Hiring a new employee is a major milestone for any business, but it also brings with it certain legal and financial responsibilities, especially when it comes to business insurance. Many business owners don’t realize that hiring even one employee can significantly impact their insurance coverage. From increased premiums to new policy requirements—it’s important to understand how this decision could affect your business in the long run.
Before you hire someone, here’s what you need to know about how it impacts your insurance and how to avoid costly mistakes.
1. Workers’ Compensation – Is It Required?
Most states require businesses to carry Workers’ Compensation insurance as soon as they have at least one employee. This insurance helps cover medical expenses and lost wages if an employee gets injured on the job.
If you operate in an industry where physical labor or job-related injuries are possible, workers’ comp is even more critical. Without proper coverage, you could be responsible for paying out-of-pocket for medical bills and legal costs.
🔎 How to Check Your State’s Workers’ Comp Laws:
- The National Council on Compensation Insurance (NCCI) provides a database of state-specific Workers’ Compensation laws.
- Florida Office of Insurance Regulation – Workers’ Compensation Insurance: This page provides an overview of workers’ compensation insurance requirements in Florida, including employer obligations and coverage details.
- The U.S. Small Business Administration (SBA) offers an overview of federal and state hiring laws.
✅ What You Should Do:
- Check your state’s minimum employee threshold for Workers’ Comp. Some states require coverage for even one employee, while others allow exemptions.
- Contact your insurance agent before hiring to ensure you’re in compliance with local regulations.
2. Payroll-Based Policies – How They Affect Your Premium
Certain insurance policies, such as Workers’ Compensation and General Liability, base their premiums on your payroll. When you hire a new employee, your total payroll increases, and in turn, so will your insurance premiums.
🔎 Example:
A business owner currently pays $5,000 annually for Workers’ Compensation insurance based on a $100,000 payroll. If they hire a new employee with a $40,000 annual salary, their premium will likely rise accordingly.
✅ What You Should Do:
- Estimate your payroll growth before hiring to better anticipate changes to your premiums.
- Ask your agent if pay-as-you-go Workers’ Compensation is an option, as this allows you to pay premiums based on actual payroll instead of estimates.
3. Increased Liability Risks – More Employees, More Exposure
Every additional employee increases your liability exposure. If an employee damages property, causes injury, or even makes a mistake that leads to a lawsuit, your General Liability insurance policy may need higher limits to cover the added risk.
🔎 Common Liability Risks:
- A new employee accidentally damages a piece of equipment while performing their duties.
- A worker leaves a hazard in the workplace, causing another employee or client to trip and fall.
✅ What You Should Do:
- Review your General Liability policy and make sure your limits are adjusted to cover additional risks.
- Consider Employment Practices Liability Insurance (EPLI) to protect your business from lawsuits related to wrongful termination, discrimination, or harassment.
4. Commercial Auto Insurance – Are Employees Driving for Work?
If your new employee drives company vehicles or uses their personal vehicle for business tasks, you’ll need to update your Commercial Auto Insurance.
🔎 Why This Matters:
- If an employee is involved in an accident while driving for business, and they’re not listed on your policy, your insurer may deny the claim.
- Hired and Non-Owned Auto Insurance (HNOA) may be needed if employees use their own cars for business purposes.
✅ What You Should Do:
- Add new employees to your commercial auto policy if they will be driving company-owned vehicles.
- If employees use their personal vehicles for work, make sure they’re covered under Hired & Non-Owned Auto Insurance.
5. Before You Hire: Steps to Take
Before bringing a new team member on board, follow this simple insurance checklist:
✅ Check your Workers’ Comp requirements. Some states require coverage for just one employee.
✅ Update your payroll estimates. This affects Workers’ Comp and General Liability premiums.
✅ Review liability coverage. More employees mean higher exposure to claims.
✅ Confirm auto insurance coverage. If the employee drives for work, make sure they’re listed on your policy.
✅ Consult with your insurance agent. A quick conversation before hiring can prevent costly mistakes later on.
Hiring a new employee is a sign of growth for your business, but failing to update your insurance could cost you thousands in unexpected claims, fines, and penalties. By taking the time to review and update your policies before hiring, you can protect your business and ensure smooth growth as you expand your team.
Need help reviewing your coverage? Contact us today to make sure your business stays fully protected.