Before your first employee works a single shift, find out whether your state requires workers’ compensation for your business, and if it does, have the policy start no later than their first day. Most states require it once you have employees, but who counts, how many employees it takes and which industries are treated differently are all decided state by state, so the only answer that holds is the one from your own state’s agency.
Then tell your insurer. A first hire changes the payroll and headcount that several of your policies are priced on, and a few risks that come with employees, like discrimination claims or staff driving for work, typically aren’t covered by the policies you already have.
Key takeaways
- Check your state’s workers’ comp rules before your first hire starts, and have coverage begin by their first day if it’s required.
- Workers’ comp is priced mainly on payroll and the kind of work your business does, so estimate payroll honestly and update it when it changes.
- Tell your insurer about the hire on your other policies too, since payroll and headcount can affect their price and terms.
- Claims like wrongful firing or discrimination need a separate kind of insurance that general liability usually excludes.
- Hiring brings non-insurance paperwork as well: an employer identification number, tax forms, eligibility checks and state registrations.
The checklist before the first shift
- Check your state’s workers’ comp rule. Find your state’s agency on the U.S. Department of Labor’s list of state workers’ compensation officials.
- Put workers’ comp in place if your state requires it, or if you want it where it’s optional. It should start before the employee does.
- Get the class right. Workers’ comp uses a class code for the kind of work, usually assigned by what your business does as a whole, with a few exceptions like separate office staff. A café and a roofing company sit in very different classes, so ask your insurer which code you’ll be in, and why.
- Estimate payroll for the year, including wages, overtime and bonuses.
- Update your other policies. Tell your insurer about the hire on your general liability, professional liability and any other policy that asks about employees.
- Check your lease and contracts. Some landlords and clients want proof of workers’ comp once you have staff, usually as a certificate of insurance.
- Post the notices your state requires, including any workers’ comp notice.
- Set up a way to report injuries, so the new hire knows who to tell and how.
Workers’ comp: what your state decides
Workers’ compensation typically pays for medical care and part of an employee’s lost wages when they’re hurt or get sick because of their job. Each state runs its own system. The Small Business Administration (SBA) describes it as required through a commercial carrier, on a self-insured basis or through a state workers’ compensation program, which tells you the “how” can differ as much as the “whether.”
The “whether” is where small employers get caught. Some states require coverage from the first employee, part-timers included. Others set a minimum, and the minimum isn’t always a headcount: Wisconsin’s Department of Workforce Development says coverage applies to an employer with three or more full-time or part-time employees, or one that has paid $500 or more in gross wages in any calendar quarter, so a business with a single part-time helper can cross the line on payroll alone. Some states also treat certain industries, like construction, differently from everyone else.
That’s one state, though, and yours may count part-timers, family members or seasonal staff another way, so check its own agency, and check again if you hire someone who works in a second state. Ask before you hire.
The payroll number is the part people get wrong
Buying the policy is the easy part. The payroll estimate you give when you buy it is where first-time employers get burned.
Workers’ comp is priced on estimated payroll for each class code, and at the end of the policy period the insurer checks the real figures in a premium audit. If you guessed low, you owe the difference, often in one bill that arrives months after the money was spent. Owners underestimate for understandable reasons: the hire was part-time and then picked up more shifts, overtime crept in over the holidays, a second person started in month eight, or the owner simply picked a hopeful number to keep the deposit down. Each of those shows up at audit, but all of them can be caught early if you call your insurer when they happen.
The same logic reaches past workers’ comp. The National Association of Insurance Commissioners (NAIC) notes that general liability premiums are typically linked to a business’s sales and payroll estimates, and that if the actual figures come in higher, the owner may owe an additional premium. For some kinds of business, general liability is rated on payroll directly, and more staff usually means more work, more customers or more job sites. Professional liability and tools and equipment coverage can move too, when a second stylist joins or a new technician gets a set of tools. Mention the hire on every policy you have.
So give a realistic estimate. Where you’re unsure, round up. Then call your insurer when it changes instead of waiting for the audit to find out; how workers’ comp premiums are calculated explains the formula, and what is a premium audit covers what the auditor will ask for.
Already have a Corgi policy?
Then workers’ comp can be added to it without a new application, and you can get a certificate of insurance the day you buy, to download or send to a landlord or client from your account. Starting from scratch, a quote takes about five minutes online, so have your state, the job duties and your payroll estimate ready.
See what workers’ comp costs for your business
About five minutes, all online. Your certificate is ready the day you buy.
The risks your current policies won’t touch
Say your new helper takes their own pickup to the supply yard and rear-ends someone on the way back. Workers’ comp can help with the helper’s own injuries, but the other driver’s claim typically falls outside both workers’ comp and general liability, which usually excludes autos. A few kinds of insurance exist for gaps like this one, and while Corgi doesn’t offer them, you should know their names before a client or a lawyer says them to you.
- Employment practices liability typically covers claims from employees or applicants about things like wrongful firing, discrimination or harassment, subject to its terms. General liability policies usually exclude these claims.
- Commercial auto or hired and non-owned auto coverage can respond when an employee crashes while driving for your business, like a helper picking up materials in their own truck. Personal auto policies may not cover business use.
- Crime coverage, sometimes called employee dishonesty, can cover theft of money or stock by an employee, which property policies often exclude. See retail theft and break-ins.
One piece of good news sits on the other side of the ledger. Most liability policies treat employees as insureds while they’re acting for your business, so a claim caused by an employee’s work is generally handled like a claim caused by yours, subject to the policy’s terms. The “who is an insured” section of your policy has the exact wording.
The paperwork outside insurance
Insurance is one part of becoming an employer. The SBA’s guide to hiring lists steps including:
- Getting an employer identification number (EIN) from the IRS
- Finding out whether you need state or local tax IDs
- Having each new employee fill out a W-4
- Completing Form I-9 to check that each employee can work in the U.S., which you keep on file rather than send to the government
- Reporting new employees to your state’s new hire directory
- Registering for unemployment insurance with your state workforce agency, which varies by state
- Displaying the required posters on employees’ rights
The SBA’s hire and manage employees guide has the full list and the links. Most of it is a one-time setup, but the insurance pieces are the ones that keep moving, because payroll grows, jobs change and people get added mid-year, which is why a yearly review of the numbers on your policies matters more than any single form on this list.
Frequently asked questions
Do I need workers’ comp for one part-time employee?
In many states, yes, but it depends on your state, your number of employees, your payroll and your industry. Some states count part-time staff from the first hire, while others set a minimum, so check your state’s agency through the federal Department of Labor’s list before the employee starts.
When should workers’ comp start?
On or before the employee’s first day, if your state requires it. A policy that starts after an injury generally won’t cover that injury, so set it up as soon as you’ve made the hire.
Does hiring an employee change my general liability policy?
Often, yes. Some business types are rated on payroll, insurers often ask about headcount, and a higher actual payroll or revenue can mean an additional premium at audit, so tell your insurer about new hires.
Does Corgi cover employment practices claims?
No. Employment practices liability, which typically covers claims like wrongful firing or discrimination, is a separate kind of insurance that Corgi doesn’t offer, while Corgi’s workers’ comp can be added to an existing Corgi policy without a new application.
Do I need workers’ comp for myself as the owner?
It depends. Owners, partners, LLC members and corporate officers are often allowed to exclude themselves, but the rules depend on your state and how your business is set up, which workers’ comp for business owners explains.
Sources
- State Workers’ Compensation Officials, U.S. Department of Labor
- Hire and manage employees, U.S. Small Business Administration
- Corporate Officers and Worker’s Compensation in Wisconsin, Wisconsin Department of Workforce Development
- Small Business Insurance, National Association of Insurance Commissioners
- Independent contractor (self-employed) or employee?, Internal Revenue Service
- Fact Sheet 13: Employee or Independent Contractor Classification Under the FLSA, U.S. Department of Labor
