To start a companion care business, you register a business entity with your state, get an Employer Identification Number from the IRS, register for state payroll taxes, secure general liability and professional liability insurance along with workers’ compensation, meet your state’s home care licensing requirements (if it licenses non-medical agencies), pass a background check on every owner and caregiver, and set up payroll and contracts that comply with federal wage-and-hour rules. Each step gates the next, and skipping ahead almost always means going back.
Register a Business Entity First
Your first filing separates your personal finances from the agency’s liabilities. Most companion care owners register a Limited Liability Company or a Corporation because either creates a legal wall between business debts and your personal bank accounts, home, and other property. A sole proprietorship is simpler but offers no such protection. If a caregiver injures a client or the agency is sued, a sole proprietor’s personal assets are on the table.
An LLC is formed by filing Articles of Organization with the Secretary of State where you plan to operate. Corporations file Articles of Incorporation. Filing fees generally fall between $50 and $500. Once approved, you receive a certificate of formation or good standing, which you will need to open a business bank account, sign vendor contracts, and apply for your state home care license.
Keeping the legal separation intact requires discipline after formation. Keep a dedicated business bank account and never run personal expenses through it. Most states also require an annual or biennial report to keep the entity in good standing; miss that filing and the state can administratively dissolve your company, which wipes out your liability protection until you reinstate.
Get an EIN and Register for Payroll Taxes
Every companion care agency with employees needs an Employer Identification Number from the IRS. You apply on Form SS-4, and the online application issues the number immediately.1Internal Revenue Service. Instructions for Form SS-4 (12/2025) The EIN goes on every tax return, payroll filing, and state license application from that point forward.
Getting the EIN also triggers federal payroll tax obligations. You withhold federal income tax and the employee share of Social Security and Medicare from each paycheck, then pay the employer match. You also owe Federal Unemployment Tax (FUTA) on the first $7,000 of wages paid to each employee per year. The gross FUTA rate is 6.0%, but employers who pay state unemployment tax on time receive a credit of up to 5.4%, cutting the effective federal rate to 0.6%.2Internal Revenue Service. 2025 Instructions for Form 940 You report FUTA annually on Form 940, and the IRS pre-enrolls new EIN holders in the Electronic Federal Tax Payment System for deposits.
Register with your state’s unemployment insurance agency as well, and in most states with its income tax withholding program. These registrations happen through the state department of revenue or department of labor. Skipping this creates more than tax problems: many states will not issue a home care license to an agency that hasn’t registered for state payroll taxes.
Check Whether Your State Licenses Companion Care
Licensing rules for non-medical home care vary dramatically by state. Some require a specific Home Care Organization license or Home Care Aide agency registration. Others require only a general business license. A handful have no licensing requirement at all for agencies providing strictly non-medical services like companionship, meal preparation, light housekeeping, and transportation. Your state’s Department of Health or Department of Social Services website tells you which category applies.
Where licensing does apply, expect operational standards covering caregiver background checks, training minimums, record-keeping, and reporting. Unlicensed states may still impose requirements through consumer protection laws or local ordinances, so check at the county level too. Operating without a required license exposes you to fines and potentially criminal penalties, and it can make your contracts unenforceable.
One boundary worth noting: companion care sits apart from medical home health care because it does not involve clinical services like wound care, medication administration, or skilled nursing. Companion care agencies typically do not pursue Medicare or Medicaid certification, which is designed for skilled nursing providers.3Centers for Medicare & Medicaid Services. Nursing Homes If you plan to serve clients through a state Medicaid waiver program, you will need to meet that program’s separate enrollment standards, which may include Electronic Visit Verification systems mandated for Medicaid-funded personal care services by the 21st Century Cures Act.4Medicaid. Electronic Visit Verification
Line Up Insurance and Bonding
State licensing applications almost universally require proof of insurance before they will process your paperwork. At a minimum, you need General Liability insurance, which covers accidents like a caregiver damaging a client’s property, and Professional Liability insurance, which covers claims that a caregiver’s negligence caused harm to a client. Most states require at least $1,000,000 per occurrence on each policy. Annual premiums for professional liability vary widely with headcount and services, but a startup agency with a handful of caregivers can expect to pay from several hundred to a couple thousand dollars per year.
Workers’ Compensation insurance is required in nearly every state for any business with employees. A few states exempt very small employers, often those with fewer than three or five workers, but exemption thresholds vary and relying on one is risky. A single workplace injury claim from an uninsured caregiver can bankrupt a small agency.
Many agency owners also carry a fidelity bond (sometimes called an employee dishonesty bond), which protects clients if a caregiver steals money or property from their home. Fidelity bonds are not legally required in most states for non-medical companion care, but clients and referral sources often expect them. Coverage typically ranges from $5,000 to $100,000, with modest premiums for small agencies.
Write the Policy and Procedure Manual
The policy and procedure manual is the document state reviewers scrutinize most closely during licensing. It is the agency’s operational rulebook, and analysts expect specific protocols rather than vague promises. At a minimum, the manual needs to address client emergencies, caregiver training and supervision, complaint resolution, infection control, and client privacy.
States that license companion care typically require language about elder abuse identification and reporting. Every state has mandatory reporting laws for suspected abuse or neglect of elderly or vulnerable adults, and most classify professional caregivers as mandatory reporters. Your manual should spell out how caregivers recognize signs of abuse, who they report it to internally, and the timeline for filing with the appropriate state agency. Failure to report can result in personal criminal liability for the caregiver and administrative penalties for the agency.
Emergency preparedness is another area reviewers look for. The manual should describe what happens when a caregiver cannot reach a client during severe weather, when a client loses power and depends on medical equipment, and how the agency communicates with local emergency officials about clients who may need evacuation. A power outage in winter or a hurricane evacuation order can put homebound clients at serious risk, and the agency has a responsibility to plan for it.
Run Background Checks on Everyone
Every state that licenses companion care requires criminal background checks on agency owners, managers, and caregivers before they have client contact. Many states use electronic fingerprinting through both state criminal databases and the FBI’s national database. Cost per person typically runs $30 to $100.
Checks generally screen for disqualifying offenses like violent crimes, theft, fraud, and any history of abuse or neglect. Some states maintain a registry of individuals found to have committed abuse in a care setting, and agencies must check that registry along with running criminal checks. Owners and managers face the same screening. A disqualifying conviction anywhere in the ownership structure means the license application will be denied.
Beyond criminal checks, some agencies voluntarily screen employees against the Office of Inspector General’s List of Excluded Individuals and Entities. This check is not legally required for agencies that don’t bill federal healthcare programs, but the OIG recommends it, and performing it monthly demonstrates diligence that can help in a future dispute.
File the License Application and Pass Inspection
Once the entity is formed, insurance is in place, the policy manual is drafted, and background checks are clear, you file the license application. Most states accept electronic submissions through a health department or social services portal. Application fees generally range from a few hundred dollars to $2,500, and the fee is typically non-refundable.
The application asks for detailed information about the agency: the exact geographic areas you plan to serve by county or zip code, names and background check results for anyone with a significant ownership stake (usually more than 10%), and the identity of the day-to-day operations manager. Inaccurate or incomplete answers are the most common reason applications stall.
After submission, the state enters a review period commonly lasting 30 to 90 days. A licensing analyst compares your documentation against regulatory standards. If something is missing, the analyst issues a deficiency notice, and you typically have 15 to 30 days to correct and resubmit. Failing to respond in time can force you to start over.
The final step in most states is an on-site inspection of your business office. The inspector checks that client records are stored securely, required labor law posters are displayed, the policy manual is complete and accessible, and the physical space meets applicable standards. Passing the inspection triggers issuance of your license, and you can legally begin placing caregivers with clients.
Pay Caregivers Correctly Under Federal Wage and Hour Rules
This is where many new agency owners make expensive mistakes. The Fair Labor Standards Act includes a companionship services exemption that allows certain domestic workers to be exempt from minimum wage and overtime.5Office of the Law Revision Counsel. 29 USC 213 – Exemptions Since 2015, that exemption is available only to individuals, families, or households who directly employ a companion worker. Third-party employers like staffing agencies cannot claim it.6U.S. Department of Labor. Application of the Fair Labor Standards Act to Direct Care Workers If you are starting a companion care agency, you are a third-party employer, and you must pay caregivers at least the federal minimum wage for every hour worked and overtime at time-and-a-half for every hour over 40 in a workweek.
Travel time between clients is another frequently mishandled area. When a caregiver finishes with one client and drives to the next client’s home, that travel time counts as hours worked and must be paid. The commute from the caregiver’s home to the first client of the day and from the last client back home does not count.7U.S. Department of Labor. Travel Time Agencies that fail to pay for inter-client travel are among the most common targets of Department of Labor enforcement actions in home care.
Because inter-client travel, training time, and certain on-call hours all count as compensable work, your timekeeping system needs to capture these categories separately. Agencies that track only client-facing hours routinely underpay caregivers and face back-wage claims. Investing in a timekeeping app that records clock-in, clock-out, and travel segments from the beginning is far cheaper than settling a wage complaint later.
Put Client and Employee Agreements in Place
Every client relationship should be governed by a written service agreement signed before care begins. The agreement defines exactly what the caregiver will do: the types of tasks, the scheduled hours, and the specific days of service. It should also state clearly what the agency does not do, particularly anything involving medical care, medication management, or clinical interventions. That boundary protects the agency from liability if a client or family member later claims a caregiver should have performed a medical task.
Payment terms belong in the agreement as well: the hourly rate, the billing cycle, accepted payment methods, and any late-payment policies. Non-medical companion care rates vary by region and can range from the mid-$20s to the low $40s per hour depending on the market and level of care. Address termination too. Both the client and the agency need the right to end the arrangement, typically with a two-to-four-week notice period. Include language about what happens if a caregiver becomes unavailable, because gaps in care can create safety issues for clients who depend on regular support. Many states also require agencies to provide a Client Bill of Rights at the start of service, and your intake packet should reference or incorporate it.
On the employee side, an Employee Handbook sets baseline expectations for every caregiver: professional conduct, attendance, dress code, and the process for reporting concerns. It establishes at-will employment (where your state recognizes it) and documents policies on overtime, meal breaks, and anti-harassment. A signed acknowledgment from each caregiver provides a defense in a labor dispute.
Individual employment agreements spell out the terms in more detail: pay rate, pay schedule, job duties, and confidentiality obligations. They commonly include a non-solicitation clause to prevent caregivers from encouraging clients to leave the agency and hire them directly. Non-solicitation clauses are legally distinct from non-compete agreements. A properly drafted non-solicitation clause restricts the caregiver from actively recruiting the agency’s clients but does not prevent the caregiver from working elsewhere or accepting a position if a client independently offers one. Several states have scrutinized or penalized agencies whose contract language was broad enough to function as a non-compete, so keep the clause narrow and have an attorney review it.
Keep the License and Entity in Good Standing
Most states require annual license renewal, which involves submitting updated documentation, paying a renewal fee, and sometimes passing another inspection. Letting the renewal lapse, even by a few days, can force you to stop accepting new clients until it is reinstated. Put the renewal deadline on your calendar as soon as the initial license arrives.
The business entity needs ongoing maintenance too. Most states require an annual or biennial report with the Secretary of State, with fees ranging from nothing in a few states to several hundred dollars in others. Failing to file leads to administrative dissolution, which eliminates your personal liability protection until you reinstate.
Caregiver background checks are not one-time events. Many states require periodic re-screening of active employees, and the agency should have an internal policy for ongoing checks even where the state doesn’t mandate a specific interval. Employee files should stay current with training records, signed policy acknowledgments, and any disciplinary documentation. Inspectors can request these files during unannounced visits, and incomplete records are one of the fastest ways to draw a citation.