Here's what nobody tells you about hiring your first employee at your barbershop: the moment you go from solo operator to employer, you're entering a completely different world of insurance requirements. That chair rental arrangement you've been running? It's simple. But the second you put someone on payroll, states start mandating coverage you've never needed before. And if you skip it? You're looking at fines, lawsuits, and potentially losing everything you've built.
The good news is that protecting your business doesn't have to be complicated or expensive. Most barbershop owners are surprised to learn that workers' comp runs about $19 per month per employee. The key is understanding exactly what coverage you need, when you need it, and how to get it set up correctly before that first paycheck goes out.
The Workers' Compensation Trigger: When It Kicks In
In most states, workers' compensation insurance becomes mandatory the instant you hire your first W-2 employee. Not when you hire your fifth employee. Not when you hit a certain revenue threshold. Your first employee. States like California, for example, require coverage immediately upon hiring anyone who isn't an independent contractor. The majority of states trigger requirements somewhere between one and five employees, but it's safer to assume you need it from day one.
Workers' comp exists to protect both you and your employees. If your new barber slips on a wet floor and breaks their wrist, or develops carpal tunnel from years of holding clippers, workers' comp covers their medical bills, rehabilitation costs, and lost wages during recovery. Without it, you're personally on the hook for those expenses, and in most states, you're breaking the law.
The only exception is Texas, which doesn't require employers to carry workers' comp at all. But even there, most business owners opt in because going without leaves you vulnerable to lawsuits that could bankrupt your shop. Four states—North Dakota, Ohio, Washington, and Wyoming—operate monopolistic workers' comp systems, meaning you must purchase coverage through the state fund rather than a private insurer.
Understanding Your Workers' Comp Costs and Classification
For barbershops, workers' compensation insurance averages about $0.52 per $100 of payroll in 2025-2026. If you're paying an employee $2,000 per month, that works out to roughly $10.40 monthly for their workers' comp coverage—incredibly affordable protection against potentially devastating costs. Industry averages show barbershops paying around $70 per month total, or $839 annually.
Here's where classification becomes critical. The National Council on Compensation Insurance (NCCI) assigns barbershops to class code 9586, which covers barber shops, beauty parlors, hair stylists, and similar personal grooming services. Getting your classification right matters because it determines your premium rate. If your insurer miscodes your employees or you misreport their duties, you could end up paying the wrong rate and facing a costly audit down the road.
One important distinction: if you hire someone to handle reception, appointments, and bookkeeping, they should be classified under clerical code 8810, which typically has a lower rate than the barber classification. Mixing up these codes or lumping everyone under one classification can either inflate your premiums unnecessarily or leave you underinsured during an audit.
Why You Need EPLI When You Hire Your First Employee
Employment Practices Liability Insurance (EPLI) is the coverage most new employers overlook, and it's a mistake that can cost you everything. EPLI protects you from claims of wrongful termination, discrimination, harassment, and wage disputes. Think this doesn't apply to a small barbershop? Think again. Employment-related claims have surged by nearly 400% over the past two decades, and small businesses are the most vulnerable because they typically lack HR departments, employee handbooks, and formal policies.
The average cost to defend an employment claim—even if you win—ranges from $75,000 to $125,000. If you lose, settlements and judgments can reach hundreds of thousands of dollars. For barbershops, EPLI costs are surprisingly affordable: small businesses pay an average of $222 per month, though 36% pay less than $150 monthly. Some insurers offer EPLI as an add-on for as little as $18 per employee per year.
EPLI covers legal fees, defense costs, settlements, and judgments if an employee, former employee, or even a job applicant claims you discriminated against them, harassed them, or wrongfully terminated them. It also covers claims from customers in some cases. The policy can be added as an endorsement to a Business Owner's Policy (BOP) or purchased as a standalone policy with limits typically ranging from $500,000 to $1 million.
Payroll Reporting: Getting It Right From Day One
Your workers' comp premiums are directly tied to your payroll, which means accurate reporting isn't just good bookkeeping—it's essential for avoiding insurance headaches. Insurers calculate your premium based on every dollar you pay in wages, and at the end of your policy year, they'll audit your actual payroll against what you estimated when you bought the policy.
If you underestimate your payroll, you'll owe back premiums. If you overestimate, you'll get a refund, but you've been unnecessarily tying up cash all year. Set up clean payroll systems from the start: use payroll software that tracks hours, wages, and classifications automatically. Keep detailed records of who does what, because remember, your receptionist should be coded differently than your barbers.
Misreporting payroll—whether intentionally or accidentally—can trigger audits, back payments, penalties, and even policy cancellation. Worse, if you've been underreporting and an employee gets injured, your insurer might deny the claim, leaving you personally liable for all costs. Get this right from your first payroll run, and you'll save yourself enormous hassles later.
How to Get Started: Your First-Hire Insurance Checklist
Before you hand out that first paycheck, here's what you need to do. First, verify your state's workers' comp requirements. Most states mandate coverage from employee number one, but confirm the exact rules where you operate. Second, get quotes from multiple insurers or work with an independent agent who specializes in small business coverage. Provide accurate payroll estimates and confirm your classification code is 9586 for barbering services.
Third, seriously consider adding EPLI coverage, especially if you're hiring employees rather than using independent contractors. Even a single discrimination or wrongful termination claim can destroy a small business financially. Fourth, set up proper payroll systems that track hours, wages, and job classifications accurately. Use software that integrates with your accounting and makes year-end audits painless.
Finally, create an employee handbook that outlines your shop's policies on everything from dress code to harassment prevention. This isn't just good management—it's evidence that you took reasonable steps to prevent the kinds of issues EPLI covers. Your insurance agent can often provide templates or connect you with HR resources designed for small businesses.
Hiring your first employee is exciting—it means your barbershop is growing. But that growth comes with real legal obligations and insurance requirements that kick in immediately. The costs are manageable, especially compared to the financial devastation of operating without coverage. Get your workers' comp and EPLI in place before that first day of work, keep your payroll reporting accurate, and you'll protect both your employees and the business you've worked so hard to build.
