- In many states, you need workers’ compensation insurance for one employee.
- Skipping coverage can expose you to lawsuits, medical bills, fines, and criminal charges, depending on your state.
- Workers’ comp helps cover medical costs and lost wages when employees are hurt on the job.
- Even “safe” office jobs carry risk: slips, falls, car accidents on company errands, repetitive stress injuries, and more.
- Check your state’s rules and talk to a licensed insurance professional before you hire your first employee so you do not accidentally operate illegally.
You finally reached the long-awaited milestone: you are ready to hire your first employee.
In many states, hiring your first employee triggers your workers’ comp responsibilities. Not to mention, skipping workers’ compensation can be an expensive gamble in states where not legally required.
Here’s what you need to know about workers’ compensation and your first employee.
What is workers’ compensation insurance?
Workers’ compensation insurance (“workers’ comp”) is business insurance that helps cover costs when an employee is injured or becomes ill because of their job.
Typically, workers’ comp helps pay for:
- Medical expenses related to the work injury or illness
- A portion of lost wages while the employee recovers
- Rehabilitation costs, like physical therapy
- Disability benefits if the injury causes long-term limitations
- Death benefits for dependents if the worst happens
In return, workers’ comp usually limits the employee’s ability to sue you for the injury. This trade-off is a big part of why states require it.
Do you need workers’ comp insurance for one employee?
So, do you need workers’ comp as soon as you make your first hire? The answer depends on your state’s laws.
Common state rules include:
- Coverage required as soon as you hire your first employee
- Coverage required once you reach two, three, four, or more employees
- Workers’ compensation exemptions for family members, corporate officers, or LLC members
Because rules vary widely, you’ll need to check your state’s workers’ comp requirements.
Even if your state does not require coverage for just one employee, you still face serious risks if you skip it.
The risks of skipping workers’ comp for your first hire
Here’s what could be at stake if you hire without workers’ comp insurance.
1. Personal liability
Without workers’ compensation insurance, your business may have to pay for:
- Emergency room visits
- Surgeries and hospital stays
- Physical therapy
- Prescription medications
- Long-term treatment
One single serious injury can cost tens or hundreds of thousands of dollars in medical bills alone.
If your business cannot cover it, your personal assets could be at risk, depending on your business structure and state law.
2. Lawsuits
Workers’ comp does more than pay medical bills. It typically provides legal protection by limiting an employee’s ability to sue you for workplace injuries.
If you skip coverage:
- The employee may sue you for negligence.
- You may need to hire an attorney and spend time in court.
- A court could award damages beyond medical costs, including pain and suffering.
The legal costs and time away from your business can be painful, even if you win.
3. State penalties and fines
Many states treat failure to carry required workers’ comp as a serious violation.
Depending on your state, penalties for not having required coverage can include:
- Civil fines (sometimes per day or per employee)
- Stop-work orders, forcing you to shut down operations
- Back premiums and penalties
- Misdemeanor or felony charges in some places and circumstances
4. Lost business opportunities
Some clients, landlords, or general contractors require proof of workers’ comp before they will:
- Sign a contract
- Allow you on a job site
- Approve you as a vendor or subcontractor
If you do not have coverage, you could lose out on contracts or be disqualified from certain bids.
5. Damaged employee trust and morale
Your first hire is a big milestone. You want your employee to feel safe and valued. Your new hire may think you’re cutting corners and worry about what happens if they get hurt.
Failing to obtain workers’ comp may impact your ability to attract and retain strong employees.
“But my employee works in an office. What could go wrong?”
A lower-risk industry doesn’t mean risk-free. The following risks can happen in any work environment:
- Slips, trips, and falls in the office or on the sidewalk
- Car accidents while running errands or visiting clients
- Repetitive stress injuries, like carpal tunnel
- Back injuries from lifting boxes or equipment
- Illnesses tied to the work environment
What does workers’ comp typically cover?
While policies vary, here is a general overview of what workers’ comp often covers.
| Covered by Workers’ Comp | Not Covered by Workers’ Comp |
|---|---|
| Work-related injuries (e.g., a fall or machine accident) | Injuries that happen off the job |
| Work-related illnesses (e.g., certain exposures on the job) | Injuries caused while committing a crime or violating company policy |
What’s covered and not covered depends on your state and policy.
How to get workers’ comp coverage for your first hire
Ready to hire your first employee but unsure how to get workers’ comp insurance? Review the following basic steps to get started.
How to get workers’ comp for your first employee:
- Confirm your state’s requirements
Visit your state’s department of labor or workers’ compensation agency website to review requirements.
- Talk to a licensed insurance agent or broker
An insurance professional can help you understand your legal obligations, estimate premium costs, compare coverage options, and set up coverage.
Not all states let you shop around for coverage. North Dakota, Ohio, Washington, and Wyoming are monopolistic states, meaning you must buy coverage from the state fund. - Integrate workers’ comp with your payroll
Some payroll providers offer a free workers’ compensation integration. Each time you run payroll, the provider sends your payroll info to the insurance company. The insurance company then calculates and withdraws your premium automatically.
Patriot Software’s free workers’ comp integration with ERGO NEXT Insurance makes it easy to obtain and pay for coverage each payroll run. - Educate your employee on safety and reporting
Create a detailed safety plan, and share it with your employee. It should detail basic safety expectations, how to report an injury or illness, and other processes.
Frequently asked questions
Many states require workers’ compensation coverage as soon as you hire your first employee, while others set a higher employee threshold.
If an employee gets hurt and you do not have workers’ comp, you may be responsible for medical bills and lost wages. You may be hit with a lawsuit from the injured employee. You might also owe fines if you were supposed to have workers’ comp.
Workers’ comp costs for one employee depend on your state, industry, payroll size, and claims history. High-risk industries usually pay more than low-risk industries.
Low-risk businesses see injuries: slips, falls, car accidents, and repetitive stress injuries can happen anywhere.
Most states publish workers’ comp rules on their department of labor, workers’ compensation board, or similar agency website. Consult your state for more information.
