You're finally ready to grow your hospice business. Maybe you've been doing everything yourself—scheduling visits, handling paperwork, providing care—and you've hit the point where you simply can't do it alone anymore. Hiring your first employee is exciting, but here's what catches most new hospice business owners off guard: the moment you bring on that first team member, your insurance needs change dramatically.
This isn't about adding another line item to your budget. In most states, workers' compensation insurance becomes legally required the second you hire employee number one. Miss this requirement, and you're looking at potential criminal charges, lawsuits, and business-ending fines. Let's walk through exactly what insurance you need, when you need it, and why it matters for your hospice business.
Workers' Compensation: Your Day-One Legal Requirement
Here's the hard truth: workers' compensation insurance is required by law in almost every state for businesses with employees. The exact trigger point varies—California requires it from your very first employee, while Alabama doesn't mandate coverage until you reach five employees. But don't let that variation lull you into complacency. Most states follow California's model, and even if your state has a higher threshold, you're still exposed to massive liability without coverage.
Why does this matter so much for hospice businesses specifically? Because your employees face injury rates 50% higher than hospital workers. Think about what your team does every day: repositioning terminally ill patients, lifting and transferring individuals with limited mobility, working in unfamiliar home environments with unpredictable hazards. These tasks lead to serious musculoskeletal injuries—strains, sprains, tears, chronic pain. As a result, home care and hospice providers face some of the highest workers' compensation costs in the healthcare industry.
The average rate for healthcare workers sits at $1.33 per $100 of payroll in 2025, but hospice providers typically pay more due to the physical nature of end-of-life care. If your first employee earns $40,000 annually, you're looking at roughly $532 to $800 in workers' comp premiums—and that's assuming proper classification and no claims history.
Why Proper Employee Classification Matters More Than You Think
When you apply for workers' compensation insurance, your carrier will assign classification codes to your employees based on their job duties. These codes determine your premium rates. A hospice aide who provides hands-on patient care gets classified differently than an administrative assistant answering phones. Get this wrong, and you'll either overpay for coverage or—worse—face a premium audit that hits you with a massive backdated bill.
Here's where it gets tricky for hospice owners: your employee might wear multiple hats. Maybe your first hire provides direct patient care but also handles scheduling and light administrative work. You need to classify them based on their primary duties, and you need to track their actual work activities for payroll reporting purposes. Insurance carriers audit payroll records annually, comparing what you reported against actual wages paid. Misclassification—even if unintentional—can trigger retroactive premium adjustments that destroy your budget.
You also need to understand the distinction between exempt and non-exempt employees under the Fair Labor Standards Act (FLSA). The Department of Labor recently clarified that employers aren't required to classify licensed professionals—nurses, social workers, therapists—as exempt just because they hold advanced degrees or licenses. You get to choose based on your business needs, but that choice affects overtime calculations, which in turn affects your workers' comp payroll calculations. Everything connects.
Employment Practices Liability Insurance: Your Shield Against HR Claims
Workers' compensation handles employee injuries. But what protects you when an employee claims you wrongfully terminated them, discriminated against them, or created a hostile work environment? That's where Employment Practices Liability Insurance (EPLI) comes in, and it's not optional in today's litigation climate.
The EEOC received 88,531 new discrimination charges in 2024—a 9.2% jump from the previous year. These aren't just big-company problems. Small hospice businesses with a single employee face the same legal exposure as major healthcare systems. One claim can cost tens of thousands in legal fees alone, even if you win. EPLI covers allegations of wrongful termination, discrimination based on protected characteristics, sexual harassment, retaliation, and failure to promote.
For small businesses, EPLI often comes as an endorsement to your Business Owner's Policy (BOP) or general liability policy. You can also purchase standalone coverage. The average premium runs about $222 per month, though costs vary based on your number of employees, industry risk factors, and claims history. Some policies only cover employee-versus-employee issues—think one employee harassing another. If you want protection against claims from patients, families, or other third parties, you need to specifically request third-party EPLI coverage.
One critical detail: timely reporting matters enormously with EPLI. If you suspect an employee might file a claim, report it to your carrier immediately. Waiting until they actually sue can void your coverage. The moment you sense trouble—a formal complaint, a threatening email, an unusual HR situation—document it and notify your insurer.
Payroll Reporting: The Foundation of Accurate Insurance Costs
Your workers' compensation premium gets calculated based on your payroll. When you first apply for coverage, you'll estimate your annual payroll. Throughout the year, you'll report actual payroll to your carrier—monthly, quarterly, or annually depending on your policy terms. At the end of the policy period, your carrier conducts an audit comparing estimated payroll to actual payroll. Pay more in wages than you estimated? You owe additional premium. Pay less? You might get a refund.
Payroll calculation sounds straightforward—just total up what you paid your employee, right? Not quite. Workers' comp payroll includes gross wages: regular pay, overtime, bonuses, commissions, vacation pay, sick pay, and holiday pay. Some exclusions apply, but they're limited. You can't exclude part-time wages or wages paid to employees working from home. Everything counts.
Keep meticulous payroll records from day one. Your insurance carrier can audit you up to three years after a policy expires. They'll request payroll journals, tax forms, general ledgers, and sometimes even individual employee records. Missing or sloppy documentation makes auditors assume the worst, leading to higher premium adjustments. Clean records protect you.
What Happens If You Skip Required Coverage
Some hospice owners think they can skip workers' compensation for a few months while they figure out cash flow. Bad idea. Operating without required coverage exposes you to criminal charges in many states. You can face hefty fines, business shutdowns, and personal liability for employee injuries. If your employee gets hurt on the job and you don't have workers' comp, they can sue you directly for medical costs, lost wages, pain and suffering—and your general liability policy won't cover it.
Even in states where workers' comp isn't legally required for your employee count, going without coverage is financial Russian roulette. Medical costs for serious workplace injuries routinely exceed $100,000. Can your startup hospice business absorb that hit? Unlikely. The premium you save by skipping coverage pales in comparison to the catastrophic risk you're taking on.
Getting Started: Your Action Plan for First-Employee Insurance
Before your first employee starts work, take these steps. First, verify your state's workers' compensation requirements. Don't rely on general information—check with your state's workers' comp authority or consult an insurance professional who understands hospice-specific regulations. Second, get accurate job descriptions for your new hire. Their actual duties drive classification codes, which drive premium rates. Be specific about physical requirements, patient contact, and administrative responsibilities.
Third, shop for workers' compensation coverage at least two weeks before your employee's start date. Some states offer coverage through state funds, while others require private insurance. Get quotes from multiple carriers and compare not just premiums but also coverage terms, audit procedures, and claims support. Fourth, while you're shopping for workers' comp, ask about EPLI coverage. Adding it to your BOP might cost less than you expect, and the protection is worth every penny.
Finally, set up a payroll system that tracks employee classifications, hours worked, wages paid, and job duties. This doesn't need to be fancy—even a well-organized spreadsheet works for a single employee. What matters is accuracy and consistency. When audit season arrives, you'll thank yourself for maintaining clean records from the beginning.
Hiring your first employee transforms your hospice business from a solo operation into a real company. That transformation brings legal requirements you can't ignore. Workers' compensation protects your employee and shields you from devastating liability. EPLI protects against employment claims that could bankrupt your business. Proper classification and payroll reporting keep your premiums accurate and avoid surprise bills. Get these pieces in place before day one, and you'll build your team on a foundation of compliance and protection.
