Everything You Need to Know Before Buying Your First Workers' Comp Policy Ep. #509

Summary

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Profits with Pajak – Episode Summary

Podcast: Profits with Pajak
Host: John Pajak
Episode: #509 – “Everything You Need to Know Before Buying Your First Workers' Comp Policy”
Date: June 3, 2026

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Episode Overview

This episode serves as an essential guide for small business owners—especially in the green industry—who are considering hiring employees for the first time and need to understand the ins and outs of workers’ compensation insurance (workman’s comp). Host John Pajak breaks down what workers’ comp is, why it exists, who needs it, how it works, what it costs, and how critical decisions in this area can affect your business’s profitability and legal standing.

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Key Discussion Points & Insights

The Need for Workers’ Comp: Why It Exists

• Workplace Risk in Green Industry: Jobs often involve “equipment with spinning blades,” handling chemicals, traffic, uneven and slippery surfaces—“equipment that could hurt us if we're unlucky.” (02:23)
• Purpose: Workers’ comp provides medical care and wage replacement for employees hurt on the job and protects employers from financial catastrophe due to workplace injuries.

“No one wakes up planning to get hurt. But…accidents happen.” – John Pajak (02:44)

State Requirements and Myths

• No Universal Rule: Requirements for workers’ comp vary by state. Some mandate coverage at 1 employee, others at 3, 4, or 5 employees.
• Texas Exception: Unique in allowing private employers to skip coverage, but this exposes them to greater liability risks.

“Don’t rely on what your buddy in another state told you…What applies in North Carolina may not apply in Indiana.” (04:32)

• Action Step: Always confirm with your insurance agent—“that simple phone call could save you a tremendous amount of trouble.” (05:13)

Transition from Technician to Business Owner

• Milestone Discussion: Getting workers’ comp is a major marker of genuine business ownership vs. solo technician operations.
• Increased Responsibility: Once you hire, you’re responsible for employees’ training, safety, equipment, compliance, and the financial security of others’ families.

“The day you hire somebody, the game changes...another family is depending on the decisions you make.” (06:52)

How and Where to Buy

• Start With Your Agent: Contact a commercial insurance agent, ideally one you already have a relationship with.
• Key Questions Agents Will Ask:
  • What services do you perform?
  • How many employees/how much payroll?
  • Which employees drive company vehicles?
  • Do you use subcontractors? What percentage of work is mowing, fertilizing, landscaping, etc.?
• Tip: “The more accurately you describe your business, the more accurately they can quote your policy.” (08:07)

Pricing and Payroll

• Not Per Employee, But Per Payroll: Premiums are calculated based on your estimated annual payroll, not just headcount.
• Payment Structure: Often a down payment followed by installments, or “pay-as-you-go” via your payroll system.
• State, Classification, and Claims History Impact Rates: Varies widely.

“The important takeaway is that workers comp should be viewed as part of labor burden—it’s not just a random insurance bill.” (10:25)

Class Codes: Hidden Trap

• What Are They?: Numerical codes describe the type of work you do—critical for rate calculation.
• Green Industry Examples:
  • 9102: Lawn maintenance activities
  • 0042: Landscape installs and construction
• Impact: Misclassification can “quietly cost you thousands of dollars every year.” (13:37)

“If you don't get your class code right, this could quietly cost you thousands of dollars every year.” (13:28)

• Pro Tip: Always ask your agent exactly which NCCI class code they’re using and make sure it matches your real operations.

Annual Audits and Payroll Honesty

• End-of-Policy Audit: Your estimated payroll will be compared against actual payroll (via records, tax filings, etc.). Underestimating can lead to a surprisingly large bill. Overestimating may lead to a credit.

“Don’t play games with payroll estimates, because the audit is eventually going to reconcile everything.” (15:58)

Treating Subcontractors

• Certificates of Insurance Are Key:
  • Collect before work begins.
  • If subcontractors aren’t properly insured, their payments may be reclassified as your payroll—leading to unexpected premium increases.

“If the auditor determines those subcontractors weren’t properly insured…you’re going to end up having to pay on that contractor fee.” (17:10)

Safety and Its Impact on Profitability

• Direct Link: Fewer injuries mean lower disruptions, better productivity, and fewer claims—translating directly into lower premiums.
• Experience Modifiers: Insurance companies adjust your premiums based on claims history—the “modifier” can either reduce or increase your rates.

“Safety is not separate from profitability. The two are connected.” (19:15)

• Ethical Imperative: Regardless of financials, your employees “deserve to go home in the same condition they arrived.” (20:20)

Calculating the True Cost of Labor

• Beyond Wages: Includes payroll taxes, unemployment insurance, workers’ comp, training, uniforms, admin support, etc.
• Pricing: Don’t price your work based only on hourly labor—include all employment-related costs to avoid underpricing.

“If you’re charging based solely on hourly wages...you’re almost positively underpricing your work.” (21:08)

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Notable Quotes & Memorable Moments

• “No one wakes up planning to get hurt. But…accidents happen.” (02:44)
• “The day you hire somebody, the game changes...another family is depending on the decisions you make.” (06:52)
• “Don’t rely on what your buddy in another state told you…What applies in North Carolina may not apply in Indiana.” (04:32)
• “If you don't get your class code right, this could quietly cost you thousands of dollars every year.” (13:28)
• “Don’t play games with payroll estimates, because the audit is eventually going to reconcile everything.” (15:58)
• “Safety is not separate from profitability. The two are connected.” (19:15)
• “If you’re charging based solely on hourly wages...you’re almost positively underpricing your work.” (21:08)

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Action Steps & Practical Recommendations

1. Check Your State’s Requirements

   • Call your insurance agent; do not rely on hearsay or online info. (06:10)

2. Review Your Class Codes

   • If you have a current policy, check exactly which NCCI class code you’re assigned and why. (13:37)

3. Build Workers’ Comp Into Pricing

   • Treat workman’s comp as part of the true cost of labor to ensure profitability.

4. Be Transparent With Payroll Estimates

   • Accuracy prevents end-of-year surprises during audits.

5. Collect Insurance Certificates Before Subcontractors Begin Work

   • Avoid costly re-classifications during audits. (17:10)

6. Prioritize Safety

   • For both moral reasons and to control your modifier and future costs. (19:15-20:20)

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Timestamps for Important Segments

• Introduction to Workers’ Comp – 00:00-02:44
• Who Needs It and State Differences – 04:00-06:10
• Transition and Increased Owner Responsibility – 06:52-08:00
• How to Buy & What to Ask – 08:07-10:25
• Understanding Costs and Payroll Estimates – 10:25-12:11
• Class Codes Explained (and Why They Matter) – 13:28-15:00
• Audits and Payroll Honesty – 15:58-17:10
• Subcontractors and Insurance Certificates – 17:10-18:00
• Safety, Modifiers, and Profitability – 19:15-20:20
• Labor Burden and Pricing – 20:20-21:08
• Action Steps and Final Advice – 22:00-End

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Final Note

John Pajak closes by reminding owners that workers’ comp may not be an exciting topic, but it’s a “foundational piece of business ownership that becomes really important the moment you start hiring people.” Proper understanding protects both your employees and your business, and should be seen as crucial to profitability and peace of mind.

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This episode is a must-listen for any business owner in the green industry preparing to take that next step by hiring employees. Follow this episode’s advice to avoid costly mistakes, legal risks, and to build a safer, more profitable foundation for your company.

Transcript

[A]

Boy, this one's going to be a barn burner. So you're finally ready to hire your first employee. Maybe you've got more work than you can handle. Maybe you're tired of working 60 hours a week. Or maybe you've just reached the point where bringing someone on is the only way to keep growing. So you hire someone, you set up payroll, you get the uniforms, you put them in the truck, everything's going great. Then one day they're stepping off the trailer, roll their ankle, and suddenly you're standing there asking a question most business owners never thought about when they decided to hire someone. Who's paying for this? Today we're talking about workman's comp insurance. What it is, who needs it, what it costs, how to get it, how audits work, why class codes really matter, and why one wrong decision can cost you thousands of dollars. So if you've got employees or you're thinking about hiring your first one, this episode's for you.

[B]

Today's episode is brought to you by Yardbook, the all in one CRM for your lawn care business and as an exclusive partner of this podcast can get started today and begin simplifying your business and maximizing your profits. Sign up [e-mail] the link is in. The show notes. Time now for Profits with Paycheck, an essential podcast for you in the green industry who are looking to unlock the full potential of your business. Hosted by John Pajak, your certified financial coach, the show features in depth discussions with successful entrepreneurs, thought leaders and industry experts. Providing practical advice and proven strategies on financial planning, operations, marketing and sales. Profits with Paycheck has valuable insights and action steps that you can implement today for creating long term success. Now here's John Pajak.

[A]

Welcome to Profits with Paycheck. The podcast. We talk about business strategies and financial insights for the green industry. I'm your host, John Pajak and I'll tell. I'll be right up front with you. Today's episode isn't flashy. We're not talking about the latest mowers. We're not talking about marketing hacks or sales tactics or anything like that. We're talking about one of those foundational pieces of business ownership that most people don't think about until they absolutely have to workers compensation insurance.

[B]

Whoo.

[A]

That's a barn burner, I'll tell you that. Anyway, before we begin, I just want to make something very clear. I am not an attorney, I'm not insurance agent, and I'm not giving legal advice. Okay? I just every State has different laws and every business has different circumstances. So what I'm going to do is help you understand the process so you have, you can have a better conversation with your insurance professional and hopefully make better business decisions. Because if you plan on hiring people, this is something you could afford to ignore. So, you know, what is workers comp? You know, why does it even exist? So look at the work we do. You know, if we're in the green industry, you know, more than likely we operate equipment with spinning blades. You know, we handle chemicals, we climb in and out of trucks, we pull trailers, we. We work around traffic, we work in the heat. Uneven surfaces, slippery surfaces. You know, we. We spend our days around equipment that could hurt us if we're care unlucky. And despite our best efforts, accidents happen. You know, no one wakes up planning to get hurt. But, you know, over the years, I've seen chemical splashes, trailer accidents, equipment failures, you know, slips and trips and falls, and vehicle accidents on all kinds of injuries that just started with someone saying, I'll just do this real quick. Workers compensation exists because employees need a way to receive medical care and wage replacement when they're hurt on the job. And at the same time, employers, they need protection from a single accident turning into, like a huge financial catastrophe. So workers comp. It creates a framework that helps protect both sides. So that's. That's why it exists. And, you know, if you've listened this far, one of the first questions that you're probably asking is, do I even need workers? Workman's comp. And the answer is kind of frustrating because it depends. You know, a lot of people assume there's some universal rule, three employees, five employees, 10 employees, whatever that, you know, they just listen to their friend or they hear a podcast or something. But the reality is every state has its own rules. And in most states, workers comp becomes mandatory. When you hire your first employee, you know, one. One person, one employee, that's it. However, there are some states that have thresholds, and these are states that generally require coverage at like, say, three employees. Others require four or five. Okay, then you have Texas. Texas is unique because a private employer can generally choose not to participate in the workers compensation system. They're, you know, they, they call them non subscribers. Now, before anyone listening from Texas starts celebrating, understand what you're trading away here. Now, you are saving on the premium, but you're potentially exposing yourself to significantly greater liability if an employee gets hurt and they decide to, you know, pursue legal action. And that's a very different risk profile than most employers face. But the bigger lesson here is don't rely on what your buddy in another state told you. You know what happens. What applies in North Carolina may not apply in Indiana. What applies in Florida may not apply in Michigan. And what applies in Texas definitely doesn't apply to most of the country. But before you hire somebody, spend 10 minutes with your insurance agent and find out what your state requires. That simple phone call could save you a tremendous amount of trouble. So for those of us here in Indiana, workers comp generally becomes part of the conversation. As soon as you start hiring employees, you hire one person and that's it. You got to get into it. But that's why understanding this stuff matters. So one of the reasons that I wanted to go over this topic is because, you know, workers comp represents a major milestone in business ownership. You know, most of us start the same way. You know, we buy a truck, we buy some equipment, we slap our logo on the door, and we go to work. You know, and, you know, when you're solo, that's great because, you know, you're just responsible for yourself. If you skip lunch, hey, that's your decision. If you work through the rain, that's your choice. If you do something stupid and twist your ankle, jump it off a trailer, well, that's on you. But the day you hire somebody, the game changes. Now, another family is depending on the decisions that you make. You're responsible for the training. You're responsible for the safety and maintaining equipment and the payroll. And you're responsible for carrying the protections a legitimate employer should have. And worker's comp is one of those protections. And a lot of times, in many ways, one of the first signs that you've moved from being a technician to becoming a business owner is getting an employee and getting workers comp. And whether you like it or not, that's just part of the leadership. So let's say you have decided that you need coverage. What happens next? How do you buy your first policy? Well, typically, you're going to reach out to an insurance agent that handles commercial insurance. And if you have a policy, a commercial policy with an insurance company that you already deal with, ideally, you might want to reach out to them first. Okay. And the thing is, they're going to ask a lot of questions. You know, they're going to ask things like, you know, what services do you perform? How many employees do you have? What's your estimated payroll? How many of those employees drive company vehicles? Do you use subcontractors? What percentage of the work is mowing or fertilization or landscape installation or tree work or snow removal or whatever. Okay. They need this information because workers compensation pricing is based largely on risk. You know, a guy sitting in an office doesn't face the same risks as a technician applying herbicides or operating heavy equipment. And the more accurately you describe your business, the more accurately they can quote your policy. And one thing I would strongly recommend is asking questions. Don't just ask. Just, you know, they're going to slide a piece of paper in front of you or tell you about it over the phone. But don't just accept the quote. Ask some questions. You know, what NCCI class code are we being assigned? I'll get into that in a minute. I'll explain that. Ask if you're included or if you're not included as the owner. How does the annual audit work? How are subcontractors treated? What happens if my payroll starts to grow during the year? These conversations matter. The more you could talk about it, the better things will be for you in a sense. Okay. And you know, obviously once you ask those questions, you should get some good answers. Now, it's probably, okay, what's it cost? And this is where a lot of people get confused because workers comp is generally not priced per employee. It's primarily priced based on payroll. Now think about that for a second. You know, two very similar companies could have two employees each. One company pays $40,000 per employee and the other pays $70,000 per employee. It's the same headcount, but it's different payroll, it's a different premium. And the insurance company generally looks at the payroll because payroll reflects exposure. The more payroll you have, the more hours are being worked and the more opportunity there is for a claim to be, you know, for an accident or a claim to occur. So when you first get a policy, you're usually estimating payroll for the upcoming year, and the insurance company uses that estimate to calculate your premium. Now, depending on your carrier, you might make a down payment and then monthly installments, or you may use a pay as you go program that's integrated with your payroll system. Now, I wish I could just give you a flat answer, but unfortunately the exact numbers vary by state, by state, by class code, and by claims history. And the important takeaway is that the workers comp should be viewed as part of labor burden. It's not just a random insurance bill. It's part of the true cost of having employees. Back when I was getting my lawn care business off the ground, I was juggling routes, invoices and customer notes with paper and prayers. It was chaos. Until I found Yardbook. Yardbook gave me the structure. It helped me track chemicals, route efficiently, invoice faster, and most importantly, it helped me grow a profitable business. If you're tired of duct taping your systems Together, go to yardbook.com and sign up for free. And if you're ready to go premium use promo code PAYJACK to get your first 30 days on me

[B]

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[A]

I just wanted to point out that understanding your numbers is one of the most important skills you could develop as a business owner. So the better you understand your costs, the easier it becomes to make profitable decisions. So let's talk about the class codes. And I'm going to There's a surprise here. There's actually a little trap in the class code system. If you don't get your class code right, this could quietly cost you thousands of dollars every year. And workman's compensation policies, they use these classification codes to describe the work your employees perform. And in our industry, if you're we're talking general maintenance type, we're not really. Well, let me before I get too far ahead of myself, there are two codes that are commonly used in our industry. 9102 and 0042. Okay. Now again, this might not be the policy or the code that you get assigned, okay? But in for a lot of companies, these are the two codes that kind of get, get assigned to a specific company. So if we're generally speaking 9102 is associated with lawn maintenance activities, and then 0042 is generally associated with landscape installs and landscape construction activities. Now I'm simplifying here because every situation is different. The point here isn't to memorize codes. The point is to understand that different classifications carry different rates. So you imagine we got two companies, they got the same payroll, same number of employees, the same revenue, but one is classified under a lower rated code and the other is under a higher rated code. Now the difference in an annual premium could easily be thousands of dollars. And that's why it's important to discuss exactly what your company does with your agent. So, example, if you're primarily maintaining existing lawns, you're doing fertilizing, you're controlling weeds, you're aerating and performing mowing or maintenance activities, make sure you clearly communicate that because the wrong classification can become a very expensive mistake. And on top of that, here's the part that surprises a lot of first time employers. At the end of the policy period, you're usually audited. Remember that payroll estimate we were talking about earlier? Well, the insurance company wants to see how close that estimate was to reality. So they're going to look at your payroll records, your tax filings, your employee records, cert, subcontractor payments, certificates of insurance, and other stuff. Other, you know, there's a bunch of stuff they look at, okay, but if your actual payroll was higher than what you estimated, you may owe them additional premiums. If it was lower, they, they may, you might get a credit. But this is why I tell people not to play games with payroll estimates, you know, because the audit is eventually going to reconcile everything. You could be like, oh yeah, I only pay my guy 10k a year. And then, you know, it comes up, it's like 30,000. Well, guess what? They're not. They're going to go, hey, I know nothing happened, but guess what? You told me that you only paid out 10k in payroll. But we did some digging and guess what? We figured out it was three times as much. Okay? They're going to find that out, they're going to reconcile everything, and then you're probably going to end up having to pay for it. Another area that kind of creates problems is subcontractors. Now if you hire subcontractors, I'm, I'm telling you this from experience. This is the, this Is the hot take right here. Okay. If you're hiring subcontractors, do yourself a favor. Collect certificates of. Of insurance before they start work, not after. Okay? Do it before, because if the auditor determines that those subcontractors weren't properly insured, some of those payments may be treated as payroll. And then guess what? You're going to end up having to pay on that contractor fee that you paid the subcontractor that you paid and pay more insurance or pay more for the payroll exposure. And honestly, that's a surprise nobody wants. And while we're at it, let's talk about safety. I know that's everybody wants to do a safety meeting in the morning, blah, blah, blah. Yeah, it's so much fun. But a lot of owners that think safety is separate from profitability, and it's not. The two are connected. You know, the fewer injuries that you have, the fewer disruptions you have. The fewer disruptions you have, the more productivity your company becomes. You know, the more product, the more productive you could be. Okay. And if you have accidents and you have to take care of those things and claim them on your workman's comp, your claims history can also affect your future premiums with these things they call modifiers. And in simple terms, they're called, like, experience modifiers. So basically, what happens is your insurance company looks at your claim history over time, and a strong safety record can help keep your costs under control, whereas a poor safety record can. Can really jack them up. They could. It makes, you know, makes your premiums go up. But honestly, even if the money wasn't involved, safety still matters because your employees deserve to go home in the same condition they arrived. You know, that should be the standard. The financial benefit is simply a bonus. But again, let's. Let's bring this back to profitability. Suppose you pay a technician $25 an hour. A lot of owners stop right there. They think labor costs $25 per hour. It doesn't because you have payroll taxes, you got unemployment insurance, your work as comp, your training costs, your uniforms. Your uniform uniforms. I can't even say it. You've got admin support, you know, people that might be indirectly behind a desk somewhere. Okay? And that employee's true cost may be significantly higher. And that's why workers comp belongs inside your labor burden calculations. And that's why proper pricing matters. Because if you're charged, if you're charging based solely on hourly wages, I'm going to tell you, you're almost positively underpricing your work because the business has to recover all those costs, not just what's going on the paycheck. So if you're looking at getting hiring someone, you're looking at getting a workman's comp policy. The first thing I want you to do is find out what your state actually requires. Don't listen to what your friend told you, not what somebody posted online. Find out what your state requires. Secondly, if you already have a policy, pull it out and look at your class codes. Understand what you're being classified as and why. And then third, start treating workers compensation as part of the labor burden instead of viewing it as just another insurance bill. Because when you understand that connection, your pricing becomes much more accurate. So I know workman's comp isn't exciting. Nobody gets excited about buying insurance, but it's one of those foundational pieces that of business ownership that becomes really important the moment you start hiring people. So, you know, today we talked about why workers comp exists, who needs it, how state requirements differ, how policies are priced, why class codes matter, how audits work, and why all this ultimately affects profitability. And seriously, I mean, if you have employees, call your insurance agent, ask some questions, understand your policy, know what your class code is. You know, might be time to really take a look at your payroll estimate, make sure that that's accurate. Talk to your again while you're talking to your insurance agent, know how that audit works because the more you understand your business, the better equipped you are to protect it. So with that being said, I hope that you enjoyed this one. I know it's a kind of a stale one, but I felt it's important to kind of talk about that because there's too many of you guys out there that work so hard and you know you're not protecting yourself the way you should. And I'd hate to see something bad happen because I don't want to see anybody get hurt. But then if it does happen, I want to make sure you're protected. So until next time, God bless. Keep pushing through and we'll catch you on the next one. Thank you once again for listening. If you've enjoyed the show, please leave a review and share it with fellow business owners. Your support means the world to me and helps keep the show going strong. I want to give a special shout out to our friends at Yardbook. Their continued support has been instrumental in bringing this podcast to you week after week. If you haven't checked them out yet, visit yardbook.com and see how they can give you the tools to streamline and make manage your lawn care business. Also, don't forget to explore the resources and upcoming events that I've collected just for you in the Show Notes. These are curated to help you stay ahead in your business with the latest tips, tools and networking opportunities. Whether it's a new tool, an insightful article, or an event you don't want to miss, I've got you covered. Until next time, keep pushing through and God bless.