Hiring your first employee is an exciting moment for any small business. It often means your business is growing, your workload is increasing, and you are ready to bring someone else into the day-to-day operation.
It also means your risk profile is changing.
When you go from working alone to having an employee, there are new responsibilities to think through. Some are related to payroll and compliance. Others involve workplace safety, customer interactions, vehicles, data access, and the possibility of employee-related claims. Before that first person starts, it is a good idea to talk with your insurance agent and other professional advisors about what may need to change.
Workers' Compensation
Workers' compensation insurance is one of the first insurance topics many business owners need to consider when hiring an employee. Requirements vary by Washington, industry, and employee classification, so it is important to understand what applies to your business before the employee begins work.
Workers' compensation can help cover certain work-related injuries or illnesses. It may also help with medical costs, lost wages, and related expenses, depending on the policy and applicable state law. Even if your business feels low-risk, an employee can still be injured in an office, on a jobsite, while lifting supplies, or while performing routine tasks.
Business owners should not assume that a small team means small responsibility. In many cases, hiring even one employee can trigger new workers' compensation requirements.
For our clients in WA, OH & ND: In these monopolistic states, employers are required to purchase coverage directly from government-operated state funds.
- Washington: Administered by the Department of Labor & Industries (L&I).
- Ohio: Administered by the Bureau of Workers' Compensation (BWC).
- North Dakota: Administered by Workforce Safety & Insurance (WSI).
Employment Practices Liability
Once you have an employee, you also have employment-related exposure. Employment practices liability insurance, often called EPLI, is designed to help businesses respond to certain claims related to the employment relationship.
These claims may involve allegations such as discrimination, harassment, wrongful termination, retaliation, or other workplace-related issues. Even a small business with a friendly work environment can face a misunderstanding, complaint, or dispute.
EPLI can be especially important for businesses hiring their first employee because many small business owners are still building formal hiring, onboarding, discipline, and termination procedures. Having written policies, job descriptions, and employee expectations can also help reduce confusion.
General Liability
If your new employee interacts with customers, visits client locations, handles products, or performs work away from your office, your general liability policy should be reviewed.
General liability insurance can help protect your business from certain claims involving bodily injury, property damage, and personal or advertising injury. However, adding an employee may change how your business operates. For example, you may now have someone else making deliveries, meeting customers, working at a jobsite, or handling equipment.
Your insurance agent can help review whether your current policy still reflects the way your business now operates.
Business Property And Equipment
A first employee often comes with new business property. You may need another computer, phone, desk, tools, uniforms, equipment, or inventory access. If the employee works remotely or takes equipment off-site, that may also create new considerations.
Business property insurance can help cover certain property losses, but limits, exclusions, and locations matter. Equipment used away from your main business location may need to be scheduled or insured differently.
Before handing over a laptop, tools, or company property, make sure your policy reflects what you own, where it is used, and who uses it.
Commercial Auto
If your employee will drive for business purposes, commercial auto insurance should be part of the conversation.
This may apply if the employee drives a company vehicle, uses a personal vehicle for business errands, makes deliveries, visits clients, transports tools, or travels between job locations. Personal auto policies may not respond the same way when a vehicle is used for business.
Depending on the situation, your business may need a commercial auto policy, hired and non-owned auto coverage, or changes to an existing policy. Your agent can help you review how vehicles are being used and what options may fit your business.
Professional Liability
If your business provides advice, design work, consulting, financial guidance, technical services, marketing services, or other professional services, your new employee may create professional liability exposure.
Professional liability insurance, also known as errors and omissions insurance, can help protect a business from certain claims involving mistakes, missed deadlines, negligence, or failure to perform professional services as expected.
When employees communicate with clients, prepare work product, make recommendations, or manage accounts, their actions may create risk for the business. This is why it is important to review professional liability needs as your team grows.
Cyber Liability
A new employee may need access to email, customer records, payment systems, cloud accounts, scheduling platforms, or internal software. That access can create cyber and data security concerns.
Cyber liability insurance can help cover certain costs related to data breaches, cyberattacks, ransomware, phishing incidents, and other digital risks, depending on the policy. Small businesses are not immune from these problems, especially when new users, passwords, devices, and systems are added.
Good internal practices matter too. Consider using strong passwords, multi-factor authentication, limited access permissions, employee training, and clear rules for handling customer information.
Employee Benefits And Related Liability
If you decide to offer benefits such as health insurance, dental insurance, retirement plans, group life insurance, or disability insurance, there may be additional responsibilities to review.
Employee benefits liability insurance can help protect a business from certain claims related to mistakes in administering employee benefit plans. This might include issues involving enrollment, eligibility, or communication errors.
Not every business offers benefits when hiring its first employee, but if you do, make sure you understand the administrative responsibility that comes with them.
Business Owner's Policy
Many small businesses start with a business owner's policy, often called a BOP. A BOP may combine general liability and business property insurance into one policy, depending on the business and carrier.
When hiring your first employee, it may be a good time to review whether your BOP still fits your operation. Your payroll may change. Your sales may grow. Your equipment may increase. Your business activities may expand.
Insurance policies are often based on the details of your business at the time the policy was written. When those details change, your policy should be reviewed.
Umbrella Or Excess Liability
As your business grows, your liability exposure may grow with it. An umbrella or excess liability policy can help provide additional limits above certain underlying policies.
This may be worth discussing if your employee works around customers, operates vehicles, performs work at client locations, handles expensive property, or is involved in higher-risk business activities.
An umbrella policy is not a replacement for the right underlying policies, but it may provide an added layer of protection when a covered claim exceeds certain limits.
Payroll And Insurance Audits
Adding an employee can also affect how your insurance premiums are calculated. Some business insurance policies use payroll, sales, employee count, job duties, or classifications as part of the rating process.
For example, workers' compensation premiums are often tied to payroll and job classification. General liability policies may also consider payroll or sales depending on the business type.
This is one reason accuracy matters. If your payroll estimate is too low, you may face an additional premium after an audit. If it is too high, you may overpay during the policy term. Keeping clear payroll records and communicating changes to your agent can help reduce surprises.
Independent Contractor Or Employee
Some business owners try to avoid hiring responsibilities by classifying workers as independent contractors. This decision should not be made casually.
The difference between an employee and an independent contractor can affect taxes, insurance, payroll, benefits, and liability. Misclassification can create serious problems. If you are unsure, talk with your CPA, attorney, payroll provider, or other qualified advisor.
From an insurance standpoint, your agent should also know who is doing work for your business, what they do, and whether they are employees, subcontractors, or independent contractors.
Review Before The First Day
The best time to review your insurance is before your employee starts, not after a claim or compliance issue comes up.
Before the first day, consider reviewing:
- State Specific Workers' compensation requirements
- Employment practices liability insurance
- General liability limits and business operations
- Commercial auto exposures
- Business property and equipment
- Cyber liability and employee access
- Professional liability risks
- Employee benefits liability
- Payroll estimates and employee classifications
Hiring your first employee is a big step. It is also a sign that your business is moving forward. A thoughtful insurance review can help you understand what has changed and what policies may need attention.
If your business is preparing to hire its first employee, Nicholson and Associates Insurance can help you review your current insurance and discuss options that may fit your business. Contact us to start the conversation.
