Texas Workers’ Compensation Rules for Employers

My first Texas hire came with a question I had never had to ask anywhere else: do I actually have to buy workers' compensation insurance? In most of the country the answer arrives at one employee, or three, or five. In Texas the answer is no, and it stays no however large the payroll gets.

That answer is where a lot of Texas employers stop reading, and it is exactly where the expensive mistakes begin. Opting out is legal here. Opting out quietly, without the annual filing, the posted notice and the written notice at hire, is not.

What follows is the Texas rulebook: when coverage is mandatory anyway, who sits outside the system, where a policy comes from and what it pays, what goes on the wall, how fast an injury has to move, and what opting out really costs. Everything here is Texas law only.

Is Workers' Compensation Required in Texas?

No. For private employers, Texas workers' compensation coverage is elective at every headcount. Texas Labor Code Section 406.002 states that except for public employers, and except as otherwise provided by law, an employer may elect to obtain workers' compensation insurance coverage.

Read that again with a small business hat on. There is no threshold to cross, no exemption to claim and no waiver to apply for. A two-person bakery and a four-hundred-person fabrication plant are governed by the same sentence. Most other states set a trigger, commonly at one to five employees, which is why the state-by-state requirements read so differently once you cross the Red River.

The Division of Workers' Compensation (DWC) puts it more strongly on its page explaining the system, calling Texas the only state that allows private employers to choose whether to provide workers' compensation coverage for their employees. Everything else on this page follows from that one design decision.

That DWC line needs one caveat. The South Dakota Department of Labor and Regulation says there is no law in South Dakota requiring any employer to carry workers' compensation insurance. So the accurate claim is that very few states leave this choice to private employers, and Texas is one of them.

An employer who does elect coverage becomes what Texas calls a subscriber and is subject to the whole Texas Workers' Compensation Act: capped statutory benefits, a claims process run through the carrier, and the exclusive remedy protection that keeps most injury suits out of civil court. An employer who declines is a non-subscriber, which is a legal status with its own duties rather than a loophole.

Public employers are outside the election entirely. State agencies and political subdivisions provide coverage through the mechanisms in Chapters 501 to 506 of the Labor Code, so a city or a school district is never choosing the way a private employer chooses.

Who Sits Outside the Texas System

Three categories of worker are excluded by statute, and several more move in or out of coverage by paperwork. Labor Code Section 406.091 names the three: domestic workers and casual workers engaged in employment incidental to a personal residence; people covered by a federal compensation scheme; and farm or ranch employees.

Two of those exclusions can be undone by choice. An employer may buy coverage for domestic workers or for farm and ranch employees anyway, and doing so accepts the rights and duties of the Act for those workers for as long as the coverage runs.

Declining that option also has an upside in court. An employer who leaves exempt workers uncovered does not lose the common-law defenses discussed further down, and for a household employer that is the single most useful sentence in Section 406.091.

Farm and ranch work is the messiest line. Subchapter H pulls certain agricultural workers back inside the Act: migrant workers; seasonal workers on a truck farm, orchard or vineyard; seasonal workers whose employer met an inflation-adjusted gross annual payroll figure in the prior year; and other farm or ranch employees of an operator who met that payroll figure or employs three or more such workers.

That payroll figure moves every year. The Texas Department of Insurance (TDI) recalculates it and publishes it; for 2026 the adjusted gross annual payroll requirement is $73,163.

Owners are a paperwork question, not a statutory exclusion. Under Section 406.097 a sole proprietor, partner or corporate executive officer of a business that elects coverage is covered as an employee unless specifically excluded by an endorsement (a written amendment) to the policy or to the self-insurance certificate. A corporate officer with at least 25 percent equity, a sole proprietor or a partner can be excluded even where the public-project rule would otherwise apply.

Independent contractors sit outside because of what they do, not because of what a contract calls them. Section 406.122 makes anyone performing work for a general contractor or a motor carrier an employee of that business for coverage purposes unless the person is operating as an independent contractor or is the employee of one.

Two written agreements move the line cleanly. A subcontractor and its crew are not employees of the general contractor when the subcontractor is genuinely independent and has signed an agreement assuming employer responsibilities. A hiring contractor and an independent subcontractor can also sign a joint agreement on DWC Form-083, file it with the Division, and settle independent contractor status as a matter of law for a year.

Where a Texas Employer Buys Coverage

Two routes, set out in Labor Code Section 406.003: a policy from a licensed insurance company, or self-insurance. Texas is not a monopolistic state, so there is no government fund you are forced to buy from and no state-run policy queue to join. The market is competitive and priced by class code and claims history.

The first route is the one nearly every small employer takes. Many carriers licensed by the Texas Department of Insurance write workers' compensation here, and TDI runs a free coverage verification lookup so you can confirm a policy is on file. Buy only from a licensed company, because an unlicensed policy is not coverage obtained in the manner the Act authorizes.

If no carrier will quote you, Texas has a backstop. The TDI workers' compensation insurance guide describes Texas Mutual, created by the Legislature in 1991 as the Texas Workers' Compensation Insurance Fund, as the last resort for employers who cannot find coverage anywhere else.

Self-insurance is the second statutory route, and it is out of reach for a small business. TDI's certified self-insurance program requires an estimated unmodified manual premium, meaning the premium at standard rates before any adjustment for claims history, of at least $500,000 in Texas or $10 million nationwide.

A certified self-insurer also needs audited financials, a qualifying financial strength rating, a security deposit of at least $300,000, excess insurance of at least $5 million per occurrence, and a $1,000 application fee. The certificate lasts one year and is renewed annually.

Between those poles sits group self-insurance under Chapter 407A of the Labor Code, where similar employers pool risk through a TDI-regulated group. It suits trade associations more than individual small employers, but it is a real third option and it carries its own employee notice, Notice 10.

How Much Does Workers' Comp Cost in Texas?

Texas is a cheap state to buy it in. The Oregon Department of Consumer and Business Services runs the biennial study that compares every state on the same basket of class codes, and its 2024 ranking put the Texas premium index rate at 78 cents per $100 of payroll, roughly 72 percent of the study median.

That average hides everything that matters to your quote. Premium is payroll divided by 100, multiplied by the rate for each class code you employ, multiplied by your experience modifier. Class codes sort payroll by the type of work, so the cost tracks the work rather than the headcount: a four-person roofing crew pays many times what a four-person insurance office pays on the same payroll.

Three things move your number from one term to the next. Payroll comes first, which is why the carrier's auditor reconciles it at the end of the policy term. Claims history is second, and it is what the modifier prices. The third is how the work is actually classified, and payroll placed in the wrong class code is a common reason a renewal quote comes in higher.

One disclosure, since this is a page about buying something. FirstHR is an HR platform, not an insurer, a broker or an agent, and we do not sell coverage. What our platform does here is hold the employee records, the signed acknowledgments and the onboarding paperwork that the notice rules below turn into evidence.

What Texas Workers' Compensation Benefits Cover

A Texas policy pays four things: medical care for the injury, income benefits that replace part of the lost wage, death benefits, and burial benefits. Chapter 408 of the Labor Code sets all of them, so the schedule is the same whichever licensed carrier writes your policy.

Medical benefits cover reasonable and necessary treatment for the work injury, with no weekly ceiling. If your carrier uses a certified health care network, the network decides which doctors the employee can see. Find that out on the day of an injury, not the week after.

Income benefits come in four flavors, and they run in sequence. The first, temporary income benefits, begin to accrue on the eighth day of disability. They pay 70 percent of the gap between the average weekly wage and what the person can earn while hurt, or 75 percent for the first 26 weeks for an employee who earned less than $10.00 an hour.

Temporary income benefits stop at maximum medical improvement, the point after which no further material recovery can reasonably be expected. They also stop at a full return to the old wage, or once 104 weeks have passed since the eighth day of disability.

After maximum medical improvement the doctor assigns an impairment rating, the percentage of permanent whole-body impairment the injury left behind. Impairment income benefits pay 70 percent of the average weekly wage for three weeks per percentage point. Supplemental income benefits can follow for a rating of 15 percent or more when the employee is still earning under 80 percent of the old wage and is documenting a job search each week.

Lifetime income benefits are the catastrophic tier: 75 percent of the average weekly wage with a 3 percent annual increase, for injuries such as paralysis, loss of both hands or feet, or blindness in both eyes.

Death and burial benefits sit in Subchapter J. Section 408.181 sets a death benefit at 75 percent of the employee's average weekly wage, split among the eligible beneficiaries, and Section 408.186 has the carrier pay actual reasonable burial costs up to $10,000 to whoever incurred them.

The caps reset every October 1 against the state average weekly wage, which the Division put at $1,314.32 for injuries from October 1, 2026 through September 30, 2027. Within those caps, each employee's actual benefit is calculated from the wage data you send the carrier, so a late or sloppy wage statement can stall a legitimate claim.

None of this schedule applies to a non-subscriber. An injury benefit plan pays whatever the plan document says, on the plan's own terms and for as long as the plan chooses, and the injured employee's alternative is the negligence suit described further down rather than a claim at the Division.

Posters and the Notice You Hand a New Hire

Every Texas employer owes its employees a written answer to one question: do you have workers' compensation coverage or not? Labor Code Section 406.005 requires the employer to notify each employee of the existence or absence of coverage, to notify a new employee at the time of hire, and to post the same information at conspicuous locations at the workplace. Failing to do it is an administrative violation.

The posted version has a prescribed form. Under DWC rule 110.101 an employer with a commercial policy posts Notice 6, a certified self-insurer posts Notice 7, a self-insurance group member posts Notice 10, and an employer with no coverage posts Notice 5. The current versions of all of them sit on the TDI page of employer forms and notices.

The mechanics are unusually specific. Notices go up in English, Spanish and any other language common to your workforce. They belong in the personnel office if you have one, and elsewhere around the workplace so each employee is likely to see one regularly.

The type sizes are where a self-printed sign fails. The rule sets the title at least 26 point bold, the subject at least 18 point bold and the body at least 16 point normal, using the exact wording the rule prescribes.

The new hire notice is separate from the poster and easy to miss. Rule 110.101(a) requires a written notice of coverage status at the time an employee is hired, meaning when federal law requires them to complete both a W-4 and an I-9. It carries the same text as the poster.

A covered employer's version needs one more paragraph, the election notice. It tells the new hire they may retain their common-law right of action by notifying the employer in writing within five days of starting. That is the right to sue in court instead of claiming benefits.

Coverage changes restart the clock. Section 406.005(d) gives you 15 days after coverage is obtained, terminated, or canceled to tell every employee in writing, and the posted notice has to be revised whenever the information on it changes. A non-subscriber's written notice states plainly that there is no coverage, and if a policy was dropped, the date it ended.

Contractors on a public project post one more sign. Rule 110.110(d)(7) requires Notice 8 on each project site, in English and Spanish, telling everyone providing services there that coverage is required, with a title in at least 30 point bold and text in at least 19 point normal.

Injury Reporting Deadlines

Three clocks matter, and they run at different speeds. The employee has 30 days to tell you. A covered employer has eight days to tell the carrier. A non-subscriber with at least five non-exempt employees reports an injury by the seventh of the following month.

Section 409.001 gives the employee, or someone acting for them, until the 30th day after the injury to notify the employer, and for an occupational disease until the 30th day after they knew or should have known it may be work related.

That notice can go to the employer or to any supervisor or manager. In practice, a foreman hearing about a strained back has started the clock whether or not the office ever finds out.

Missing that deadline matters to the employee, not to you. Section 409.002 relieves the employer and the carrier of liability when notice is late, unless the employer or carrier had actual knowledge of the injury, the Division finds good cause, or the claim is not contested. Separately, the employee has one year from the injury to file a claim with DWC on Form-041.

Your own deadline is eight days. Under Section 409.005 a covered employer reports to its insurance carrier no later than the eighth day after an injury keeps the employee away from work for more than one day, or after the employer receives notice of an occupational disease, using DWC Form-001.

The injured employee gets a written copy of that report at the same moment it goes to the carrier. The carrier then files it with the Division electronically within seven days.

Skipping that report has a quiet consequence worth knowing. Section 409.008 provides that when an employer or carrier with notice of an injury fails to file the Section 409.005 report, the period for filing a claim does not begin to run against the employee. An unfiled report keeps the claim window open indefinitely instead of closing it.

DWC takes the non-subscriber notice and the injury report online through its Employer E-File tool, described on the TDI non-subscriber page, and both forms can also be filed by fax, by mail or through a TXCOMP profile. Set a calendar reminder for February, because the annual window is easy to miss.

What Going Without Coverage Actually Costs

There is no fine for having no coverage, because having no coverage is legal. Texas has no uninsured employer penalty and no stop-work order aimed at the uninsured, for the simple reason that Section 406.002 makes the choice yours. The penalties attach to two other things: the paperwork, and the lawsuit.

Start with the lawsuit, because it is the whole reason three in four Texas employers buy a policy they do not have to buy. Section 406.033 says that in a suit by an employee of an employer without coverage, it is not a defense that the employee was contributorily negligent, that the employee assumed the risk of injury, or that a fellow employee caused it.

In plain terms, you cannot blame the worker's own carelessness, a risk they knowingly took on, or a co-worker's mistake. Those three defenses do most of the work in an ordinary workplace injury case.

What survives is thin. The employer may still argue that the employee acted with intent to cause the injury or was intoxicated, and the plaintiff still has to prove employer negligence. Damages are ordinary civil damages, not the capped schedule the comp system pays, and the exclusive remedy bar that keeps subscribers out of civil court simply does not exist for you.

Waivers do not fix this. A cause of action under Section 406.033 cannot be waived before the injury, and any pre-injury agreement to waive it is void and unenforceable.

A post-injury waiver counts only when four conditions are met. The employee must sign it voluntarily and with knowledge of its effect, no earlier than the 10th business day after the initial report of the injury, after a medical evaluation by a nonemergency care doctor, and in a writing that states the parties' true intent, with the waiver terms in conspicuous type.

Then the paperwork, which is where the fines come in. Failing to file the non-subscriber notice is an administrative violation under Section 406.004(e), and so is failing to post or deliver the employee notices under Section 406.005(e). Failing to report an injury to the Division is one too, under Section 411.032(c), unless the commissioner finds good cause.

Section 415.021 sets the ceiling for any of those violations at $25,000 per day per occurrence, with each day of noncompliance a separate violation. It also allows a cease and desist order against an employer who repeats them.

Criminal exposure exists too, though not for going without coverage. Section 418.002 makes it an offense to knowingly make a false statement, misrepresent or conceal a material fact in order to obtain coverage or avoid premium: a Class A misdemeanor below $2,500 of premium avoided, a state jail felony at $2,500 or more. Under-reporting payroll to shrink a premium is the classic route into that section, and a premium audit is how it usually surfaces.

What to Do the Day Someone Gets Hurt

Medical care first, paperwork second, and the paperwork starts the same day. The order below assumes you carry coverage; what changes for a non-subscriber is covered in the last step.

One more habit worth building. Keep the signed coverage notice from each employee's first day in the same place you keep the I-9 and the W-4, because in a dispute the question is not whether you posted a sign but whether you can show what this employee was handed and when.

The Act itself is worth a bookmark. TDI publishes the full Texas Workers’ Compensation Act after every legislative session, and the DWC employer FAQ answers most operational questions faster than a broker will.

Frequently Asked Questions

Is workers' compensation insurance required in Texas?

No, not for private employers. Labor Code Section 406.002 lets an employer elect to obtain coverage, with public employers carved out, and there is no headcount at which the choice disappears. A two-person shop and a five-hundred-person plant follow the same rule. Electing coverage brings you inside the Act; declining makes you a non-subscriber, a legal status with its own filings and its own exposure.

Which Texas employers have to carry coverage anyway?

Public employers, and private contractors on a government building or construction contract. Section 406.096 requires a governmental entity entering such a contract to make the contractor certify in writing that every employee on the public project is covered, and each subcontractor gives the general contractor the same certificate. Employing a maintenance worker does not make a business a construction employer if construction is not its primary business.

What does a Texas non-subscriber have to file?

DWC Form-005, and DWC Form-007 when someone gets hurt. The Form-005 notice goes to the Division within 30 days of hiring a first employee, within 10 days of terminating a policy, within 10 days of a DWC request, and again between February 1 and April 30 every calendar year. With five or more non-exempt employees you also file Form-007 by the seventh of the month after a death, an absence beyond one day, or a known work-related illness.

Are owners and corporate officers covered by a Texas policy?

By default yes. Section 406.097 covers a sole proprietor, partner or corporate executive officer as an employee once the business elects coverage, unless that person is specifically excluded by an endorsement to the policy or the self-insurance certificate. An officer holding at least 25 percent equity, a sole proprietor or a partner may be excluded even where the public-project rule would otherwise apply.

How fast does a work injury have to be reported in Texas?

The employee has 30 days under Section 409.001, counted from the injury or from the day they knew an occupational disease might be work related, and notice to any supervisor counts. A covered employer has until the eighth day after the employee misses more than one day of work to report to its carrier, and hands the employee a copy of that report at the same time. The carrier files with the Division within seven days.

What happens when an injured employee sues a Texas non-subscriber?

You defend an ordinary negligence suit without three of the usual defenses. Section 406.033 removes contributory negligence, assumption of risk and fellow-employee negligence. What remains is an argument that the employee intended the injury or was intoxicated, plus the plaintiff's burden to prove employer negligence. Damages are not capped by the benefit schedule, and a waiver signed before the injury is void.

Can a Texas employee turn down workers' compensation coverage?

Yes. Section 406.034 lets an employee retain the common-law right to sue by giving the employer written notice no later than the fifth day after starting work, or the fifth day after being told the employer has obtained coverage. You may not make that election a condition of employment. If such an employee is later injured, you report it on DWC Form-007 rather than DWC Form-001.

Can a small Texas business self-insure workers' compensation?

Realistically, no. Certified self-insurance requires an estimated unmodified manual premium of at least $500,000 in Texas or $10 million nationwide, audited financials, a qualifying financial rating, a security deposit of at least $300,000, excess insurance of at least $5 million per occurrence and a $1,000 application fee, renewed annually. That leaves a licensed carrier or a Chapter 407A self-insurance group as the practical routes.