Once You Have Employees
The first hire changes the insurance stack more than any revenue milestone.
Workers’ compensation. Mandatory for private employers in every state but Texas, which lets them opt out as nonsubscribers — and strips an opted-out employer of its common-law defenses when an injured worker sues. The policy protects you as much as the employee: workers’ compensation is the employee’s exclusive remedy, so an insured employer cannot be sued in tort for the injury, and an uninsured one can. California adds criminal exposure. Going uninsured is a misdemeanor with a fine of at least $10,000 (Labor Code §3700.5), on top of a penalty of twice the premium you skipped or $1,500 per employee, whichever is greater (§3722). Owners are handled differently. Sole proprietors, partners, and LLC members generally need not cover themselves; in California a corporate officer who is the sole shareholder is excluded unless they elect in, and officers owning 10% or more who have health coverage may waive in writing (Labor Code §3352(a)(16)). Two exceptions catch one-person firms. General contractors and large clients often demand a certificate from a business with no employees at all — ask the broker for a minimum-premium policy that excludes the owner. And California already requires roofers and several other trades to carry coverage with no employees, and extends the requirement to every licensed contractor from 2028 (Business and Professions Code §7125).
Employment practices liability. Wrongful-termination, discrimination, harassment, and retaliation claims arrive with the first employee. In California the Fair Employment and Housing Act lets a winning employee recover attorney’s fees, while a winning employer recovers fees only if the suit was frivolous (Gov. Code §12965(c)(6)), so even a weak claim is expensive to fight. The product is the one described for household staff in section “Professional Liability and Board Service Coverage”, sized to headcount. Wage-and-hour claims are usually excluded or covered for defense costs only, so get the payroll mechanics right in the first place (section “Paying for Work: Payroll and Information Reporting”).
Cars you do not own. A vehicle titled to the business belongs on a commercial auto policy. The subtler exposure is the car the business does not own: an employee running an errand in their own car, or a rental on a business trip. When the employee causes a crash, the plaintiff sues the business too. The employee’s personal policy extends to the business for that vicarious liability, but only up to the employee’s own limits — which may be the state minimum, $30,000 per person in California since 2025. Hired and Non-owned Auto (HNOA) coverage sits excess over that, attaches to most BOP and general-liability policies as an endorsement, and is inexpensive. Add it with the first hire.
The 401(k) becomes an ERISA plan. A Solo 401(k) in a business owned by you, or by you and your spouse, covers no employees in ERISA’s sense and sits outside Title I, so it needs no fidelity bond (section “Retirement Plans for the Self-Employed”). The day a common-law employee becomes a participant, it is an ERISA plan, and every person who handles plan money must be bonded for at least 10% of the funds handled — minimum $1,000, maximum $500,000, or $1M if the plan holds employer securities (ERISA §412, 29 U.S.C. §1112). The bond protects the plan from theft by the people running it and does nothing for you. What protects you is fiduciary liability insurance, which defends claims that you chose an imprudent fund menu or let the plan overpay for recordkeeping — the theory behind a decade of excessive-fee class actions. Buy both once the plan covers staff, and add a crime policy for the bookkeeper who can move money.