CDS Option Employer Manual: Chapter 2 - Getting Started on the CDS Option

After your case manager or service coordinator has discussed how some or all of your services can be delivered through the CDS option, you can decide if this choice is right for you. If you want to go forward, the first step is to choose your FMSA. Then the FMSA will contact you to get you started. As you will see, there are many details to go over and forms to fill out, but the FMSA will be there to work through all of this with you.

Your First Meeting with Your FMSA

Your FMSA will set up a meeting with you in your home; this is called the orientation meeting. At this meeting, your FMSA will go over some important forms. You will need to sign some of these forms and send them in after your meeting. Ask questions. Your FMSA will take the time to explain.

During the initial face-to-face orientation with you and your DR the FMSA will:

  • Explain the roles, rules, and responsibilities that apply to a CDS employer, provider, FMSA, and state agencies, including:

    • the employer budget based on the individual service plan;
    • the hiring process, including documents and forms to be completed for new employees; and
    • managing timesheets, due dates, payday schedules, and disbursing employee payroll checks.
  • Review and leave a printed document that clearly states the FMSA's:

    • normal hours of operation;
    • key persons to contact with issues or questions and how to contact these persons; and
    • the complaint process, including how to file a complaint with to the FMSA or about the FMSA;
    • review and leave printed information on how to report allegations of abuse, neglect and exploitation.

Remember: the FMSA must verify applicant or service provider qualifications beforeyou extend the applicant or service provider a position or allow delivery of any services through CDS.

At the orientation, you will be asked to review and sign a service agreement with your FMSA (Form 1735, Employer and Financial Management Services Agency Service Agreement). This agreement lists your responsibilities and those of the FMSA. When you sign this form you agree:

  • To receive orientation, ongoing training and assistance from the FMSA.

  • To set up a budget with the help of your FMSA based on your service plan for each service delivered through CDS.

  • To stick to the budget and any changes made to the budget.

  • To let the FMSA act as the vendor fiscal/employer agent for administrative and fiscal (payroll and employer taxes) services.

  • To tell the FMSA as soon as possible of any change that might affect you and your program. This could be a change in your legal status or a financial change that might affect your program eligibility.

  • To follow all applicable DADS rules, policies and procedures.

  • To tell the program case manager or service coordinator and the FMSA of each hospitalization and admission into an institution and any change of telephone number, address or residency within 24 hours.

  • To make sure that program services and CDS are not used while you are in a hospital or living in an institution, no longer eligible for the services of your program, or no longer have Medicaid eligibility.

  • To follow all employer and employment-related local, state and federal laws. As the employer, you agree to be responsible under these laws even when you have chosen a designated representative.

  • To be an effective employer by:

    • finding, selecting and hiring employees or service providers in sufficient numbers to meet your needs;
    • having a sufficient number of employees or having other means of providing backup services in the absence of an employee or service provider;
    • managing the risk of employee work-related injury/injuries or work- related illnesses;
    • agreeing that neither DADS nor the FMSA have or share any employment-related liability;
    • checking with the FMSA about an applicant's qualifications before offering employment through CDS;
    • being accountable for funds spent through the CDS option and understanding that a CDS employer or DR who submits false or fraudulent time sheets, or approves a time sheet of an unqualified service provider, or approves a time sheet for tasks other than those approved on the service plan or implementation plan, will be reported to the appropriate authorities for investigation and possible prosecution as Medicaid fraud;
    • following the CDS and/or employer-related rules and regulations; and
    • changing to the agency option if you cannot or are unwilling to carry out CDS employer responsibilities.

What Your FMSA Agrees To

  • Provide face-to-face orientation to the employer in the home of the individual prior to beginning of the CDS option.

  • Assist the employer to develop a budget based on the individual's authorized service plan and approve the budget when calculations are validated.

  • Conduct criminal history checks and required registry checks for each potential employee and inform the employer of the results.

  • Review the qualifications of applicants for employment and service providers and notify the Employer of eligibility so that the Employer knows when delivery of services to the Individual by the applicant (employee) or service provider can start.

  • Deny payment to any employee or service provider that is not qualified to deliver the program service or that delivered a service prior to qualifications being verified by the FMSA.

  • Adhere to all applicable DADS rules, policies and procedures related to the Individual's program and to the CDS option.

  • Act as the registered vendor/fiscal employer-agent for purposes of handling payroll and filing, depositing and reporting taxes, on behalf of the Employer, with required federal and state agencies. follow federal, state and local laws and regulations related to employer-agent and employer-representative responsibilities.

  • Adhere to and accept liability for federal, state and local laws and regulations related to employer-agent and employer-representative responsibilities.

  • Provide timely notification to the Employer of changes to such laws and regulations that affect employment-related responsibilities of the Employer and/or the FMSA.

  • Maintain an ongoing account balance of all transactions.

  • Provide budget reports of program funds to the Employer and to the program case manager or service coordinator no less than quarterly.

  • Provide ongoing training and help to you as the employer. If support consultation is available in your program, your Support Advisor may provide employer-related training.

What is an Employer-agent?

Under the Vendor Fiscal/ Employer Agent (F/EA) model, a private or public vendor, entity or authority may apply for and be approved by the IRS (under section 3504 of the IRS Code and IRS Rev. Proc. 13-39) to act as an employer agent on behalf of individuals.

The Vendor F/EA model provides people with a high level of choice and control while ensuring state programs fiscal accountability and reducing some of the fiscal burden for participants and their representatives (e.g., payroll and bill payment).

Vendor F/EA can perform the “bank,” payroll and bill payment functions for participants without being considered the common law employer of their support workers.

You will also be asked to review and sign the Service Provision Requirements Addendum to Form 1735, which details the specific employer requirements for each program that offers CDS. You will initial each section, showing that you understand and agree to program-specific requirements on hiring, training and employee qualifications.

Other forms to review and sign with your FMSA:

Form 1720, Appointment of a Designated Representative (DR): If you decide to appoint a DR or are required to appoint a DR, you need to complete Form 1720. On this form you will indicate which employer tasks you want your DR to help you with.

Remember, the DR is a voluntary position and will not be paid. The DR must be at least 18 years old. The DR cannot be the employee, the spouse of an employee or provide any other Medicaid service to you. If the DR is not a relative to the individual, then the DR must pass a background check. Your FMSA will conduct the background check.

You may give this form to your FMSA at the orientation. Or you may notify your FMSA within two working days after the appointment of the DR and provide a copy of Form 1720 within five working days after the appointment.

Form 1726, Relationship Definitions in Consumer Directed Services: This form explains who can and who cannot be the employee under the CDS option.

In no case can you as the employer be a service provider. Also, your DR, your DR's wife or husband, or court-appointed guardian cannot be a hired worker for you. If you are under age 18, your LAR or LAR's spouse cannot be your service provider. In some cases, other relatives, or even people who live with you, may not be hired.

IRS SS-4, IRS 2678, TWC C42: The FMSA will ask you for information needed to register as your vendor fiscal/employer-agent with the Internal Revenue Service (IRS) and your agent with the Texas Workforce Commission (TWC). You need to give this information to the FMSA within five days. This allows the FMSA to take care of some employer duties like payroll and withholding without being the actual employer of your workers.

Form 1736, Documentation of Employer Orientation: You will check the topics covered and sign this form upon conclusion of the orientation.

Form 1733, Employer and Employee Exemption from Nursing License for Certain Services, if applicable and if you choose to use the exemption.

You or your DR must send the original completed forms or a copy of the forms described above within five calendar days after the date of the initial orientation. You must ensure services are not initiated until after the FMSA receives the completed forms. You must retain the original completed forms or a copy of the forms listed above in your home.

Developing Your CDS Budget

At your orientation meeting, your FMSA will explain the CDS budget. Remember that CDS is a way to deliver services in your program and not a program of actual services. The way your budget is developed will depend on your program. DADS gives you a program-specific budget workbook for you to develop your budget.

Click here to find the budget workbook for your specific program.

Your CDS budget is based on your authorized service plan.

The employer is in charge of developing the budget, but you may ask your FMSA to help. The FMSA must approve your budget before you can hire anyone and start the CDS option. The amount of money you can spend for each service is determined by multiplying the number of hours of that service allowed in your service plan by the CDS rate for that service as determined by the Texas Health and Human Service Commission (HHSC).

Here are some questions to ask yourself about the budget:

  • Do I need any of the approved supports to be the employer? For example, do I need a fax machine? Do I need to pay for training or certification for my employees?

  • How much do I want to pay my employees? (In CDS, you can pay your employees a higher wage than they might receive from an agency.)

  • Do I want to offer vacation or sick days?

  • Do I want to offer a bonus? When? At the holidays? After six months of employment?

  • The budgets are in Excel format. As an example, we will use the budget workbook for the Texas Home Living (TxHmL) program to walk you through the development of your budget.

Consumer Information and Approval (Page 1)

You fill in the information for each blue box.

This is an example of page 1 of the CDS budget workbook. It is important that the Effective/Coverage Period box match your service plan effective dates. After you have completed all pages of the budget workbook, check back on page one to see if your budget is valid for FMSA approval.


It is from these CDS rates that you allocate employer expenses and determine the actual wage rate and benefits that you will pay your service provider. The FMSA monthly fee has already been deducted from this rate.

Notes, Page 2. This page is for you to document things you might want to remember about your budget.

Authorized units and budget, Page 3. This page allows you to enter the number of hours you are allowed for each service you are using through the CDS option. The hours (or units) you enter MUST match the units allowed for that particular service in your service plan. The CDS rates for each service have already been entered on each budget workbook. The purpose of this page is to let you see your total CDS budget. All of the budget allocations on the remaining pages of the workbook are based on this page.

The amount in the Total Annual CDS Budget section must match the amount in your authorized service plan.

Employer Support Services Costs and Non-taxable Benefits (Page 4)

The top part of this page allows the employer to allocate up to $600 for employer support services costs. An employer or DR may budget allowable, necessary, and reasonable employment-related services, goods, or items, including:

  • Advertising and recruiting expenses

  • Criminal history checks from the Texas Department of Public Safety

  • Acquiring other background checks of a potential service provider

  • Purchased employee job-specific training

  • Cardiopulmonary resuscitation training

  • First aid training

  • Hepatitis B vaccination (if elected by an employee);

  • Supplies required for an employee or service provider to perform a task, if not available through the person's program or other source and the purchase is allowable through the person's program

  • Non-taxable employee benefits

  • Services, goods, and items specifically approved by the person's program as an employer support service or included in Appendix XI, Allowable and Non-Allowable Expenditures, in the CDS Handbook.

An employer or DR may budget employer-related services, goods, or items required to meet employer responsibilities, including:

  • Basic office equipment, which may include a basic fax machine for the purpose of submitting documents to the FMSA

  • Mailing costs

  • Expenses related to making copies

  • File folders and envelopes

  • Services, goods, and items specifically approved by the person's program as an employer support service or included in Appendix XI, Allowable and Non-Allowable Expenditures.

The dollar amount in the box labled Total Annual CDS Budget should match the total from page 3 of the workbook.

Bonuses can be a hire-on benefit, or based on the employee's performance or length of service.

Taxable wage and compensation (Page 5). Your next step will be to determine the wages you will pay each of your service providers and any benefits you want to include, such as bonuses, paid holidays, or paid sick days. CDS employers are required to pay the federal minimum wage and for certain services the state's minimum attendant compensation rate. A good rule of thumb for determining each service provider's wage is that at least 90 percent of the total CDS rate (see p.2 of the budget) must be spent on service provider compensation. Before you can pay a bonus, holiday or sick days, funds must be accrued in your budget to cover these expenses.

The hours need to be worked by your attendant before you can pay a bonus. Imagine that you are setting aside five cents for every hour your attendant works. After all of those hours have been worked, that creates your bonus fund for that specific attendant.Unused hours cannot be converted into a bonus.

The amount in the Dollars Left in Budget section should show that the non-taxable employer support services have been subtracted. If you have respite providers who work only certain times of the year, put those dates in the Employee Hours, Pay RAtes and Other Compensation section.

After you have finished deciding the wage rate and benefits for each of your service providers, your total in the top right-hand corner should be near zero. It is very important that you allocate your entire budget at the beginning of the service year.

Check the first page of the budget to make sure that it says VALID. Your FMSA must approve your budget. The employer or DR and FMSA must sign the first page of the budget. Your FMSA keeps one copy of your budget and you keep a copy.

When the absence of your regular provider would place your health and/or welfare in jeopardy, you must develop a backup plan for that service.

Service Backup Plans

If requested by your case manager, service coordinator or service planning team, you or your DR must develop a backup plan, using Form 1740, CDS Service Backup Plan, that:

  • Ensures the services continue when your regular service provider is not available to deliver the service, or in an emergency.

  • May include the use of paid service providers, unpaid service providers such as family members, friends, or non-program services.

  • May include the use of respite, if included in the person's authorized service plan.

Informal supports are people involved in a person's life who are not necessarily connected with a human services agency, and are not “formal,” paid service providers.

Some examples of informal supports that may be available to you are:

  • Relatives
  • Friends
  • Neighbors
  • People who go to your church
  • People in your clubs or organizations

Your case manager or service coordinator must approve each service backup plan and any revisions to plans before they are used by you or your DR.

Your case manager or service coordinator will review your backup plan during monitoring and at your annual service planning meeting to determine if the plan was implemented and effective.

You or your DR must:

  • Budget sufficient funds to implement a service backup plan.

  • Comply with state rules on budget revisions and approval.

  • Revise a service backup plan at any time, including after a review if:

    • the employer or DR determines the service backup plan was ineffective;
    • a change occurs in the availability of service backup plan resources;
    • the employer or DR redistributes funds that are not utilized in implementing a service backup plan; or
    • the case manager or service coordinator notifies the employer or DR that the service back up plan was determined ineffective and that the plan must be revised; and
    • provide a copy of the initial and revised service backup plan to the FMSA within five working days after the plan is approved by the case manager or service coordinator.

Here is an example of Form 1740.

This is a sample of Form 1740, CDS Service Backup Plan.

Electronic Visit Verification

Electronic Visit Verification or EVV uses phone and computer technology to record the time your attendant starts and stops work, much like an electronic time sheet. EVV requires your attendant to use your home phone — a landline — to call a toll-free phone number before they start providing services, and again at the time the services end. The EVV system will work with a cell phone when the individual is receiving services outside the home or when a home landline is not available. The use of the CDS employer's cell phone will be at the discretion of the CDS employer. The CDS employer is solely responsible for any cell phone charges that may be incurred.

EVV is used in the following DADS programs:

  • CLASS habilitation and in-home respite
  • MDCP respite and flexible family support

EVV is used in the following HHSC programs

  • Personal Care Services
  • STAR+PLUS attendant services
  • STAR+PLUS Waiver attendant services and respite

If you are in one of these programs, you must choose a level of EVV participation.

EVV is optional for CDS employers. With the CDS option, you have choices. You can choose from different levels of EVV participation: full, partial or no participation at all. Below gives a brief description of participation.


  • Full Participation: Calls by CDS employee(s) and visit maintenance by CDS employer. The telephone portion of EVV will be used by the CDS employee(s) and the CDS employer will use the computer portion of the system to complete visit maintenance (corrections to record visits). The CDS employer will still approve timesheets in the EVV system.
  • Partial Participation: Calls by CDS employee(s) and visit maintenance by FMSA.This option is available to CDS employers who would like to participate in the telephone portion of EVV, but need assistance from the FMSA with visit maintenance. All visits will still be documented on paper time sheets. The FMSA will compare the call information in the EVV system to the paper time sheets, and complete visit maintenance for you. The FMSA will provide a method for the CDS employer to approve the time worked in the EVV system.
  • No EVV Participation: No calls and no visit maintenance in the EVV system. If a CDS employer does not have access to technology (computer, etc.) or does not feel he or she can fully or partially participate in EVV, the CDS employer may choose to document service delivery the way he or she did prior to EVV. The service delivery time worked by the CDS employee(s) will be documented on paper time sheets, approved by the CDS employer and submitted to the FMSA for processing.

Each CDS employer will document his or her choice about EVV participation on Form 1722, Employer's Selection for Electronic Visit Verification (EVV) and send the form to the FMSA.

The CDS employer's participation is based on the decision made by the CDS employer, and not the FMSA. CDS employers may change their options for participation at any time, in which case the FMSA would request another Form 1722 from the CDS employer.

If you don't have a landline phone in your home or a cell phone, but want to use the EVV system, your FMSA will order a small alternative device for you to keep in your home so your attendant can mark the time they start and stop providing service. Your FMSA can provide more information on this small alternative device.

Here are a couple of other things to know about this EVV system:

  • EVV is free to you.
  • EVV will not change the number of hours authorized for each service subject to EVV, the location in which services are delivered, or your authority to self-direct services.