Workers Comp in Texas: Requirements Every Small Business Must Meet

Workers compensation insurance Texas requirements: what small businesses must know

If you own a small business in Texas, workers compensation insurance is one of the most consequential coverage decisions you will make. Texas is the only state in the country that does not require most private employers to carry workers compensation insurance. That single fact confuses a lot of business owners and leads to costly mistakes. Understanding the workers compensation insurance Texas requirements and the real consequences of opting out can protect your business, your employees, and your finances.

Texas is a non-subscriber state: what that actually means

When people hear "Texas doesn't require workers comp," many assume they can simply skip coverage and move on. The reality is more complicated. Texas allows private employers to opt out of the state workers compensation system, which makes them what the Texas Department of Insurance (TDI) calls a non-subscriber . Opting out, however, does not eliminate liability.

If you are a non-subscriber and an employee is injured on the job, you lose several legal defenses that workers comp coverage normally provides. You cannot argue that the employee assumed the risk, that a co-worker caused the accident, or that the employee's own negligence contributed to the injury. That means an injured employee can sue your business directly, and you have very limited legal protection. A single lawsuit involving a serious injury can easily reach six figures or more in damages.

Not carrying workers comp in Texas is a legal option, but it is rarely the smart financial choice for a small business.

Who is required to carry workers comp in Texas

While most private employers can choose, some Texas businesses have no choice. The requirements are firm in these situations:

• Government contractors. Any business with a contract with a Texas government agency (state, county, or city) must carry workers compensation coverage for employees working on that contract. This applies whether your contract is worth $50,000 or $5 million.
• Motor carriers. Businesses operating as motor carriers under a Texas Department of Transportation permit must provide workers comp for their drivers.
• Construction contractors on public projects. If your company does construction work for any Texas government entity, coverage is mandatory. Many general contractors also require subcontractors to show proof of workers comp before they can set foot on a job site.
• Certain licensed professions. Some professional licensing boards in Texas require proof of workers comp as part of the licensing process. Check with your specific licensing body if you are in a regulated trade or profession.

Beyond legal mandates, general contractors in the private sector frequently require subcontractors to carry workers comp in their contracts. Even if no law forces your hand, a major client often will.

How workers comp coverage actually works in Texas

Texas workers compensation insurance is administered through TDI's Division of Workers' Compensation (DWC). If you choose to subscribe (purchase a policy), here is what the coverage provides:

• Medical benefits. Covers the cost of all reasonable and necessary medical treatment for a work-related injury or illness, with no dollar cap under the Texas system.
• Income benefits. Replaces a portion of an injured employee's lost wages. Temporary income benefits pay about 70% of the difference between the worker's average weekly wage and what they can earn after the injury, up to a state-set maximum adjusted annually by TDI.
• Impairment income benefits. Paid if the injury results in a permanent impairment rating, based on a percentage of the employee's average weekly wage.
• Death benefits. Paid to the surviving spouse and eligible dependents if a work-related injury or illness is fatal. Benefits continue for life for an eligible spouse or until children reach adulthood.
• Burial benefits. A flat payment (currently up to $10,000) toward funeral expenses.

In exchange for these benefits, a subscribing employer generally cannot be sued by an injured employee for negligence. That legal protection is one of the biggest practical reasons to subscribe, even when it is not legally required.

Reporting requirements every subscribing employer must follow

Buying a policy is only part of the obligation. Texas law imposes specific reporting requirements on employers who carry workers comp:

• Notice to employees. You must post a notice at your workplace (DWC Form-5) informing employees that you have workers comp coverage and explaining their rights. This notice must be posted where all employees can see it.
• Notice to DWC. You must notify TDI's Division of Workers' Compensation that you are a covered employer by filing Form DWC-5 directly with TDI.
• Injury reporting. When an employee is injured, you must report the injury to your insurance carrier within eight days if the employee misses more than one day of work or requires medical treatment beyond first aid. Your carrier then reports to DWC.
• Annual reporting. Texas employers must report their coverage status to DWC every year, whether they are a subscriber or a non-subscriber. Non-subscribers must file Form DWC-5 indicating they do not have coverage.

Missing these reporting requirements can result in administrative penalties. TDI takes compliance seriously, and late or missing reports are among the more common reasons small businesses face fines they did not anticipate.

What non-subscribers must do instead

If you decide to operate as a non-subscriber, Texas law still has requirements for you:

• File Form DWC-5 annually. You must notify TDI each year that you do not have coverage. This is not optional, and failing to file carries its own penalties.
• Post a non-subscriber notice. You must display a notice at your workplace informing employees that you do not carry workers comp and explaining that they retain the right to sue you for negligence.
• Consider an occupational accident policy. Many non-subscribers purchase occupational accident insurance as an alternative. This is not the same as state-system workers comp (it does not carry the same legal protections for the employer), but it can help cover medical costs and lost wages for injured employees.

Some larger corporations with dedicated risk management departments self-insure or rely on occupational accident policies as non-subscribers. For a small business without significant cash reserves or an in-house legal team, this approach carries real financial danger.

Workers comp costs for small businesses in Texas

Premium cost is often why small business owners consider opting out. Workers comp rates in Texas vary by industry classification, payroll size, and the employer's own claims history (called an experience modification rate, or "mod"). A rough picture by category:

• Low-hazard office work. Rates can run as low as $0.25 to $0.75 per $100 of payroll for clerical and administrative employees.
• Construction and trades. Rates for roofers, framers, and general construction workers can run $10 to $20 or more per $100 of payroll, reflecting the higher injury risk.
• Retail and service businesses. Typically fall in the middle, often in the $1.50 to $4.00 per $100 of payroll range.

A small business with $500,000 in annual payroll in a mid-risk classification might pay $10,000 to $20,000 per year in workers comp premiums. That sounds like a significant expense until you compare it to the cost of a single serious injury lawsuit, which can easily reach $200,000 to $500,000 or more when you factor in medical costs, lost wages, and legal fees.

Working with an independent insurance broker gives you access to multiple carriers, so you can compare rates across the market rather than accepting a single quote. That competition often makes a meaningful difference in annual premiums.

How All Texas Insurance Brokers helps small businesses get covered

At All Texas Insurance Brokers , we work with small business owners across Tarrant County, Dallas County, and the surrounding North Texas region every day. As an independent agency, we are not tied to a single carrier. We compare rates and coverage terms from multiple workers comp insurers to find the fit that makes sense for your payroll size, industry, and risk profile.

If you are just getting started, it helps to look at workers comp alongside your other commercial coverages. Our post on commercial insurance coverages every North Texas small business needs gives a clear overview of how workers comp fits into the bigger picture. You can also explore our workers compensation insurance service page to learn more about how we structure coverage for Texas businesses.

Whether you have two employees or 50, we can help you understand your legal obligations, estimate your premium, and get a policy in place before a job site incident or a contract requirement catches you off guard. Call us at (817) 766-6310 or get a quote online and one of our brokers will walk you through your options.