Starting a child care business in California involves a particular set of legal considerations that are specific both to the type of business and to the State of California. These include choosing the proper business entity, obtaining licenses and permits, dealing with health and safety, getting adequate insurance, and dealing with employees.
As we review some of these considerations, keep in mind that the terms “daycare” and “child care” are largely interchangeable in California; many of the state’s laws, publications, and websites refer to “child care” rather than “daycare.”
To learn about other California business opportunities, see Nolo's section on Starting a Business in California.
Choosing the Business Entity
While you could operate your daycare business as a sole proprietorship or partnership, you should consider using a legal form that protects you from personal liability, such as a limited liability company or corporation. A child care center may not be the most dangerous business, but you will be taking care of the most precious thing in the lives of your clients: their children. You will be responsible for the health and safety of those children, many of whom may be toddlers, for hours every day. There is always a possibility that a child could be injured while on the premises of your child care business—in which case you would want the business, not you personally, to be responsible for any liability.
Learn more about choosing a business structure.
Licenses and Permits
In California, licensing of child care businesses is handled through the Child Care Licensing Division (CCLD) of the Department of Social Services (DSS). You need a license if you will be caring for children from more than one family that is not related to you. Operating without the required license can result in significant penalties.
One key distinction made by California’s child care laws is between care provided in a person’s home (“Family Day Care” or “Family Child Care”) and care provided at an independent facility (“Child Care Center”). The license and renewal fees are higher, and the regulations more extensive, for child care centers.
You will need to attend an orientation session before you can apply for a license for either a family child care (in-home) business or a child care center (separately located) business. To schedule an orientation, you should contact the nearest state licensing agency; a list of locations is available online. You will need to pay a nonrefundable fee for the orientation.
After you successfully complete the orientation, you will need to complete the license application. The application asks for a variety of information, including:
- what ages of children you will be taking care of (infants, toddlers, pre-schoolers, school-age)
- what capacity you are seeking for children in each age range
- whether you own the property where the care will be provided
- whether your business will be for-profit or nonprofit, and
- acknowledgments regarding knowledge of, and compliance with, health and safety, criminal record, and other regulations
You also will have to pay a license application fee; this fee will vary depending on the number of children you will be caring for, but may run into the hundreds of dollars, with a similar amount due each subsequent year as a renewal fee.
More information on licensing is available at the CCLD’s website.
Apart from state licensing, you should keep in mind that there may be local zoning laws that would prohibit running a child care business in a particular location. This is more likely to be an issue if you are thinking of operating the business out of your home and you live in a clearly residential, as opposed to commercial, area. Even if a child care center is permissible under the local zoning ordinance, you may be required to obtain a compliance certificate from the local zoning authority. In short, your best bet is to investigate zoning regulations before you open for business.
Health and Safety
The government is very concerned about the health and safety of infants and small children, and California’s child care regulations are extensive. For example, one of the state’s manuals of policies and procedures for home-based child care businesses is over 80 pages long; the manual for freestanding child care centers is much longer.
With some variation depending on whether you are operating out of your home or an independent child care center, key areas of state regulation include:
- criminal record clearances, including checks related to child abuse
- fire safety clearances
- training requirements for center personnel
- reporting requirements when children need medical treatment or there are other unusual incidents
- ratio of staff to children
- requirement that individual named licensee be present at the center
- safety of toys and play areas
- prohibition on smoking cigarettes
- disaster evacuation planning
- financial records requirements
- specific teacher-to-children ratios for toddlers
- transportation of children
- food service requirements
- minimum required outdoor space
- building fixtures and equipment
- distinctions between infant care, toddler care, and school-age care, and
- state inspection authority
As the last item on the list indicates, the state has the authority to inspect your operation. These inspections may be unannounced and may include interviews of children and staff. They may also include inspecting any part of the child care center, or those parts of a home in which child care services are provided. Similarly, you should expect that a fire marshal or other fire prevention official will make an inspection to ensure there are adequate routes of escape in case of fire.
The CCLD has published readable “regulation highlights” documents that provide more details on these matters for both freestanding child care centers and in-home family child care; the documents are available at the CCLD’s website.
If you run your daycare business out of your home, you may be able to deduct expenses for the business. To qualify, you must (a) provide daycare to children, and (b) be licensed by the state or exempt from the state’s licensing requirement. Details about how to figure the deduction can be found on IRS Publication 587, available at irs.gov.
There are particular risks associated with operating a child care center, primarily those related to the health and safety of infants and small children. These are on top of more generic business risks such as fire, theft, or other sources of property damage or personal injury.
Try to work with an insurance agent who has previous experience writing policies for child care providers. Consider coverage for sexual abuse or molestation, for corporal punishment, and for employees who are child care providers. In general, make sure you have an excellent general liability policy.
For more information, see Nolo's article on Obtaining Business Insurance.
Most daycare centers have employees and, in many cases, there can be relatively frequent turnover. You should inform yourself about basic employment law issues such as illegal discrimination, workers compensation, and how to handle the hiring process. With regard to hiring in particular, learn how to:
- create a useful job application that does not include illegal questions
- check references or make other preemployment inquiries -- again without violating privacy laws or otherwise seeking illegal information, and
- ask interview questions that are both useful and legally permissible.
Keep in mind that there are some employment laws that are specifically relevant to daycare workers, such as state training requirements and rules relating to criminal records. California requires the licensee of a home-based child care operation, and at least one on-duty staff member at a child care center, to be trained in pediatric CPR, first aid, and other health-related areas.
A good resource for general employment issues is The Employer’s Legal Handbook, by Fred Steingold (Nolo). Also, many key employment laws are administered through the Department of Labor, and there are a variety of informative webpages within the Department of Labor website.