Texas Workers' Compensation: Optional Coverage, Non-Subscribers and Who Must Carry It

Most states require every employer to carry workers' compensation insurance. Texas does not. Under Texas law, a private employer can choose whether to carry texas workers compensation coverage, and the Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC) reports Texas as the only state that gives private employers this option. That choice is why so many owners search for texas workers comp rules and end up reading about non-subscribers. This guide covers what the choice means, who must carry coverage anyway, what a non-subscriber gives up, and what paperwork applies if you opt out.

This is informational content, not legal or tax advice. Workers' compensation affects liability, payroll and customer contracts, so talk with a qualified Texas attorney or CPA before you decide, and ask an insurance agent about any policy you consider.

What Texas workers compensation coverage does

Workers' compensation pays medical care and lost wages for employees who are hurt on the job. In exchange, an employer that carries coverage, called a subscriber, gets the exclusive remedy protection. The injured worker generally cannot sue that employer for negligence and must use the workers' comp system instead.

An employer that does not carry coverage is a non-subscriber. It keeps the choice, but it gives up that protection, and the consequences are covered below.

Texas workers compensation requirements: who must carry it

The short answer for most businesses is that no state law forces a private employer to buy a policy. Texas Labor Code Section 406.002 lets private employers decide. The rules are different in a few situations, and you should check which one applies to you before you assume the choice is yours.

• Private employers choose whether to subscribe. Coverage is optional, but the choice carries the notice and liability consequences described in this guide.
• Government construction contracts are different. Under Section 406.096, a government contract for building or construction requires the contractor and each subcontractor to certify that they have coverage. A private business that bids on public building work can therefore be required to carry a policy, even though it is optional for its other jobs.
• Government employers follow different rules from private businesses. If you run a public entity, confirm your obligations directly with TDI-DWC before you assume anything.

Texas issues no general state business license, so workers' compensation is not an application you file for. It is a coverage decision that you make, document and communicate to your employees and to the state.

What a non-subscriber gives up

Under Section 406.033, a non-subscriber loses the exclusive remedy protection. An injured employee can sue for negligence, and the employer cannot use some of the defenses it would otherwise rely on. The table below summarizes what remains available.

Defense in a negligence suit	Available to a non-subscriber?
Contributory negligence by the employee	No
Assumed risk	No
Negligence of a fellow employee	No
Intentional acts by the employee	Yes
Intoxication of the employee	Yes

In practice, a non-subscriber should expect that a serious injury will lead to a lawsuit that a subscriber would have avoided. Legal exposure is the main reason to price coverage against the risk rather than against the premium alone. A litigation attorney can estimate that exposure for your specific operations.

Non-subscriber paperwork you must file

If you choose not to carry coverage, the choice comes with notice requirements. Missing them does not automatically remove the choice, but it creates problems you want to avoid. Calendar these items as soon as you decide.

• Written notice to DWC on Form DWC-005 within 30 days of hiring your first employee.
• Annual renewal of that notice on Form DWC-005, filed each year between February 1 and April 30.
• Written notice to employees using TDI Notice 5, so every worker knows in writing that the employer does not carry coverage.
• Injury reporting on Form DWC-007 for employers with at least five non-exempt employees, which covers certain employee injuries. Confirm which injuries must be reported and when with TDI-DWC.

Obligation	Form or method	Timing	Who it applies to
Initial notice of non-subscription	DWC-005	Within 30 days of hiring the first employee	Non-subscribers
Annual notice of non-subscription	DWC-005	February 1 to April 30 each year	Non-subscribers
Employee notice	TDI Notice 5, in writing	Before or when you opt out, and kept current	Non-subscribers
Injury reporting	DWC-007	As the form requires	Employers with at least five non-exempt employees

Keep copies of every notice and proof of delivery to employees. If an injury leads to a claim, these records are the first thing an attorney will ask for.

Texas workers comp insurance: what to check before you buy

A subscriber buys a policy from an insurance carrier, and the premium depends on your business classification, your payroll and the carrier's rating. This guide does not list premium rates, because they vary with each business. Check premiums and classification with an insurance agent or TDI before you commit to a budget.

When you talk to an agent, ask for the following:

• The classification codes that apply to each of your job types, since an incorrect code changes your premium.
• How the premium is calculated from payroll, and how often it is audited.
• A certificate of coverage you can give to a general contractor or government agency that requires proof.
• What the policy does not cover, including any exclusions for employees you may classify as contractors.

Steps if you are deciding now

1. Confirm your status. Determine whether you are a private employer or a government entity, and whether you bid on government building or construction work.
2. Get written quotes. Ask an insurance agent for quotes with the classification codes and payroll basis stated, so you can compare them directly.
3. Weigh the exposure. Ask an attorney how a lawsuit would work against your business without the exclusive remedy protection, and compare that to the cost of a policy.
4. Document the decision. If you subscribe, keep the policy and certificate on file. If you do not, file Form DWC-005 on time and give employees the TDI Notice 5 in writing.
5. Calendar the recurring deadlines. Put the February 1 to April 30 annual window and any DWC-007 reporting obligations on your compliance calendar.

Common mistakes to avoid

• Assuming coverage is unnecessary because it is optional. The choice removes a requirement, not the risk of a workplace injury.
• Treating employees as contractors to avoid the decision. A worker misclassified as an independent contractor can still be an employee for these rules, so confirm classification before you rely on it.
• Skipping the employee notice. The written notice to employees is a separate obligation from the filing with DWC.
• Bidding on government construction without coverage. The certification requirement under Section 406.096 applies to the contractor and each subcontractor, so the gap can cost you a contract.

Official resources

• Texas Department of Insurance, Division of Workers' Compensation: https://www.tdi.texas.gov. Find the DWC forms, the non-subscriber notice materials and TDI Notice 5 from this site.
• Texas Small Business Development Center Network: https://www.sbdctexas.org. Free advising on business setup questions, including how to talk with an advisor about coverage.

When to talk to a professional

Talk to a Texas attorney before you opt out if you have employees who drive, operate equipment, work at heights, or work on sites owned by others. Talk to a CPA if coverage costs will change your payroll planning, and talk to an insurance agent before you sign any policy or submit any certificate. A single claim can outweigh years of premium savings, so a short professional review is cheap insurance on the decision itself.

Reminder: this guide is informational content, not legal or tax advice. Confirm every form, deadline and requirement with TDI-DWC or your own advisors before you act.