Workers compensation insurance in Texas: what makes this state different

The rules around workers compensation insurance in Texas are unlike anywhere else in the country. Texas is the only state that does not require most private employers to carry workers comp coverage. That single fact creates a fork in the road for every business owner here, and the choice carries real financial and legal consequences. Whether you run a small landscaping crew in Frisco, a restaurant in Dallas, or a construction outfit in Fort Worth, understanding how Texas workers comp works matters. It is the kind of thing that can determine whether your business survives a serious workplace injury.

Texas is a "nonsubscriber" state: what that actually means

Most states mandate that employers carry workers compensation. Texas uses a voluntary system, so private employers can choose to carry coverage or opt out. Employers who opt out are called nonsubscribers .

Opting out can look appealing when you are watching expenses closely. The downside is significant, though. A nonsubscriber cannot use common-law defenses in a personal injury lawsuit brought by an injured employee. If a worker gets hurt on the job and you have no coverage, they can sue you directly. You cannot argue that the employee was contributorily negligent, and you cannot claim a fellow employee caused the injury. Juries in Texas can award substantial damages in these cases.

Some large self-insured companies opt out and build their own occupational injury benefit programs. For the average small business, going without coverage is a serious gamble. One bad accident can produce a lawsuit that costs far more than years of premiums would have.

Who does have to carry workers comp in Texas

While private employers have a choice, some businesses are legally required to maintain workers compensation insurance in Texas:

• Government contractors: Any business performing work under a Texas government contract must carry coverage for employees working on that contract.
• Construction contractors on public projects: Work for a state or local government entity requires workers comp for those workers on that project.
• Certain licensed trades: Some licensing boards in Texas require proof of workers comp as part of the application or renewal process.

Even if you are not legally required to carry it, most general contractors and property owners will require subcontractors to show proof of workers comp before starting work on a job site. In practical terms, many small businesses that could legally opt out find they cannot win commercial work without the coverage.

What workers comp actually covers

Workers compensation insurance in Texas covers costs that arise when an employee is injured on the job or develops a work-related illness. Covered costs generally fall into these categories:

• Medical expenses: Doctor visits, emergency care, surgery, physical therapy, prescriptions, and any other treatment directly related to the workplace injury.
• Income replacement: If an injured employee cannot work during recovery, workers comp pays a portion of their lost wages. In Texas, this is typically around 70% of the employee's average weekly wage, subject to state-set minimums and maximums.
• Permanent impairment benefits: If the injury causes lasting disability, the employee may receive additional compensation based on the degree of impairment.
• Death benefits: If a worker dies from a job-related injury or illness, the policy pays benefits to eligible dependents and covers reasonable funeral expenses.
• Employer liability protection: Subscribers (employers who carry coverage) have significant protection against employee lawsuits over workplace injuries. Injured employees generally must go through the workers comp system rather than filing a civil lawsuit.

Workers comp does not cover injuries that happen outside the course and scope of employment, self-inflicted injuries, or injuries caused by an employee's intoxication or illegal drug use.

How Texas workers comp rates are calculated

Premiums for workers compensation insurance in Texas are based on a few variables. Understanding them helps you anticipate costs and take steps to control them.

Payroll and class codes

Your premium starts with your total payroll. Every job type is assigned a classification code by the National Council on Compensation Insurance (NCCI), and each code carries a base rate per $100 of payroll . A desk worker in an office might carry a rate of $0.15 per $100 of payroll. A roofer might carry a rate of $15 or higher. If your crew does multiple types of work, payroll must be allocated accurately to the correct codes. Misclassifying employees is a common mistake that can lead to a large audit adjustment at the end of the policy year.

Experience modification factor (EMR)

Once a business has been operating for three or more years, it receives an experience modification rate, commonly called an EMR or mod. This compares your actual claims history against what would be statistically expected for a business of your size and type. An EMR of 1.0 is average. An EMR below 1.0 reduces your premium. An EMR above 1.0 increases it. A bad string of claims can push your mod above 1.5, which can effectively price you out of competitive bids. Keeping your EMR low through consistent workplace safety is one of the most effective ways to control long-term insurance costs.

Schedule credits and debits

Carriers can also apply credits or debits based on factors like your safety program, workplace conditions, and management practices. Working with an independent agent who shops multiple carriers is useful here, because how aggressively a carrier applies credits varies significantly from one company to another.

Common mistakes Texas employers make with workers comp

These are the situations that regularly lead to coverage gaps or unexpected costs for Dallas-Fort Worth area business owners.

• Treating employees as independent contractors: Misclassification is a serious issue. If a worker you call an independent contractor is actually functioning as an employee under the Texas Labor Code and IRS standards, you could owe workers comp benefits for any injury they suffer. The classification must reflect the actual working relationship, not just the label you use.
• Underreporting payroll: Some employers intentionally or accidentally underreport payroll to reduce premiums. Carriers audit at policy expiration and can recover the additional premium owed. In some cases this can result in coverage disputes.
• Assuming subcontractors are covered: If you hire an uninsured subcontractor and that person is injured on your job site, you may be responsible for their injury costs under certain circumstances. Always verify certificates of insurance before subcontractors start work.
• Ignoring return-to-work programs: Texas workers comp law encourages employers to offer modified or light-duty work to injured employees during recovery. Employers who do this tend to have lower total claim costs. An employee sitting at home costs more over time than one returning to light duty while they recover.
• Waiting until a bid requires it: Scrambling for coverage right before a contract deadline does not give you time to properly evaluate carriers and pricing. Get coverage in place before you need it urgently.

The Texas Department of Insurance Division of Workers Compensation

Workers compensation in Texas is regulated by the Texas Department of Insurance Division of Workers Compensation (TDI-DWC) . This agency oversees the claims process, resolves disputes between injured workers and employers, and sets rules for how benefits are administered.

If you are a covered employer, your employees have the right to file a claim through this system. The process involves medical care through an approved network (if applicable), income benefit calculations, and, where disputes arise, a hearing process that can involve a hearing officer. Understanding this system before a claim happens is worthwhile. Your insurance carrier's claims team handles most of it, but the more you know, the better you can support an injured employee and manage the outcome.

Employers who subscribe to workers comp must also post a notice in the workplace (Form DWC 5) and file a DWC Form-005 with TDI-DWC within eight days of any workplace injury that results in more than one day off work. Missing these requirements can have consequences.

How workers comp fits into your overall business insurance picture

Workers comp is one piece of a broader commercial insurance program. It specifically addresses employee injuries. It does not cover damage to your property, injuries to third parties, professional mistakes, or business income lost from a covered loss. Most small businesses also need general liability insurance at a minimum, and many benefit from a business owners policy that combines property and liability protection in one package.

If your business uses vehicles, commercial auto coverage is a separate line. If a lawsuit or major claim threatens to exceed your primary policy limits, a commercial umbrella policy provides additional protection above those limits. None of these policies overlap with workers comp. They each address different categories of risk, and a sound commercial insurance program covers all of them.

For a broader look at what business owners in North Texas should carry, this overview of commercial insurance basics covers the building blocks of a well-rounded policy portfolio.

Get the right workers comp coverage for your Texas business

Princeton Insurance is an independent insurance agency serving employers throughout the Dallas-Fort Worth area, including Frisco, Plano, Dallas, and surrounding communities. As an independent agency, we work with multiple carriers and can compare workers comp options to find coverage that fits your payroll, your industry, and your risk profile, rather than steering you toward one carrier regardless of fit.

If you are a new business setting up coverage for the first time, a growing business that just crossed the threshold where a general contractor requires proof of insurance, or an established employer who has not shopped rates in a few years, we can help you review your options. Give us a call at (469) 916-9595 or reach out through our contact page to get started. There is no pressure, just a straightforward conversation about what your business actually needs.