First Employee Insurance Checklist: Workers' Comp and EPLI Setup (2026)

Insurance for your first employee adds two coverages your business policy does not include: workers' compensation and employment practices liability insurance (EPLI). Workers' comp is legally required the day you hire in most states. EPLI covers employee claims like wrongful termination that general liability excludes. A few states set higher headcount triggers, and Texas makes workers' comp optional.

This guide covers when workers' comp is required by state and why EPLI exposure starts at your very first hire. It also covers what both policies cost for one employee and the order to set everything up before day one.

Do I really need workers' comp for just one employee?

In most states you need workers' compensation the moment you hire your first W-2 employee, including part-time and seasonal workers. About 30 states plus DC trigger coverage at one employee. A handful wait until three to five. Texas is the only state where private employers can opt out, per NFIB.

The workers comp first employee question trips founders up because the headcount counts almost everyone on payroll. Full-time, part-time, and seasonal hires generally all count, so a single part-time packer can put you over the line (yes, the weekend helper counts too). Owner and officer exclusions let you leave yourself off the policy, but they don't lower the headcount used to decide whether coverage is required. Construction trades often trigger at the first employee regardless of a state's general number.

Operating uninsured gets expensive fast. Some states levy civil penalties for each period you go without, issue stop-work orders, and hold company officers personally liable. Most growing brands buy workers' comp as part of a wider ecommerce insurance setup once they add payroll.

Here is where the one-employee rule applies and where the higher thresholds kick in.

What if my first hire is remote or used to be a 1099 contractor?

A remote first employee falls under the workers' comp rules of the state where they physically work, not where your business is registered, so your policy has to list that state. A 1099 contractor is generally not on your workers' comp. But if the role looks like employment, misclassification can pull you back in. That means owed coverage, back taxes, and penalties.

Four monopolistic states (North Dakota, Ohio, Washington, and Wyoming) only sell workers' comp through a state fund, not a private carrier. A supplements brand doing about $2M learned this the slow way. Its first W-2 hire was a remote customer-experience lead in Ohio. The founder bought a normal private policy, not knowing Ohio sells workers' comp only through the state fund. The cross-state mechanics get their own walkthrough in our multi-state workers' comp checklist.

A true 1099 contractor stays off your workers' comp, which cuts both ways: an injured contractor can sue you directly instead of filing a comp claim. Converting one to W-2, or having misclassified one all along, opens up IRS back-tax exposure plus Department of Labor back-wage exposure under the Fair Labor Standards Act. The IRS test for contractor versus employee turns on behavioral and financial control rather than the label on the invoice.

A skincare brand that moved a long-time 1099 fulfillment helper to W-2 had to account for the earlier stretch. That relationship already looked like employment well before the paperwork changed.

Doesn't my general liability already cover an employee lawsuit?

No. General liability and a standard BOP (business owner's policy) exclude employment claims. So a wrongful termination, discrimination, harassment, or retaliation suit from an employee isn't covered. That gap is what employment practices liability insurance (EPLI) fills, a policy that pays to defend and settle employee lawsuits over how someone was hired, managed, or let go. The exposure begins with your first hire, and even with applicants you reject.

General liability covers a customer who slips in your space or a product that hurts someone. It leaves two employee-related gaps. Bodily injury to your own worker sits with workers' comp, and the employment relationship itself sits with EPLI. EPLI is built for exactly these employment claims, according to the Insurance Information Institute, which a GL or BOP policy was never meant to touch.

Founders often assume the federal 15-employee threshold means a one-person shop is safe. Federal Title VII does start at 15 employees, per the EEOC. But many state anti-discrimination laws apply at one employee, so a single-employee business already carries real exposure. These claims are common and costly. The EEOC received 88,531 charges in FY2024, with retaliation the most frequent type.

For the deeper question of when to add EPLI for an ecommerce brand and what the epli setup costs, the dedicated explainer walks through the timing.

How much does it cost to insure my first employee?

Insuring your first employee usually runs a few hundred dollars a year in workers' comp for a low-risk office role, plus roughly $800 to $2,000 a year for EPLI if you add it. Workers' comp is priced per $100 of payroll by job class code. A warehouse or fulfillment hire costs several times more than a clerical one.

The rate comes from the job's class code. Clerical roles like a remote customer-experience lead fall under code 8810, one of the lowest-rated codes there is. That's why an office first hire often lands in the low hundreds. The same hire picking orders in a warehouse costs several times more.

EPLI sits on top of that. A small employer typically pays $800 to $2,000 a year, and it can ride along as an endorsement on your business owner's policy instead of a separate contract. (That bundling is often the cheaper route for a one-person shop.) For the full picture of how these pieces stack against your other coverage, see what ecommerce insurance costs.

Pay-as-you-go versus standalone workers' comp also shapes the bill. Pay-as-you-go ties into your payroll software and bills on your actual wages each pay run, so the premium tracks reality. A standalone policy asks you to estimate annual payroll up front and reconciles it at year end. One supplements brand lowballed its standalone payroll estimate to keep the upfront deposit small. Actual wages came in higher. The year-end audit produced a four-figure true-up the founder hadn't set aside for.

What do I need to set up before my new hire's first day?

Before your first employee starts, five things need to be in place. The list below puts them in order, and the binding date is the one that has to come first.

1. Bind workers' comp effective on or before day one. Any gap before the first shift is uninsured.
2. Register for state unemployment insurance and confirm your federal unemployment tax, which most payroll providers handle automatically once you run your first payroll.
3. If your hire works in California, New York, New Jersey, Hawaii, or Rhode Island, add state disability or paid-leave coverage.
4. Add EPLI to cover employment claims that your general liability policy excludes.
5. Revisit your general liability or BOP class codes and premium, because payroll and any new operations can shift what you owe.
6. Keep the year-end audit clean by reporting payroll accurately on every run.

One worry you can cross off the list is health insurance. Hiring your first employee doesn't trigger the ACA employer mandate, which the IRS applies only to employers with 50 full-time employees, so benefits stay optional at this stage. This step also slots into the broader stack you built as a solo seller, covered in our new seller insurance checklist. The two policies that start with hire one are workers' comp and EPLI. A broker like Coverwatch can confirm the requirement in the state where your hire physically works. They list that state on the policy and bind both on or before the start date in one pass.

With workers' comp and EPLI bound before day one, the only thing left on hiring day is onboarding, not chasing a policy that should already be in force.