Congratulations—you're ready to hire your first employee for your bakery! This is a huge milestone that marks real growth for your business. But here's what catches most bakery owners off guard: the moment you bring on that first team member, your insurance needs change dramatically. What worked when it was just you mixing dough at 4 AM doesn't cut it anymore.
The good news? Understanding your insurance requirements doesn't have to be overwhelming. Let's walk through exactly what coverage you need, why you need it, and how to get it right from day one.
Workers' Compensation: The Big Trigger
Here's the thing most new employers don't realize: in most states, you're legally required to have workers' compensation insurance the moment you hire your first employee. Not your third employee, not when you hit a certain payroll threshold—your first one.
States like California, Idaho, and Rhode Island require coverage immediately upon hiring. A few states wait until you have three or five employees, but those are exceptions. Texas is the outlier where coverage is optional for most private employers, though you'll face strict notice requirements if you opt out. The safest bet? Assume you need it from day one and verify your specific state's requirements.
Why does this matter so much for bakeries specifically? Your employees face real, daily risks. Burns from hot ovens and baking sheets, repetitive strain injuries from constant kneading and decorating, cuts from dough slicers and mixers, back injuries from hoisting 50-pound bags of flour—these aren't hypothetical scenarios. They happen regularly in bakery operations.
Workers' compensation insurance covers your employee's medical bills and lost wages if they get hurt on the job. Just as importantly, it protects you from lawsuits. Without it, an injured employee could sue you directly for medical costs, lost income, and damages. With a bakery full of hot equipment and physical labor, that's a risk you can't afford to take.
The average cost for bakery workers' compensation runs about $128 per month or $1,541 annually. That's based on the specific risks your employees face and your payroll size. It's not cheap, but it's far less expensive than a single workplace injury lawsuit.
Getting Classification Right
When you apply for workers' comp, you'll encounter something called classification codes. For standalone bakery operations—meaning you're baking goods that aren't immediately sold at a restaurant you also operate—you'll typically use code 2003 for "Bakeries or Cracker Manufacturing."
This matters more than you might think. Insurance companies use these codes to calculate your premium because different jobs carry different risk levels. If you also have a counter person handling sales or someone doing office work, those employees should be classified separately under different codes with lower rates.
Misclassification isn't just an honest mistake—it can cost you. During a workers' comp audit (which happens periodically), if the auditor discovers employees were classified incorrectly, your insurance company can retroactively bill you for up to three years of premium differences. That's a nasty surprise no small business needs.
Employment Practices Liability: The Coverage Nobody Thinks About
Here's where first-time employers get blindsided: Employment Practices Liability Insurance, or EPLI. This coverage protects you against claims from employees alleging discrimination, harassment, wrongful termination, or violation of employment laws.
You might think, "I'm a good person running a small bakery. I'd never discriminate or harass anyone." That's probably true. But employment claims aren't always about what you actually did—they're about what someone believes happened or how they interpreted a situation. And small businesses are particularly vulnerable because you probably don't have an HR department, formal employee handbooks, or documented policies for hiring, discipline, and termination.
Bakeries face specific exposure here. High employee turnover is common in food service, and each hiring and firing decision is a potential claim. Customer interactions add another layer—if a customer harasses your employee and you don't handle it properly, you could face a claim. Even if you ultimately win, legal defense costs for employment claims can easily run $50,000 to $100,000.
EPLI typically costs between $1,500 and $2,500 annually for businesses with five to 20 employees. You can often add it as an endorsement to your business owner's policy (BOP) or general liability policy, which can be more cost-effective than buying a standalone policy. The cost varies based on your number of employees, turnover rate, and claims history.
Payroll Reporting and Record Keeping
When you get workers' comp insurance, your premium is based on your estimated annual payroll. At the end of your policy period, you'll face an audit where the insurance company verifies your actual payroll and adjusts your premium accordingly.
This means you need to keep meticulous payroll records from day one. Track every employee's wages separately, organized by their classification code. If your head baker also occasionally works the counter, you'll need to split their hours between baking (code 2003) and retail work. Yes, it's tedious. But accurate records protect you during audits and ensure you're not overpaying for coverage.
Some bakery owners try to save money by underestimating payroll or misclassifying employees as independent contractors. Don't. Insurance companies audit thoroughly, and if they catch discrepancies, you'll face back premiums, penalties, and potentially policy cancellation. Plus, misclassifying employees can trigger issues with the IRS and your state's labor department—problems that make insurance audits look gentle by comparison.
Where to Buy Coverage and What to Expect
In most states, you can buy workers' compensation insurance through any licensed insurance broker or directly from insurance companies. Four states—North Dakota, Ohio, Washington, and Wyoming—require you to get coverage through state-owned programs, so you don't have a choice of carriers there.
Start shopping for insurance before you officially hire your first employee. Most states impose penalties for operating even one day without required workers' comp coverage, and those penalties can be steep. In California, for example, you could face fines of up to $100,000 and criminal charges for willful noncompliance.
When you talk to insurance agents, be upfront about your operations. Describe exactly what your employees will do, the equipment they'll use, and your safety procedures. The more accurate information you provide, the better your quote will reflect your actual risk—and the fewer surprises you'll face during audits.
How to Get Started
Before you bring on your first employee, take these steps. First, verify your state's specific workers' comp requirements—don't assume. Second, contact insurance brokers who specialize in food service businesses; they'll understand bakery operations and help you get classified correctly. Third, set up proper payroll record-keeping systems from day one, whether that's accounting software or working with a payroll service.
Fourth, seriously consider EPLI coverage even though it's not legally required. The relatively small premium is worth the protection against potentially devastating employment claims. Finally, document everything—your hiring process, safety training, policies, and any workplace incidents. Good documentation protects you if claims arise and demonstrates to insurers that you're managing risk responsibly.
Hiring your first employee is exciting, and getting the right insurance doesn't have to dampen that excitement. Think of it as protecting both your business and the person who's helping you grow it. Get your coverage in place before that first day of work, maintain accurate records, and you'll handle this transition smoothly. Your future self—and your employees—will thank you.
