Workers' Compensation Insurance in Texas: What Employers Must Know

Workers compensation insurance in Texas: the rules are different here

If you run a business in Texas, workers compensation insurance comes with a rule you will not find in any other state: it is mostly optional. Texas is the only state that does not require most private employers to carry it. That sounds like good news for the bottom line, but the reality is more complicated, and getting this decision wrong can cost a business everything. Whether you are a contractor in Roanoke, a shop owner in Keller, or a growing company in Southlake, understanding how workers compensation insurance in Texas actually works is one of the most important things you can do before your first employee gets hurt on the job.

What workers compensation insurance actually covers

Workers compensation is a no-fault insurance system. When an employee is injured at work or develops an occupational illness, the policy pays regardless of who caused the accident. That removes the need for the worker to sue the employer to get help, and it protects the employer from most personal-injury lawsuits in return.

A standard workers comp policy in Texas covers four main areas:

• Medical benefits: All reasonable and necessary medical treatment related to the work injury, with no dollar cap under the Texas workers comp system.
• Income benefits: Replaces a portion of lost wages while the employee cannot work. Texas pays 70% of the difference between the pre-injury average weekly wage and post-injury earnings, subject to state-set maximum and minimum amounts that adjust each year.
• Impairment and supplemental benefits: Longer-term payments for workers who have a permanent impairment rating or whose earning capacity is permanently reduced.
• Death benefits: Pays surviving spouses and dependents if a work injury results in death, including a burial benefit currently set at $10,000 .

The Texas Department of Insurance Division of Workers' Compensation (TDI-DWC) oversees the entire system, sets the benefit rates, and resolves disputes between injured workers and employers. Understanding that structure matters when you are comparing policy options.

Texas non-subscriber status: what happens if you opt out

Employers who choose not to carry workers compensation coverage are called non-subscribers . Texas law allows this, but it strips away a major legal protection. A non-subscriber cannot use the common-law defenses of contributory negligence, assumed risk, or a fellow employee's negligence to defend against an injured worker's lawsuit. In plain terms, if an employee is hurt and you have no workers comp, they can sue you directly with very limited defenses available to you.

Jury verdicts in workplace injury cases in Texas can run into the millions of dollars, and legal fees alone can threaten a small business's survival. Non-subscriber status also creates a reporting requirement: Texas employers who opt out must file a notice with TDI and post a notice at the workplace informing employees they are not covered.

Some large companies with deep pockets and sophisticated risk-management departments choose non-subscriber status and self-insure. For the vast majority of small and mid-size businesses in North Texas, that is not a realistic strategy. The exposure is simply too large.

Who is required to carry it in Texas

While the general rule is that workers comp is optional, there are important exceptions:

• Government contractors: Businesses that perform work under a government contract in Texas are typically required to carry workers compensation for employees working on that project. This applies to state agency contracts, county and city contracts, and many school district contracts.
• Construction contractors: Contractors working on certain public construction projects must carry coverage, and many general contractors now require it of subcontractors by contract regardless of law, because it limits their own liability.
• Specific industries: Some industries have additional requirements at the state or federal level, including motor carriers and certain oil and gas operations.

Even if your business falls outside the mandatory categories, lenders and commercial landlords in markets like Grapevine and Flower Mound sometimes require workers comp as a condition of a lease or loan. Always read the fine print on any commercial agreement.

How Texas sets workers comp rates and what affects your premium

Texas uses a classification system based on the type of work employees perform. Each job class carries a base rate per $100 of payroll , and your premium is calculated from there. A desk worker might be rated at under $1 per $100 of payroll, while a roofer could be rated at $15 or more. A few factors drive your final premium up or down:

• Experience modification rate (EMR): This number compares your actual claim history to the expected claims for your industry. An EMR below 1.0 earns a credit; above 1.0 means you pay more than average. A string of claims will follow you for three years.
• Payroll: Premium scales directly with payroll, so fast-growing businesses need to update their estimates mid-policy or face a large audit adjustment at renewal.
• Classification codes: Misclassified employees are one of the most common causes of audit surprises. Make sure each employee is coded to match their actual job duties.
• Carrier selection: Texas is a competitive state market. Different carriers price the same risk differently, sometimes by 20-30%, which is why working with an independent agency that shops multiple carriers matters more than most business owners realize.

If you have a solid safety record, you may also qualify for a scheduled credit from certain carriers, which can reduce your premium further. Ask your agent to review that option at renewal.

Workers comp and your broader commercial insurance picture

Workers compensation covers your employees. It does not protect you from third-party claims, property damage, or professional errors. A complete commercial insurance program for most North Texas businesses layers several coverages together.

General liability covers bodily injury and property damage claims from customers and the public. You can read more about that in the general liability insurance guide for Texas small businesses. Many smaller businesses bundle general liability and commercial property into a business owner's policy (BOP), which is often the most cost-effective starting point. If you have company vehicles, you need commercial auto insurance on top of that. Workers comp sits alongside all of these, not instead of them.

For businesses that take on larger contracts or face significant liability exposure, a commercial umbrella policy adds an extra layer of protection above the limits of the underlying policies, including workers comp when applicable.

Getting all of these pieces to work together without gaps or duplications is where an independent agent earns their keep. Having the right combination matters as much as having any one policy.

Practical steps for Texas employers right now

If you are not sure whether your current setup is right for your business, work through this checklist:

• Confirm your legal status: Are you a subscriber or non-subscriber? If you are unsure, your TDI account records will show your current filing status.
• Review your contracts: Check every active client contract and commercial lease for workers comp requirements. A missing certificate can put a contract at risk or expose you to liability you thought someone else was carrying.
• Audit your classifications: Ask your agent to walk through every classification code on your current policy. One misclassified employee in a high-hazard class can inflate your premium significantly.
• Document your safety program: Carriers reward businesses that can show written safety procedures, regular training, and documented incident reviews. This directly affects your EMR over time.
• Set a payroll update reminder: If your headcount or wages change materially during the policy year, tell your agent. A large audit bill at year-end is avoidable.
• Compare carriers at renewal: Do not just accept the renewal quote from your current carrier. Texas has a broad market and an independent agent can find meaningful differences in price and coverage terms.

Get the right workers comp coverage for your Texas business

Taylor Reed Insurance is an independent agency serving small and mid-size businesses across North Texas, including Denton, Haslet, Keller, Southlake, and the surrounding communities. As an independent agency, we compare workers compensation rates and terms across multiple carriers to find the coverage that fits your payroll, your industry, and your budget, not just the easiest option to write.

We also help you look at your full commercial insurance program so that workers comp fits properly alongside your general liability, commercial property, and any other coverage your business needs. There is no reason to overpay for a policy that still leaves gaps.

Call us at (817) 350-4485 or visit our contact page to get a workers compensation quote and a plain-language review of your current coverage. Getting this right before a claim happens is always easier, and far less expensive, than dealing with the consequences after the fact.