Texas Workers' Compensation Insurance

Texas is the only state in the country that does not require employers to carry workers’ compensation insurance.

Texas state law is unique in that employers are not required to carry workers’ compensation insurance. Limited exceptions to this rule may include:

• Companies that enter into a building or construction contract with a government entity.
• Public or educational employers.
• Independent contractors may not be covered by the hiring company’s insurance policy and may need to provide proof of work comp.

Texas employers who do not carry workers’ compensation insurance coverage are required to report their non-coverage status and must still report any work-related injuries and occupational diseases to the Texas Department of Insurance, Division of Workers’ Compensation.

Employers must also notify their employees that they do not provide work comp insurance. Employers can receive fines from the state for not complying with annual reporting requirements.

So, Do I Need Workers' Compensation Insurance? 

Employers that opt-out of the state workers’ compensation system are called non-subscribers. Non-subscribers are not penalized by the state for not carrying coverage, but can be at risk for greater liability if a worker is injured.

Even if businesses are not required to carry insurance, the employer may still be responsible for the costs of a workers' compensation claim if a worker is injured on the job. 

Workers’ compensation insurance limits the employer’s liability for work-related injuries, and opting into workers’ compensation legally limits the amount and type of compensation that an injured employee may receive. Non-subscribers are exposed to nearly unlimited damages and legal fees, if a worker brings a personal injury lawsuit against the company.

In 2016, an estimated 78% of employers did subscribe to the state’s workers’ compensation plan. Of non-subscribers, about 23% chose to provide an alternative occupational benefit plan to employees.

Texas workers’ compensation system reforms, including health care networks, advocacy and resources for safer workplaces, have focused on reducing costs and improving worker care. As a result, premiums have fallen by 63% since 2005, according to the Texas Department of Insurance – Division of Workers’ Compensation (TDI-DWC).

Texas workers’ compensation rates are recommended by the National Council on Compensation Insurance (NCCI), which most states use as their rating bureau. NCCI sets the rate, or baseline cost, of work comp insurance for all businesses operating within Texas. It does so by collecting and analyzing loss data, or workers’ compensation claims for workplace injuries and illnesses.

NCCI advises rates based on class code, or industry classification. Rates are then multiplied by total gross payroll for all employees being covered under the policy, to calculate the policy premium amount.

The Texas workers' compensation system switched to NCCI as its state rating bureau in 2014.

Workers' Comp Coverage Costs in Texas

NCCI reports that the average rate for each $100 of payroll dropped from $2.32 in 2003 to $0.86 in 2015. For a business with a payroll of $100,000, this represents a decrease of $1,460 or 63%.

Fewer claims and injuries suggest that Texas workplaces are becoming safer, and lower rates have incentivized more employers to carry workers’ compensation insurance.

Meanwhile, critics of the opt-out system argue that by allowing employers to offer their own program for injured workers, larger companies in particular are able to get away with lower benefits and limited oversight.

For a small business, Texas workers’ compensation insurance will vary in cost based on payroll, industry and claims history. Learn more about how much workers' compensation costs. 

Texas Work Comp Resources

• Workers’ compensation regulation: Texas Department of Insurance
• Texas rating bureau: NCCI (National Council on Compensation Insurance)
• Insurer of last resort: Texas Mutual Insurance Company