Workers' compensation insurance provides coverage for employees injured on the job and protection for employers who may otherwise be held liable for the damages. Individual states, not the federal government, determine workers' comp laws—and Texas is the lone state that makes this insurance form optional.

Is Workers' Comp Coverage Required for Texas Businesses?

Under Texas laws for workers' compensation, the majority of private businesses do not have to provide coverage. Businesses that do have to provide coverage include:

• Public employers at the city, county, and state level
• If your business contracts with government agencies, you may have to cover employees who work on the associated projects
• State Universities
• Construction contractors working for public employers
• Motor carriers and motorbus companies
• Compressed natural gas and liquid propane gas dealers
• Inmate work furlough programs

Employers in Texas who legally choose not to provide workers' compensation coverage are called non-subscribers and do not have the same legal protections as subscribers; mainly, they can be sued by employees for injuries. By law, these employers must disclose to workers that they do not have workers' compensation insurance.

How Does Workers' Comp Work for Companies That Choose It?

Employers with workers' compensation insurance receive coverage for various situations, including employee accidents that cause injuries, repetitive stress injuries, illnesses that develop through performing work duties, and workplace fatalities. Coverage typically includes:

• Employee medical expenses
• Lost wages when an employee needs time off to recover
• Financial benefits for dependents of deceased workers

The Division of Workers' Compensation Texas, a subset of the Texas Department of Insurance, oversees the statewide workers' comp insurance system. Texas employers can purchase a policy from a licensed private insurer, including the insurer of last resort, or can self-insure, if eligible.

Self-insurance allows you, the employer, to pay the losses from a worker's illness or injury instead of purchasing an insurance policy. Texas law allows employers to apply for a certificate of authority to self-insure workers' compensation. If approved, you become a certified self-insurer or CSI. You can find the self-insurance certification qualifications here.

What Are the Risks of Opting Out of Coverage?

While most Texas business owners can legally choose not to offer employees workers' comp benefits, non-subscription does come with significant risks. Without worker's comp insurance, employers are responsible for:

• Lawsuits– Non-subscribers do not have the protection of employer's liability for employee injuries. If an employee sues, the employer may have to pay for damage awards and punitive damages along with legal defense costs. In such lawsuits, a non-subscriber employer cannot use the following defenses: 1) The employee's negligence led to their injury, 2) another employee's negligence led to the employee injury, and 3) the employee was aware of the danger and accepted it willingly.
• Medical Expenses– If an employee develops an illness or sustains an injury on the job, the employer may have to pay for medical expenses, in addition to lost-income benefits.
• State Requirements– Although the state allows you to opt out of workers' compensation insurance, it does have reporting requirements if you make that choice. You must file an annual notice and report injuries to the Division of Workers' Compensation, post notices in the workplace so that employees know they are not covered, and provide notice in writing to new employees. Failing to follow these guidelines can result in penalties.

In addition to these legal and financial risks, there is also the issue of attracting and maintaining employees. Qualified workers may prefer to choose an employer with good coverage to minimize their own financial risks. It's also important to note that if you hire out-of-state employees, you have to comply with their state's workers' compensation rules and requirements.

Texas Laws Offer Choice and Highlight Risks

Texas is unique in how it handles workers' compensation. As the only state that does not require this insurance form for most companies, Texas gives you choices, but those options highlight the risks of not having adequate coverage. Business owners should weigh this decision fully and carefully before choosing to opt out.