Workers’ Compensation in Texas

Texas lets most private employers choose

Texas is unique in allowing most private employers to operate without workers’ compensation insurance. An employer that carries qualifying workers’ compensation coverage is a subscriber. An employer that does not is a nonsubscriber.

Public schools, utilities, cities, counties, and other Texas governmental entities must have workers’ compensation coverage, although they may satisfy the requirement through insurance, self-insurance, or an authorized pool. Private contractors on covered public building or construction projects are subject to project-specific requirements under Texas Labor Code Section 406.096. The contract, project, and worker status should be reviewed rather than assuming the general private-employer option applies.

Subscriber protection and nonsubscriber exposure

Exclusive remedy is a major asset

When an employee is covered by workers’ compensation, statutory benefits are generally the exclusive remedy against the employer for a work-related injury. The trade is deliberate: the employee receives defined benefits without proving employer negligence, and the employer receives broad protection from ordinary employee injury lawsuits.

The protection is not absolute. For example, surviving spouses and heirs may pursue exemplary damages when an employee’s death was caused by the employer’s intentional act or gross negligence. The Texas Workers’ Compensation Act and the facts of the claim control.

What a nonsubscriber gives up

A nonsubscriber can be sued for a workplace injury and loses three important common-law defenses:

1. Contributory negligence: the employer cannot avoid liability by arguing that the employee’s own negligence contributed to the injury.
2. Assumption of risk: the employer cannot rely on the argument that the employee knowingly accepted the danger.
3. Fellow-servant rule: the employer cannot avoid liability merely because another employee caused the injury.

Alternative benefit plans are not workers’ compensation

Some nonsubscribers buy occupational accident coverage, an ERISA-governed injury benefit plan, stand-alone employers liability coverage, or a combination of products. These arrangements may fund selected benefits or defense costs, but they are not regulated Texas workers’ compensation coverage and do not restore subscriber exclusive-remedy protection. Limits, exclusions, arbitration provisions, plan procedures, and gaps must be evaluated independently.

Nonsubscriber notice and reporting duties

A Texas employer does not escape regulation simply by declining workers’ compensation. Current DWC forms impose separate duties based on whether the employer has employees and whether reportable injuries occur.

Employee notices

Nonsubscribers must give new employees written notice that the employer does not carry workers’ compensation. When coverage is terminated, employees must receive written notice of the termination and its effective date. Notice 5 must be posted where employees can regularly see it, in English, Spanish, and any other language appropriate for the workforce.

Medical, income, death, and burial benefits

Workers’ compensation pays reasonable and necessary medical care for a compensable work injury or occupational illness. The injured employee does not pay a health-plan-style deductible for covered care. Income benefits replace part of wages lost because of the injury, subject to eligibility rules and annually adjusted state maximums and minimums.

Temporary income benefit details

TIBs generally equal 70% of the difference between the employee’s average weekly wage and the amount the employee can earn after the injury. For the first 26 weeks, the percentage increases to 75% for an employee who earned less than $10 per hour before an injury occurring after September 1, 2015. TIBs begin after more than seven days of disability. The first week is paid only if disability lasts at least 14 days. State maximums and minimums change, so current DWC benefit tables should be used for a specific claim.

Texas workers’ compensation also provides death benefits to eligible beneficiaries and burial benefits when a compensable injury results in death.

Policy structure, owners, and worker classification

Part One and Part Two

A standard workers’ compensation and employers liability policy contains two complementary protections:

• Part One, Workers’ Compensation Insurance, pays the benefits required by the workers’ compensation law of a state listed in the policy.
• Part Two, Employers Liability Insurance, covers specified employee injury suits that fall outside or alongside the statutory compensation obligation, subject to its limits and exclusions.

A nonsubscriber has neither Part One statutory coverage nor the standard policy’s Part Two protection unless separate coverage has been arranged.

Independent contractor versus employee

A true independent contractor generally is not treated as the hiring company’s employee for workers’ compensation. The label in the agreement does not decide the issue. Texas evaluates the actual relationship, including the right to direct and control the work, who provides tools and equipment, method of payment, required skill, opportunity for profit or loss, and other facts.

Misclassification can create benefit, liability, payroll, premium-audit, tax, and regulatory consequences. A certificate of insurance from an independent business is useful evidence of separate coverage, but it does not cure a relationship that is actually employment.

Owners and officers

Sole proprietors, partners, corporate officers, and LLC members can often elect inclusion or exclusion, depending on entity type, policy rules, and applicable forms. The election affects both protection and premium. An owner excluded to reduce payroll-based premium may have no workers’ compensation benefits after an injury.

Class codes, payroll, experience rating, and audit

Classification drives the starting rate

Employees are assigned classification codes based on the work performed and the business operation. Higher-hazard work generally carries a higher rate per $100 of payroll. Clerical and outside-sales exceptions may apply when employees meet the classification rules. Misclassification can produce substantial additional premium at audit.

The experience modifier changes future cost

An experience modifier compares the employer’s actual loss history with the expected losses of similar employers. A modifier below 1.00 generally reduces premium, while a modifier above 1.00 increases it. Claim frequency, severity, expected-loss calculations, and credibility rules affect the result. Safety and return-to-work practices can therefore influence future cost as well as employee outcomes.

Uninsured subcontractors can become an audit charge

General contractors commonly require subcontractors to maintain their own workers’ compensation and provide current certificates of insurance. When a subcontractor lacks qualifying coverage, its labor can be treated as an exposure under the general contractor’s policy and added to premium at audit. Contracts, certificates, payroll separation, and the actual worker relationship should be reviewed before work begins.

On-the-job automobile accidents

When a subscribing employer’s employee is injured in a work-related auto accident, the employee’s own compensable injuries are handled through workers’ compensation. That is separate from auto liability and UM/UIM claims involving an at-fault driver.

Several policies can be relevant to one event:

• Workers’ compensation addresses the employee’s covered medical and income benefits.
• Personal or commercial auto liability addresses bodily injury and property damage owed to other parties.
• An at-fault third party’s auto liability coverage may be responsible for damages, subject to workers’ compensation subrogation rights.
• Hired and non-owned auto coverage may protect the employer when an employee uses a personal vehicle for company business.

If the employer is a nonsubscriber, workers’ compensation benefits cannot be assumed. The employee may instead rely on an alternative employer plan, health coverage, auto coverage, and a negligence claim against the employer or another party.

Evaluate the decision as retained risk, not just premium

Sources, scope, and update notes

This page summarizes general Texas workers’ compensation concepts for licensed insurance professionals. Coverage, worker status, benefit eligibility, legal defenses, contracts, plan design, and claim outcomes depend on specific facts and current law. Consult the applicable policy, current DWC guidance, and qualified legal counsel when advising on nonsubscription. This material is educational and is not legal advice.