Congratulations—you're ready to hire your first employee! Whether you're bringing on a medical assistant, receptionist, or billing specialist, this is a huge milestone for your practice. But here's what catches most new medical practice owners off guard: the moment you hire that first employee, your insurance world changes completely. You're not just running a solo practice anymore. You're now responsible for someone else's wellbeing, and that comes with serious insurance requirements that you can't afford to get wrong.
The stakes are real. In most states, operating without required workers' compensation coverage isn't just risky—it's illegal. And if your employee gets hurt on the job or decides to file a discrimination claim, you could be facing tens of thousands in costs without the right coverage. Let's walk through exactly what insurance you need when you make that first hire, so you can focus on growing your practice instead of worrying about what you might have missed.
Workers' Compensation: Your First and Most Critical Priority
Here's the thing about workers' compensation insurance that surprises most physicians: in almost every state, you need it the second you hire your first employee. Not when you have three employees. Not when you hit a certain payroll threshold. The first one.
States like California, New York, and Washington require workers' comp coverage from day one. A few states like South Carolina don't require it until you have four or more employees, and Missouri sets the bar at five (unless you're in construction). But here's the reality: even in states where it's technically optional with one employee, not having it is a massive gamble. If your medical assistant trips over equipment and breaks an ankle, you're personally liable for all medical bills, lost wages, and potential lawsuits.
Workers' compensation covers medical expenses including hospital stays, surgeries, medications, and rehabilitation. It also covers lost wages during recovery, disability benefits for both temporary and permanent disability, and death benefits including funeral expenses. For a medical practice, this is particularly important because healthcare environments have unique risks—from needle sticks to chemical exposures to repetitive strain injuries from computer work.
Your premiums are calculated based on your payroll and classification codes. Medical office employees fall into different risk categories—a receptionist has a different classification code than a medical assistant who handles sharps. This is why accurate job descriptions and payroll reporting matter so much. Misclassifying employees can lead to premium adjustments during audits, and nobody wants a surprise bill months after the fact.
Employment Practices Liability Insurance: Protection You Didn't Know You Needed
Once you become an employer, you're vulnerable to employment-related lawsuits. And here's what's sobering: these claims are increasing, and small practices without HR departments are the most vulnerable. That's where Employment Practices Liability Insurance (EPLI) comes in.
EPLI covers your practice against claims that you've violated an employee's legal rights. The most common claims include wrongful termination, discrimination based on age, gender, race, or disability, sexual harassment, and retaliation. Even if the claim is completely unfounded, defending yourself in court costs money. Legal fees alone can easily hit $50,000 before you even get to a settlement.
The average cost for a standard $1 million EPLI policy runs between $1,500 and $2,500 per year for five to 20 employees. Some insurers offer EPLI as an add-on to your business owner's policy starting at around $18 per employee per year. When you consider that the average employment lawsuit settlement is over $40,000, this coverage pays for itself if you ever face a claim.
In 2026, EPLI policies are evolving to cover modern workplace issues including wage and hour disputes, remote work complications, and problems arising from HR automation tools. Medical practices face unique employment challenges, from managing HIPAA-compliant terminations to handling conflicts in high-stress clinical environments. Having EPLI means you can make tough employment decisions without the constant fear of financial ruin.
Employee Classification: Getting It Right From Day One
One of the biggest mistakes medical practices make is misclassifying workers as independent contractors when they should be employees. This isn't just about saving on payroll taxes—it directly affects your insurance obligations and costs.
If you classify someone as a contractor but they're actually an employee under IRS and state law definitions, you could face penalties, retroactive premium payments for workers' compensation, and potential lawsuits. The IRS looks at factors like whether you control how the work is done, whether the worker has other clients, and whether you provide tools and equipment. A medical assistant who works your schedule, uses your equipment, and takes direction from you? That's an employee, not a contractor.
For 2026, the Social Security wage base increased to $184,500, and wages up to this amount are subject to 6.2% Social Security tax for both you and your employee. Medicare tax remains at 1.45% on all covered earnings, with an additional 0.9% Medicare surtax on employee wages over $200,000. Proper classification ensures you're calculating and withholding correctly, which keeps you compliant and your insurance premiums accurate.
Other Insurance Considerations When You Hire
Workers' comp and EPLI are the big ones, but hiring your first employee affects other parts of your insurance portfolio too. Your general liability insurance should be reviewed—some policies have different terms once you have employees versus when you're solo. Your professional liability insurance might need adjustment if your employee will be performing clinical tasks under your supervision.
You'll also need to think about employee benefits, which come with their own insurance implications. Offering health insurance means navigating group health plans and potentially dealing with rising premium costs—projections for 2026 show continued increases due to medical cost inflation. Even if you're not required to offer health insurance with just one employee (the ACA employer mandate kicks in at 50 full-time equivalent employees), many practices offer it as a competitive benefit.
Cyber liability insurance becomes more important when you have employees accessing patient records and practice management systems. The more people who have access to sensitive data, the higher your risk of a breach—whether from malicious intent or simple human error.
How to Get Started: Your Action Plan
Before your first employee's start date, talk to an insurance agent who specializes in medical practices. They'll help you understand your state's specific requirements and get you quotes for workers' compensation and EPLI coverage. Don't wait until the last minute—some policies have waiting periods, and you need coverage in place before day one.
Get clear on job descriptions and classification codes for accurate premium calculations. Review your existing insurance policies to see what needs updating. And consider creating basic employment policies and an employee handbook—many EPLI insurers offer resources or even discounts if you have documented HR practices in place.
Hiring your first employee is exciting, but it's also a legal and financial responsibility that requires proper insurance protection. With the right workers' compensation and EPLI coverage in place, you can focus on what matters most: providing excellent patient care and growing a successful practice. Don't let insurance gaps put everything you've built at risk.
