Workers compensation insurance in Texas: a business owner's guide

Texas is the only state in the country where private employers are not legally required to carry workers compensation insurance. Every other state mandates it. Texas leaves the decision up to businesses.

That doesn't make it truly optional for most companies. The legal consequences of going without coverage are serious enough that the vast majority of Texas businesses with employees carry workers comp regardless of the law. This guide covers what the coverage includes, what it costs, what happens to non-subscribing businesses, and how to find coverage that fits your industry and payroll size.

Is workers comp required in Texas

For private employers, no, not universally. Texas Labor Code allows private businesses to choose whether to participate in the workers' compensation system. Employers who carry coverage are called subscribers. Those who don't are non-subscribers.

There are significant exceptions to this flexibility. State and local government employers are required to carry coverage. Private employers who contract with state agencies or government entities are typically required to carry workers comp as a condition of those contracts. And in practice, most large general contractors in Texas require subcontractors to provide proof of workers comp before allowing any work on a job site, regardless of what the law technically says.

The result is that while the legal mandate isn't universal, the practical requirement often is. If you want government contracts, commercial construction work, or business relationships with major corporate clients in Texas, you almost certainly need coverage. And if you're in a high-risk industry with employees doing physical work, the financial exposure of non-subscriber status dwarfs the cost of a policy.

What workers comp covers

Workers compensation is a no-fault system. When an employee is injured on the job or develops a work-related illness, they receive benefits through the policy regardless of who caused the accident or whether anyone was negligent. In exchange, subscribing employers receive protection from most employee injury lawsuits.

Medical benefits are the first and most significant component. The policy pays for all necessary medical treatment related to a covered work injury or illness, as long as treatment has been recommended or approved by the treating physician. There's no cap on medical benefits for as long as medically necessary treatment continues.

Income replacement benefits kick in when an injured employee can't work. Texas calls these temporary income benefits (TIBs). For injuries occurring between October 2025 and September 2026, the maximum weekly benefit is $1,271 and the minimum is $191, based on current Texas Department of Insurance rates. TIBs begin after the first week of missed work and continue until the employee reaches maximum medical improvement, returns to work, or has received 104 weeks of benefits.

For permanent impairments, the policy pays impairment income benefits at 70% of the employee's average weekly wage, for a period determined by the severity of the impairment rating assigned by the treating physician. Serious injuries can qualify for supplemental income benefits after impairment benefits run out, and the most severe injuries can qualify for lifetime income benefits.

Death benefits are also included. If an employee dies from a work-related injury, the policy pays burial expenses up to $10,000 and ongoing death benefits to eligible surviving family members.

Cost factors for Texas businesses

Workers comp pricing in Texas follows a formula: payroll divided by 100, multiplied by the class code rate, multiplied by the experience modifier. Each part of that formula can be understood and, in some cases, actively managed.

Payroll is the base. More employees and higher wages produce a higher premium.

Class codes reflect the type of work employees perform. Texas maintains its own independent classification system managed by the Texas Department of Insurance, separate from the national NCCI system used by most other states. A roofing crew and an office administrator carry very different class codes, and those codes carry very different rates per $100 of payroll. Roofing class code rates in Texas can reach $15 to $30 or more per $100 of payroll. Professional services like accounting or consulting might run under $1.00 per $100.

For small businesses with one to four employees, the average workers comp cost in Texas runs about $76 per employee per month across all industries, according to MoneyGeek's 2026 analysis. But that average spans an enormous range. Low-risk industries like beauty and wellness services average around $13 per employee per month. High-risk industries like construction average $211 per employee per month. The Hartford's Texas rates average $59 per employee per month for qualifying businesses, roughly 23% below the state average according to the same analysis.

The experience modifier, or ex-mod, adjusts your premium based on your actual claims history compared to similar businesses in your industry. A business with a clean record gets an ex-mod below 1.0, which reduces the premium. A history of claims produces an ex-mod above 1.0, which increases it. The ex-mod sticks to your business for three years after each claim year, meaning one significant workplace injury can affect your premium for the better part of four years.

How to lower your workers comp premium

Because the ex-mod has such a long-lasting impact, workplace safety programs are one of the highest-return investments a Texas business can make on insurance costs. Every claim prevented is not just an immediate cost avoided, it's also a future premium increase avoided for three years afterward.

Return-to-work programs also reduce costs significantly. When injured employees return to modified duty roles before full recovery, the duration of income replacement benefits drops, which reduces both the claim cost and the long-term ex-mod impact. Insurers treat documented return-to-work programs as a positive signal during underwriting.

Texas operates as a file-and-use state for workers comp, meaning carriers file their rates with the Texas Department of Insurance but don't need approval before using them. This creates real rate variation between carriers for the same class codes and payroll. Getting quotes from three to four carriers for your specific business is one of the most reliable ways to reduce your premium without changing your coverage.

Pay-as-you-go workers comp ties premium payments to actual payroll reported each pay period rather than an estimated annual payroll figure. This improves cash flow and reduces end-of-year audit surprises when actual payroll differs from estimates.

What happens to Texas non-subscribers

Texas businesses that choose not to carry workers comp lose the legal immunity that subscribers receive. Non-subscribers cannot use contributory negligence, assumption of risk, or fellow employee negligence as defenses against employee injury lawsuits. These are the standard defenses that make most workplace injury lawsuits manageable or dismissible for a subscribing employer. Without them, a serious injury claim against a non-subscriber can result in uncapped damages, including full wage replacement, pain and suffering, and potentially punitive damages if gross negligence is proven.

Non-subscribers are also required by law to notify employees in writing that the business doesn't carry workers comp, and to report their non-subscriber status to the Texas Department of Insurance. Failing to provide the required employee notice is itself a violation with its own penalties.

Some non-subscribers purchase occupational accident insurance as a lower-cost alternative to workers comp. These policies are not equivalent. They don't provide the same benefit levels, they don't restore the legal immunity subscribers receive, and they typically have lower limits and more exclusions. For most Texas businesses with more than a few employees doing anything other than low-risk desk work, the lawsuit exposure of non-subscriber status represents a far greater financial risk than the cost of proper coverage.

Getting covered through a commercial broker

Texas Mutual Insurance Company serves as the state's workers comp carrier of last resort and is required by law to provide coverage to businesses that private carriers decline. But most Texas businesses qualify for private market coverage, and shopping the private market typically produces better rates than Texas Mutual for eligible businesses.

All Texas Insurance Brokers works with carriers experienced in Texas workers comp to find coverage that fits your industry, payroll profile, and claims history. We serve businesses across Fort Worth, Keller, Grapevine, Southlake, North Richland Hills, Haltom City, and the wider DFW area. For a free quote on commercial insurance in Texas including workers compensation, call us at 817-766-6310 or submit a quote request online.