Hiring your first employee is a milestone for any small business and it comes with a new legal responsibility in almost every state: workers’ compensation insurance. Many small business owners are caught off guard by this requirement, unsure of what they need, how to get it, and how much it will cost.
This guide answers the most common question first-time employers ask: how much does workers comp actually cost for just one employee?
How Much Does Workers Comp Cost for 1 Employee?
The average cost of workers’ compensation insurance for a single employee ranges from $40 to $200 per month, depending on the employee’s job classification and the state where your business operates.
Annual cost typically falls between $500 and $2,400 per year for one employee in most industries.
Here is the range by job type:
| Type of Work | Monthly Cost (1 Employee) | Annual Cost |
|---|---|---|
| Office / Clerical | $40 – $70 | $480 – $840 |
| Retail / Customer Service | $50 – $90 | $600 – $1,080 |
| Restaurant / Food Service | $70 – $120 | $840 – $1,440 |
| Landscaping / Lawn Care | $100 – $180 | $1,200 – $2,160 |
| Construction / Carpentry | $150 – $300 | $1,800 – $3,600 |
| Roofing | $200 – $400 | $2,400 – $4,800 |
| Electrical | $120 – $250 | $1,440 – $3,000 |
How Is Workers Comp Premium Calculated?
Workers’ compensation premiums are calculated using a straightforward formula:
Annual Premium = (Annual Payroll ÷ $100) × Class Code Rate
Annual payroll: The total gross wages you pay the employee per year. For one employee earning $40,000 per year, the payroll factor is 400.
Class code rate: Each job type has a workers’ compensation classification code with an associated rate per $100 of payroll. Riskier jobs have higher rates.
Example:
One employee in an office role earning $40,000 per year.
Class code rate for clerical work: approximately $0.15 per $100 of payroll.
Annual premium = 400 × $0.15 = $60 per year.
Example:
One employee in roofing earning $50,000 per year.
Class code rate for roofing: approximately $25-$35 per $100 of payroll.
Annual premium = 500 × $25 = $12,500 per year.
This illustrates why the type of work matters far more than the number of employees when calculating workers’ comp costs.
Workers Comp Requirements for Small Businesses
Do You Need Workers Comp for Just 1 Employee?
In most states, yes. Workers’ compensation is legally required as soon as you hire your first employee in the majority of states. However, the threshold varies:
| State | Minimum Employees Required |
|---|---|
| California | 1 or more |
| New York | 1 or more |
| Florida | 4 or more (non-construction) |
| Texas | Not required (voluntary) |
| Georgia | 3 or more |
| Tennessee | 5 or more (non-construction) |
| Alabama | 5 or more |
Construction and certain high-risk industries often have different usually stricter thresholds than the general workforce. Always verify your state’s specific requirements.
What Happens if You Skip Workers Comp?
The penalties for operating without required workers’ compensation coverage are severe in most states.
California: Stop-work orders and fines up to $100,000 plus a penalty of twice the premium that should have been paid.
New York: Fines up to $2,000 per 10-day period of non-compliance plus potential criminal charges.
Florida: Stop-work orders and fines equal to 2 times the evaded premium.
Beyond legal penalties, if an uninsured employee is injured, you are personally liable for all medical costs, lost wages, and potential lawsuits.
How to Get Workers Comp for 1 Employee
Option 1: Private Insurance Carrier
Most commercial insurers offer workers’ compensation coverage for small businesses. You can purchase directly or through an independent broker. Private carriers are typically the most competitive option for low-risk industries.
Option 2: State Fund
Many states operate state-funded workers’ compensation programs that cover businesses that cannot obtain private coverage. In some states (Ohio, Washington, Wyoming, North Dakota), the state fund is the only option private workers’ comp is not available.
Option 3: Professional Employer Organization (PEO)
A PEO co-employs your workforce and includes workers’ compensation in their bundle of HR services. This can be cost-effective for businesses with one to five employees because the PEO’s large employee pool means lower risk classification rates.
Option 4: Pay-As-You-Go Workers Comp
Many insurers offer pay-as-you-go workers’ compensation where your premium adjusts in real time based on actual payroll rather than estimated annual payroll. This eliminates large upfront deposits and end-of-year audits. Ideal for seasonal or variable-payroll businesses.
How to Reduce Workers Comp Costs for Small Employers
Correctly classify your employee. Using the wrong classification code even accidentally means overpaying. If your employee does multiple types of work, payroll should be allocated to the appropriate code for each task.
Implement a return-to-work program. Even for one employee, having a plan for light-duty work during recovery from injury reduces the duration and cost of workers’ comp claims.
Maintain a safe work environment. Documented safety protocols reduce the likelihood of injuries and improve your experience modification rate (EMR) over time, which directly reduces premiums.
Choose pay-as-you-go billing. Pay-as-you-go eliminates premium deposits and ensures you never overpay based on estimated payroll.
Consider your state’s options. In some states, voluntary market rates are more competitive than the state fund. In others, the state fund is the better deal. Compare both.
The Experience Modification Rate (EMR)
After three years of carrying workers’ compensation, your business receives an experience modification rate (EMR) a multiplier applied to your base premium based on your actual claims history compared to businesses in your industry.
- EMR of 1.0 = industry average (no change to premium)
- EMR below 1.0 = fewer claims than average (premium discount)
- EMR above 1.0 = more claims than average (premium surcharge)
A single significant workers’ comp claim in your early years can push your EMR above 1.0 and increase your premium for three years. This makes injury prevention a direct financial priority, not just an ethical one.
Frequently Asked Questions
Do I need workers comp if my employee works part-time?
In most states, yes. Part-time employees are treated the same as full-time employees for workers’ compensation purposes. Hours worked do not determine whether coverage is required.
Am I covered if I am the sole owner and my only employee?
Owners are often exempt from mandatory workers’ compensation coverage in many states, though they can elect to include themselves. An employee hired separately is not exempt you need coverage for them.
What if my employee is injured but refuses to file a workers comp claim?
You should still report the injury to your insurer. Employees have the right to file claims for up to the statute of limitations in your state often 2-3 years. Undocumented incidents can create problems if a claim is filed later.
Can I cover a 1099 independent contractor under my workers comp policy?
Generally no independent contractors are not employees and workers’ comp is designed for employer-employee relationships. However, if a contractor is later reclassified as an employee, you could face liability for unpaid coverage. When in doubt, consult an attorney about proper worker classification.
Conclusion
Workers’ compensation for one employee costs between $40 and $200 per month for most small businesses, with the actual amount driven more by the type of work than by anything else. A clerical employee is among the cheapest to cover. A roofing or construction worker is among the most expensive.
Once you hire your first employee, check your state’s requirements immediately. The penalties for non-compliance far outweigh the cost of coverage.
Disclaimer: Workers’ compensation requirements vary by state and are subject to change. Always verify current requirements with your state’s workers’ compensation board. This article is for informational purposes only and does not constitute legal or insurance advice.
