You've been running your plumbing business solo for a while now, and things are going well. Maybe too well. You're turning down jobs because you can't handle the volume, or you're working 70-hour weeks trying to keep up. It's time to hire your first employee. But before you post that job listing, there's something you need to know: your insurance situation is about to change dramatically.
The moment you hire that first employee, you're no longer just responsible for yourself. You're now liable for workplace injuries, employment disputes, and a whole new layer of regulatory compliance. Here's what you need to know about insurance when you make that critical first hire.
Workers' Compensation: The Non-Negotiable Coverage
In most states, workers' compensation insurance isn't optional once you hire your first employee—it's the law. Thirteen states, including Alaska, Arizona, Colorado, Connecticut, Delaware, Hawaii, Idaho, Maine, Maryland, Nevada, New Hampshire, Ohio, and Washington D.C., require coverage the moment you hire employee number one. New York and California are particularly strict, mandating coverage from day one of your first hire.
Other states give you a bit more breathing room. Some Southern states require coverage once you hit two employees, while others don't mandate it until you have three to five workers on payroll. Florida, for instance, allows plumbing contractors to hire up to four employees before requiring workers' comp coverage. But here's the thing: even if your state doesn't require it immediately, you probably still want it.
Plumbing is physical work. Your employee will be lifting heavy pipes, working in tight crawl spaces, using power tools, and potentially dealing with hot water systems. If they get hurt on the job and you don't have workers' comp, you could be personally liable for their medical bills, lost wages, and potentially a lawsuit. That can easily run into six figures for a serious injury.
For 2025, the average workers' comp rate for plumbing contractors is $3.05 per $100 of payroll, though rates vary by state and can range from $3.01 to $4.51 per $100. California tends to run higher, between $4.36 and $8.58 per $100 of payroll. So if you're paying your new employee $50,000 annually, you're looking at roughly $1,500 to $2,000 per year for workers' comp coverage in most states—a reasonable price for protecting both your employee and your business.
Classification Codes: Getting This Right Matters
When you set up your workers' comp policy, your insurance carrier will assign a classification code to your business. For plumbing contractors, this is typically code 5183, which covers the installation and repair of water, gas, and steam systems, including lawn irrigation systems. Some states use different codes—Pennsylvania and Delaware use code 0664 for plumbing services—so it's worth confirming with your insurance agent.
Here's where you can save money: if you hire office staff to handle scheduling, invoicing, and customer service, they should be classified separately under code 8810 for clerical workers. This code carries much lower rates because office work is inherently less risky than fieldwork. Don't lump everyone under the same code, or you'll overpay on your premiums.
Accurate payroll reporting is crucial. Your workers' comp premium is calculated based on your total payroll, and insurance companies audit this periodically. If you underreport payroll to save money, you'll face penalties and a big bill when the audit catches it. If you overreport, you're just throwing money away. Keep detailed records of who does what and report payroll accurately by classification.
Employment Practices Liability Insurance: Protecting Against the Unexpected
Workers' comp covers physical injuries, but what about employment-related lawsuits? That's where Employment Practices Liability Insurance (EPLI) comes in. Once you become an employer, you're exposed to claims of wrongful termination, discrimination, harassment, and violations of the Americans with Disabilities Act (ADA).
You might think, "I'd never discriminate or harass anyone." And you're probably right. But here's the reality: even baseless claims require legal defense, and employment attorneys don't work cheap. EPLI covers your legal costs, settlements, and judgments if an employee, former employee, or even a job applicant brings a claim against you.
Small businesses are particularly vulnerable because they typically lack HR departments and formal employee handbooks that outline hiring, disciplinary, and termination procedures. Without these safeguards, you're more likely to make a mistake that could lead to a claim. EPLI coverage starts at around $18 per employee per year when added to your general liability policy or business owner's policy (BOP), making it an affordable safety net.
Think of EPLI as insurance against employment mistakes you don't even know you're making. Maybe you ask an interview question you shouldn't have, or you fire someone without proper documentation. With just one employee, your risk is lower, but it's not zero. And as you grow, this coverage becomes increasingly important.
Special Considerations for California Contractors
If you're operating in California, pay attention. Senate Bill 216 (SB 216) is changing the game for all licensed contractors. Originally set to take effect in January 2026, the deadline was pushed to January 1, 2028, by SB 1455. When it goes into effect, all licensed contractors will be required to carry workers' compensation insurance, even if they don't have any employees.
This is a significant shift. Right now, if you're a solo plumbing contractor in California, you might not need workers' comp. But starting in 2028, you'll need coverage regardless of your employee count. If you're planning to hire your first employee before then, you'll need to get coverage immediately upon hiring anyway—California doesn't mess around with workers' comp compliance.
How to Get Started: Your Insurance Checklist
Before your first employee's start date, take these steps to ensure you're properly covered:
First, contact a commercial insurance agent who specializes in contractor coverage. Tell them you're hiring your first employee and need workers' comp coverage. They'll verify your state's requirements, assign the correct classification codes, and quote you based on your estimated annual payroll.
Second, review your existing general liability policy. If you already have GL coverage (and you should), ask about adding EPLI as an endorsement. This is often cheaper than buying a standalone policy and gives you comprehensive protection against both bodily injury claims and employment-related lawsuits.
Third, set up proper payroll tracking from day one. Whether you use payroll software or hire a payroll service, make sure you're categorizing employees correctly (field workers versus office staff) and maintaining accurate records. This will make premium calculations, audits, and tax reporting much smoother.
Finally, don't wait until the last minute. Insurance policies can take a few days to bind, and you absolutely need coverage in place before your employee's first day of work. Start the process at least two weeks before their start date to avoid any gaps in coverage.
Hiring your first employee is exciting—it means your plumbing business is growing. But with that growth comes new responsibilities, and insurance is one of the most important. Workers' comp protects your employee and shields you from devastating financial liability. EPLI protects you from employment-related lawsuits. Together, they form the foundation of your risk management strategy as an employer.
Yes, insurance adds to your overhead costs. But the alternative—being personally liable for a workplace injury or employment lawsuit—could put you out of business. Get the coverage, get it right, and focus on what you do best: growing your plumbing business.
