptions, and policy manuals attached.
- Pass the state inspection if required. Inspectors typically review your physical office, records storage, and written policies.
- Enroll in government programs if applicable: obtain your NPI, complete Medicaid enrollment, and set up your EVV system.
- Hire and vet staff once your license is in hand, running background checks and completing required training before any caregiver sees a client.
Some of these can run in parallel. You can shop for insurance while your state application is under review, for example. But you generally cannot hire caregivers or accept clients until the license is issued. States that require on-site inspection before licensing add weeks or months, so file your application as early as your documentation allows. Throughout the process, keep copies of every submission, every fee receipt, and every piece of correspondence with regulators. Agencies that treat recordkeeping as an afterthought invariably struggle with their first audit, and in this industry the first audit comes sooner than most owners expect.