Payroll is one of the most important — and challenging — aspects of the home healthcare industry. Employers manage many types of staff pay, from salaried or hourly to part-time, full-time, or temporary, and must also consider vacation pay, benefits, sick leaves, and overtime.
On top of that, payroll teams have to juggle and carefully monitor government regulations and compliance. With so many different factors, it’s no wonder home healthcare companies often find payroll challenging. Thankfully, there are a few tricks to streamline the payroll process and minimize errors.
Understanding payroll challenges in home healthcare
Home healthcare companies have a mostly mobile staff with nurses, home care aides, and physicians often working alone in the field. One of the biggest payroll challenges is syncing staff hours and locations to the central office, and it’s especially grueling for those that use manual payroll methods.
In addition, organizing and scheduling mobile workers across a large city area with many patients while also monitoring shift rotations, on-call shifts, and overtime is an enormous task. Mistakes may overwork nurses or aides, cause poor quality outcomes, leave patients without care, or lead to expensive labor costs.
11 tips for home healthcare payroll perfection
While your team faces a complex process, it’s possible to run an errorless and efficient pay cycle. All it takes is a few key strategies and the right payroll tools to transform a frustrating or inefficient process into one that’s compliant and easy to manage, no matter the type of healthcare facility.
1
Establish clear payroll policies
The first step is to create a manual describing all payroll activities, company policies, and guidelines. These policies should cover:
Pay schedules
Payroll exceptions
Change review and approval procedures
Record management and retention
A manual is a quick reference guide and provides a clear set of steps so your payroll team can easily comply with labor laws and standards. Keep these policies handy for all employees to foster transparency and communication.
2
Develop a detailed payroll calendar
Planning payroll a year in advance helps home healthcare companies stay ahead of the game. At its most basic, a payroll calendar sets the pay schedule so staff know when they will receive their earnings. However, it also provides key dates for issuing W-2s, new tax rate changes, and filing and paying payroll taxes.
For example, in fall 2024, the IRS announced an increase to the Social Security tax wage base starting in January 2025. The withholding and contribution rate will stay the same for employers and employees, but the base wage limit moves from $168,600 to $176,100.
Employees will pay more taxes, but you’ll also need to plan and budget for higher employer contributions. Using a payroll calendar helps you manage these deadlines and changes and organize your payroll so your home healthcare company stays compliant and avoids filing penalties or other costs.
3
Set a payroll budget
Businesses need to have enough money on hand to pay their employees and contractors at all times, so they should have a clear understanding of what impact payroll will have on their finances.
Payroll is a major expense because of the additional taxes that come with regular pay. Medicare and Social Security withholding matching, taxes, and benefits, like 401(K) matching and health insurance, can cost 15% to 20% or more of a home healthcare company’s total payroll costs.
Experts recommend calculating total payroll costs as a percentage of home healthcare company revenue. Then, you can set a budget to ensure the expenses won’t negatively affect your finances.
4
Classify workers accurately
Once policies, processes, and the budget are in place, classify workers as employees or independent contractors. Proper classification is essential because your working relationship changes your payment, tax withholding, and tax contribution requirements.
If you class an employee as a contractor, you may have to pay out expensive back wages and overtime to your staff plus back taxes to the state and federal government. You may also face state and federal fines and penalties, which can quickly add up.
Home healthcare companies must check that all employees supply an IRS form W-4. Independent contractors must file W-9 forms. If independent contractors are paid more than $600 per calendar year, companies must complete a 1099 form, and send it to contractors for tax reporting.
5
Automate employee scheduling
Scheduling nurses, CNAs, and home care or personal care aides for a month-long schedule is daunting. Each type of work and appointment needs staff with specific licenses and must factor in:
- Patient case mix
- New vs experienced staff mix
- Time off requests
- Overtime
- Sick or family leave
- On-call shifts
And so many other variables. Automated caregiver scheduling and time tracking software reduces simple errors, saves time, improves productivity, and increases the efficiency of payroll staff. Empeon’s Time and Attendance software offers a user-friendly way to manage your staff’s schedule.
6
Run regular payroll audits
Internal payroll audits help you find and correct mistakes before they become serious labor or tax violations. During an audit, you confirm hours worked vs. attendance and scheduling and check overtime, pay rates, specialty items, and tax withholding.
Ideally, you should run an audit every time you process payroll. The right software simplifies auditing using rules or parameters you set to check time and attendance data for errors or inconsistencies.
For instance, you might set a rule or alert to check for double visits by the same employee in one day or duplicate paychecks. With these reporting tools, you can prevent fraud, find and correct mistakes, and save time on off-cycle pay corrections.
7
Automate payroll workflows
Home healthcare companies can automate payroll workflows with payroll software. Instead of wasting precious hours making manual calculations and filing and withholding taxes, payroll managers can focus on other tasks and lower the chance of human error.
Top payroll professionals recommend finding an all-in-one payroll software tailored to the specific needs of the home healthcare industry, like Empeon. That way, you can handle many payroll components in one place, such as:
- Recruitment
- HR management
- Benefits
- Employee tracking
- Reporting
8
Integrate Management Systems
Connecting your data from payroll solutions to accounting systems is also a game changer. Data integration helps you easily import or share payroll information, post it to your books, and reconcile your payments without doing the entire pay cycle again.
You gain an intuitive workflow that eliminates manual, repetitive work and builds consistency and accuracy in your finances. Connected systems also align payroll activities with scheduling, tracking, and employee benefits elections and update databases in real time, providing important business insights.
9
Stay up-to-date on state and federal regulations
Healthcare companies must comply with payroll rules, labor laws, and tax requirements. These laws exist at local, state, and federal levels and are subject to change.
There are specific regulations regarding wage parity and minimum wage in the healthcare industry. For example, in New York and the surrounding areas, you must pay home care aides at least $19.10/hr and extra pay as earned for overtime and call-in shifts. The minimum wage will increase to $19.65/hr in 2026.
State and federal requirements can change for various reasons, such as:
- Employee relocation
- Business relocation
- Hiring remote employees
- Business expansion
- Law amendments
Staying current on new regulations and changes helps avoid lawsuits and penalties from missed deadlines and incorrect filings. It also helps maintain employee morale, trust, and satisfaction.
10
Keep accurate payroll records
Employers should always keep accurate, thorough payroll records. Payroll records are legally required by the IRS, the Labor Department, and state agencies.
For example, employers under the Fair Labor Standards Act (FLSA) must retain information such as employee names, addresses, hours worked, occupations, and wages earned for three years. The IRS requires all payroll tax records and important employee information to be retained for at least four years.
Keep these records in an easily accessible, safe location.
11
Use customizable payroll tools
Every home healthcare business has unique needs, which means your software and systems should also be unique. For example, you may use specific EHR or financial software and need a special integration.
Or you may need custom reports to monitor changes in payroll for cost control or custom paystubs to reflect company benefits or employee-specific deductions. Intuitive tools like Empeon offer these adjustable features and a complete, tailor-made solution to fit your business.
Home healthcare companies can manage payroll perfectly
There’s no doubt that managing payroll is a challenge in the home healthcare industry, but key strategies can make it easier. Make and follow clear policies, streamline processes through automated software, and ensure compliance through research and recordkeeping.
Empeon’s smart and feature-rich payroll solutions help you fine-tune your payroll process, creating a flexible, compliant, and error-free workflow. With better payroll, you avoid costly penalties and fees and retain happy, organized staff. Take a tour and discover Empeon for your business.
