Sad to say, even if you're the only guest at the company picnic, you're not too small to get sued. Or vilified in print. If the sole proprietor is vulnerable, taking on even one employee raises the risk dramatically.
Small businesses do have some protection from federal regulation and other controls.
As an employer and the owner of a very small business, most of your investment in risk management will likely be in time, not money. Beyond that, Bagley and others offer the following advice. Employment Policies Establish, communicate, and follow reasonable policies. Employment contracts should define term of employment, conditions of termination, working conditions and benefits, and other policies. Performance evaluations should be timely, honest, and tactful.