In California, the one policy you must have in place before your first employee starts work is workers' compensation insurance. State law requires it even if you have only one employee. Beyond that requirement, most new employers should also review employment practices liability, commercial auto, general liability, and cyber coverage, since a single hire can change the risks your business carries.
At Knight Insurance Services, we've worked with businesses across Greater Los Angeles and LA County since 1922, and we often talk with owners who are about to make their first hire. If that's where you are, here is what you need to know about insurance before hiring employees.
According to the California Division of Workers' Compensation, "All California employers must provide workers' compensation benefits to their employees under California Labor Code Section 3700. If a business employs one or more employees, then it must satisfy the requirement of the law."
Workers' compensation can help pay for medical care and a portion of lost wages when an employee is injured or becomes ill because of their job. It also generally protects the employer, since workers' comp is typically the exclusive remedy for workplace injuries in California.
California employers can obtain coverage through a licensed insurance company, through the State Compensation Insurance Fund, or, for businesses that meet strict financial requirements, through state-approved self-insurance.
The penalties are serious. According to the Division of Workers' Compensation:
If an uninsured employee is hurt on the job, the employer can also be held responsible for the cost of that claim.
Once you have coverage, California requires you to post a workers' compensation notice to employees in a place where workers can easily see it, and to give each new hire a pamphlet explaining their workers' comp rights. Your insurer can typically provide the required poster.
EPLI is not required by law, but it's one of the most practical policies for new employers. It can help cover defense costs and settlements when an employee or applicant alleges discrimination, harassment, wrongful termination, or retaliation.
Many owners assume they're too small to face these claims. The California Civil Rights Department notes that while the Fair Employment and Housing Act's discrimination provisions apply to employers of five or more, "Harassment is prohibited in all workplaces, even those with fewer than five employees." Once you reach five employees, California also requires sexual harassment prevention training. Learn more about EPLI insurance or read our post on how remote work has created new EPLI risks for California employers.
Your general liability insurance covers claim from third parties, such as a customer who is injured or whose property is damaged. An employee acting on your behalf can create that kind of claim, so it's worth confirming your limits still fit once someone else is representing your business. Keep in mind that general liability typically does not cover injuries to your own employees or employment-related claims. Those fall under workers' comp and EPLI.
Will your new employee run errands, visit clients, or make deliveries? If they drive a company vehicle, it needs to be on a commercial auto policy. If they use their own car for work, ask your agent about hired and non-owned auto coverage, since an employee's personal auto policy may not fully protect your business after an accident. Our post on how commercial auto insurance protects employees from accidents and injuries goes deeper on this.
Giving an employee access to customer records, payment systems, or email increases the chance of a data breach, whether through a phishing email or a lost laptop. Cyber liability insurance can help with response costs and claims after a breach.
New employers sometimes confuse state payroll programs with insurance they need to purchase. According to the California Employment Development Department, once you pay more than $100 in wages in a calendar quarter, you must register as an employer within 15 days. From there:
Payroll handles these, not an insurance agent, but they still belong on the same first-hire checklist.
California does not require a business with one employee to offer health insurance, and the federal employer mandate under the Affordable Care Act applies to employers with 50 or more full-time employees, including full-time equivalents. Even so, benefits can help a small business attract and keep good people. If that's part of your plans, our team can walk you through employee benefits options as you grow.
Hiring your first employee is a milestone, and the right insurance lets you focus on training and growing instead of worrying about what could go wrong. The best time to set up coverage is before the start date, not after an incident.
Call us at (818) 662-4200 or contact us today to speak with one of our experienced insurance professionals at Knight Insurance Services.
Our team of friendly professionals are always on hand to help. Can't wait? Give us a call at (818) 662-4200.
Yes. California requires workers' compensation for businesses with one or more employees, and the requirement is not limited to full-time staff.
No. EPLI is optional, but harassment claims can be brought against California employers of any size, so many small businesses choose to carry it.
The state can issue a stop order and assess penalties of at least $1,500 per employee. Operating without coverage is also a misdemeanor, and you may be responsible for the cost of any injury claim.
True independent contractors generally aren't, but California uses the ABC test to decide who qualifies. If a worker is classified as an employee under that test, workers' comp coverage is required.
