How to Start a Daycare in South Dakota (2026)

Last updated: May 4, 2026

Starting a daycare in South Dakota requires a license from the South Dakota Department of Social Services (DSS) Child Care Services Division, which issues licenses under ARSD 67:42. Three license types cover home-based and center-based care. The required staff-to-child ratios under ARSD 67:42:17:19 are: 1:5 for children under age 3, 1:10 for ages 3-4, and 1:15 for ages 5 and older. Background checks through both the SD Division of Criminal Investigation (DCI) and the FBI are required for all adults in licensed homes and center staff before any unsupervised access to children. South Dakota’s quality rating program is currently in a pilot phase — it is not a formal tiered QRIS system like neighboring states, but voluntary participants can receive improvement grants of up to $12,500 for child care centers.

South Dakota faces a persistent child care shortage, particularly outside of Sioux Falls and Rapid City. The state’s rural character means that in many counties, child care demand significantly exceeds supply — creating genuine market opportunity for licensed providers willing to serve smaller communities. The tribal reservation communities (Pine Ridge, Rosebud, Cheyenne River, and others) have particular shortages of licensed child care, though operating on tribal land involves different licensing considerations.

Daycare Requirements in South Dakota at a Glance

Requirement	Agency	Cost	Timeline
DSS Child Care Services license	SD DSS Child Care Services Division	Contact DSS at 800-227-3020 for current fee	Apply well before intended opening date
Background checks (DCI + FBI)	SD Division of Criminal Investigation + FBI	Varies by check type	Before unsupervised access to children
Staff-to-child ratios	ARSD 67:42:17:19	N/A (operational requirement)	Must be maintained at all times
LLC formation	SD Secretary of State	$150 online + $55/year annual report	~1 business day
Sales tax license	SD Department of Revenue	Free	Before operating (child care services may be taxable)
Local business license	City hall / county clerk	Varies	Before opening
General liability insurance	Private carrier	~$1,000-$3,000+/year	Before accepting children
Workers’ comp (voluntary)	Private carrier / NCCI 9059	Varies by payroll	Recommended before hiring staff
QRIS pilot participation (optional)	SDSU Quality Collaborative / SD DSS	Free to apply; grants available	After licensing

How to Start a Daycare in South Dakota (Step by Step)

Step 1: Understand South Dakota’s Three License Types

The SD DSS Child Care Services Division at dss.sd.gov/childcare/licensing (phone: 800-227-3020) administers three types of licensed child care programs:

Registered Family Day Care

Home-based care in the provider’s own residence. South Dakota’s Family Day Care registration is for smaller home-based operations. This is the starting point for providers who want to care for a small group of children from their home. Ratios and group size requirements for family day care differ from center requirements. Contact DSS to confirm the current threshold for family day care vs. center licensing (the threshold is based on the number of children and whether care occurs in the provider’s own home).

Licensed Child Care Center

Group care in a dedicated facility (not the provider’s residence) serving multiple children. Centers are subject to the more detailed requirements of ARSD 67:42 including the staff ratios under ARSD 67:42:17:19, space requirements, director qualifications, and staff training requirements. Most daycare businesses operating out of a commercial location fall into this category.

Before and After School Programs

Licensed programs serving school-age children before and after regular school hours. Ratios for school-age programs are governed by ARSD 67:42:17:18 — 1 adult for every 15 children ages 5 and older during supervised care. These programs often operate from school facilities, churches, or community centers.

Step 2: Apply to the DSS Child Care Services Division

Contact SD DSS Child Care Services Division at 800-227-3020 or visit dss.sd.gov/childcare/licensing to begin your application. You can also apply through the Office of Licensing and Accreditation Constituent Portal at olapublic.sd.gov.

The licensing process includes:

• Completing the application form and paying the applicable fee
• Submitting to a facility inspection (fire safety, space requirements, sanitation)
• Completing background checks for all required adults
• Demonstrating compliance with ARSD 67:42 requirements for the applicable license type

The licensing timeline varies. Start the application process well before your intended opening date — inspections, background checks, and corrections to deficiencies can add weeks to the process. Do not accept children or begin advertising until your license is issued.

Step 3: Complete Required Background Checks

South Dakota requires background checks for adults in child care settings. The requirements include checks through two agencies:

• South Dakota Division of Criminal Investigation (DCI): State criminal history background check covering South Dakota records
• FBI fingerprint check: Federal criminal history background check via fingerprint submission

Background checks must be completed before any adult subject to the requirement has unsupervised access to children in care. For home-based family day care, all adults living in the household are typically subject to background check requirements. For center-based care, all staff members who have contact with children must be cleared. Contact DSS Child Care Services for the current background check forms, submission process, and any additional state requirements that apply to your license type.

Step 4: Meet Staff-to-Child Ratio Requirements

Under ARSD 67:42:17:19, South Dakota child care centers must maintain these staff-to-child ratios at all times during operating hours:

Age Group	Ratio (Adults:Children)	Notes
Infants and toddlers under age 3	1:5	Highest staffing requirement; applies to all children under 3
Children ages 3-4 years	1:10	Preschool-age group
Children ages 5 and older	1:15	Kindergarten age and older

Children of staff members must be counted when calculating group sizes and maintaining ratios. When more than 20 children are present, primary caregiving assignments should designate supervisory responsibility. Note that these are minimums — many quality programs maintain lower ratios (more staff per children) than state minimums require, particularly for infants.

Step 5: Space and Facility Requirements

South Dakota ARSD 67:42 includes minimum indoor and outdoor space requirements for licensed child care centers. Contact the DSS Child Care Services Division for the specific square footage requirements applicable to your license type and the number of children you plan to serve. A facility inspection will verify compliance with space requirements before your license is issued.

If you are operating from a commercial space, ensure your lease allows for a licensed child care operation and that local zoning permits a daycare at the location. Some commercial zones prohibit child care operations; residential zones may permit family day care but not center-based care. Check with your city or county planning/zoning department before signing a lease.

Step 6: Form an LLC and Get Business Licenses

File Articles of Organization with the SD Secretary of State online for $150 at sosenterprise.sd.gov. Annual report: $55/year. An LLC separates your personal assets from liability claims arising from the care of other people’s children — this is one of the most important liability contexts for an LLC in any industry.

Register for a free sales tax license at dor.sd.gov. South Dakota taxes most services; the taxability of child care services depends on the specific type of care and whether exemptions apply. Verify with the SD DOR whether your specific child care services are subject to sales tax before billing clients.

Get local business licenses from your city hall and confirm zoning compliance for your location.

Step 7: South Dakota’s QRIS Pilot Program

South Dakota is currently in the pilot phase of a Quality Recognition and Information System (QRIS), led by the SDSU Quality Collaborative in collaboration with the SD DSS. This is important context: South Dakota does not have a formal, established tiered QRIS like neighboring states (Minnesota has a 5-star system; Nebraska has a step-up system). The current SD QRIS is a voluntary pilot that is still developing.

Key features of the current QRIS pilot:

• Voluntary: No requirement to participate
• Quality improvement grants: Participating providers may receive grants for quality improvement:
  • Family day care providers: up to $2,750
  • Child care centers: $4,050-$12,500 (based on program size)
  • School-age programs: up to $4,000
• Coaching and support: Participants receive coaching, environmental assessments (CLASS observations), and curriculum support
• Not yet tied to subsidy reimbursement rates: Unlike fully-developed QRIS systems in other states, SD’s pilot does not yet have differential reimbursement rates based on quality ratings

Information about the QRIS pilot is available through SDSU’s Child and Family Resource Network and the SD DSS. For providers seeking to differentiate their program and access improvement resources, participation in the pilot is worth exploring even at this early stage.

Step 8: Child Care Assistance (CCA) Subsidy Program

South Dakota’s Child Care Assistance (CCA) program through DSS helps income-eligible families pay for child care costs. Accepting CCA payments from families allows you to serve a broader client base including lower-income working families who cannot afford full private-pay rates.

To accept CCA: your program must be licensed by DSS and meet program standards. DSS sets reimbursement rates for CCA-eligible care. Contact DSS Child Care Services at 800-227-3020 for current provider eligibility requirements, reimbursement rates, and the enrollment process for accepting subsidy families.

Step 9: Insurance and Workers’ Compensation

General liability insurance

Child care operations require substantial general liability coverage given the responsibility for children. Carry at minimum $1M per occurrence/$2M aggregate general liability. Child care-specific insurance policies cover the unique risks of caring for young children, including accidental injury, abuse/molestation coverage (even when abuse does not occur, this coverage protects against false allegations), and professional liability. Many general liability policies for standard businesses do not include abuse/molestation coverage — specifically request it for a child care operation.

Workers’ compensation — voluntary in South Dakota

The SD DLR states: “There is no law in South Dakota requiring any employer to carry workers’ compensation insurance.” Workers’ comp is voluntary in SD. Child care workers lift infants and toddlers repeatedly, work in active physical environments, and are exposed to illness. Most licensed daycare centers with employees carry voluntary workers’ comp. NCCI class code 9059 applies to child care workers.

Step 10: Hire Staff — Payroll Compliance

Register with SD DLR for Reemployment Assistance (UI) before first employee. New ER rate: 1.2% on $15,000 wage base. Minimum wage: $11.85/hour in 2026 (CPI-indexed annually). No state income tax withholding. Report new hires within 20 days to SD DLR New Hire Registry.

South Dakota Child Care Market: Demand and Shortage

South Dakota has a well-documented child care shortage, particularly in rural communities. The state’s low population density means many counties have few or no licensed providers — families in rural agricultural areas often have no access to licensed child care within a reasonable commute. This creates genuine market opportunity for providers willing to serve underserved areas.

Sioux Falls is the highest-demand market with the most provider competition. The city’s growing healthcare and professional workforce creates consistent demand for infant and toddler care, which is the most expensive to provide due to the 1:5 staffing ratio requirement. Infant care in Sioux Falls is particularly undersupplied and commands the highest private-pay rates.

Rapid City has demand driven by both the resident population and the hospitality workforce supporting Black Hills tourism. Year-round hospitality workers — hotel staff, service workers, retail employees serving the tourism economy — need child care during irregular hours including evenings and weekends.

Tribal reservation communities: South Dakota’s nine reservations have significant child care shortages. Head Start programs operate on some reservations, but licensed private child care capacity is limited. Providers considering serving reservation communities should be aware that operating on tribal trust land may require tribal licensing in addition to or instead of SD DSS licensing. Contact the relevant tribe’s social services or education department for guidance.

Rural agricultural communities in both the east and west river areas have minimal licensed child care capacity relative to demand. Providers in smaller cities (Watertown, Mitchell, Huron, Pierre) or rural counties may face less competition and serve a genuine unmet need.

Cost to Start a Daycare in South Dakota

Item	Cost	Notes
DSS Child Care Services license	Contact DSS at 800-227-3020	Fee varies by license type
Background checks (DCI + FBI)	Varies per person	Required for all adults with child access
LLC formation	$150	One-time; $55/year annual report
Sales tax license	Free	Verify taxability of your specific services with SD DOR
Facility lease or renovation	$0 (home-based) to $50,000+ (commercial)	Commercial space build-out varies widely
Furniture, equipment, supplies	$5,000-$20,000+	Age-appropriate furnishings, cribs, toys, outdoor equipment
General liability + abuse/molestation insurance	$1,000-$3,000+/year	Child care-specific policy recommended
Workers’ comp (voluntary, if hiring)	Varies / NCCI 9059	Not legally required; strongly recommended
Year 1 Total (home-based family care)	~$3,000-$8,000	License + background checks + insurance + supplies
Year 1 Total (commercial center)	~$20,000-$80,000+	Includes lease, build-out, equipment, staffing ramp-up

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Frequently Asked Questions

What agency licenses daycares in South Dakota?

The South Dakota Department of Social Services (DSS), Child Care Services Division licenses child care programs under ARSD 67:42. Three license types: Registered Family Day Care (home-based), Licensed Child Care Center, and Before & After School Program. Contact Child Care Services at 800-227-3020 or visit dss.sd.gov/childcare/licensing. Apply through the OLA Constituent Portal at olapublic.sd.gov.

What are the staff-to-child ratios for daycares in South Dakota?

Under ARSD 67:42:17:19, South Dakota child care centers must maintain: 1 adult per 5 children under age 3 (infants and toddlers); 1 adult per 10 children ages 3-4; 1 adult per 15 children ages 5 and older. These ratios must be maintained at all times during operating hours. Children of staff members must be counted when calculating group sizes.

What background checks are required for South Dakota daycare providers?

South Dakota requires background checks through both the SD Division of Criminal Investigation (DCI) and the FBI fingerprint check for all adults in licensed child care homes and for center staff. Both checks must be completed before any adult has unsupervised access to children in care. Contact DSS Child Care Services at 800-227-3020 for current forms and submission procedures.

Does South Dakota have a quality rating system (QRIS) for child care?

South Dakota is in the pilot phase of a Quality Recognition and Information System (QRIS) led by SDSU Quality Collaborative in partnership with DSS. This is a voluntary pilot, not a full statewide tiered system. Participating providers can receive quality improvement grants ($2,750-$12,500 depending on program type and size). Contact SDSU’s Child and Family Resource Network or DSS for current pilot enrollment information.

How does the Child Care Assistance subsidy program work in South Dakota?

South Dakota’s Child Care Assistance (CCA) program through DSS helps income-eligible working families pay for child care. To accept CCA payments, your program must be licensed by DSS and meet program standards. DSS sets provider reimbursement rates. Contact DSS Child Care Services at 800-227-3020 for current provider eligibility requirements, reimbursement rates, and the enrollment process.

Is workers’ compensation required for daycare employees in South Dakota?

No. Workers’ comp is voluntary in South Dakota — the SD DLR states there is no law requiring employers to carry it. Child care workers face physical demands (lifting children) and illness exposure, and uninsured employers can be sued for full injury damages. Most licensed child care centers carry voluntary workers’ comp once they hire staff. NCCI class code 9059 applies to child care workers.