If you're running a business in Texas, here's something that might surprise you: workers' compensation insurance is completely optional. That's right—Texas is the only state in the country where you can legally choose not to carry workers' comp for your employees. But before you celebrate what sounds like a cost-saving opportunity, you need to understand what you're actually giving up and what responsibilities you still have under Texas law.
The decision to carry workers' compensation coverage isn't as simple as yes or no. It's about weighing financial protection against legal liability, understanding your industry obligations, and making sure you're compliant with the administrative requirements that still apply even if you opt out. Let's break down everything you need to know about Texas workers' comp requirements.
Understanding Texas's Unique Workers' Comp System
Texas stands alone among the 50 states in making workers' compensation coverage voluntary for private employers. There's no employee threshold—whether you have one employee or 500, you can legally operate without coverage. This opt-in system was designed to give businesses flexibility, but it creates a trade-off that every employer needs to carefully consider.
When you carry workers' compensation insurance, you get what's called "exclusive remedy" protection. This means that if an employee gets hurt on the job, their only recourse is through the workers' comp system—they can't sue you personally or take you to court for damages beyond what the policy covers. It's a powerful legal shield.
But if you opt out? Those protections disappear. An injured employee can sue you directly in civil court, and you lose access to the three common law defenses that typically protect employers: contributory negligence (the employee was partly at fault), assumption of risk (the employee knew the job was dangerous), and fellow employee negligence (another worker caused the injury). Without these defenses, you're exposed to potentially unlimited liability.
Who Must Carry Coverage in Texas
While most private employers have a choice, some businesses don't get the option to opt out. All Texas government entities—state agencies, counties, cities, school districts, and public universities—must provide workers' compensation coverage without exception. It's mandatory, period.
Private employers also face mandatory coverage requirements if they hold government contracts. If you're bidding on construction projects for a city, transportation work for the state, or any other contract with a public entity, you'll need to maintain workers' compensation coverage for every employee assigned to that project. This requirement protects taxpayers and ensures injured workers on public projects have guaranteed benefits.
Proposed legislation in 2025 could significantly strengthen enforcement for government contractors, with potential penalties including contract termination, daily fines up to $500, and disqualification from future public contracts. If this legislation passes, it would take effect September 1, 2025, making non-compliance far more costly than it currently is.
Exempt Workers and Special Categories
Even if you carry workers' compensation coverage, certain categories of workers are typically exempt from coverage requirements. Domestic workers employed in private homes, casual employees hired for short-term projects, and many farm and ranch workers don't fall under standard workers' comp rules. Most volunteers also aren't covered unless you specifically choose to include them in your policy.
Real estate agents often operate as independent contractors rather than employees, which can exempt them from coverage depending on how your working relationship is structured. The key distinction is whether someone is a true employee or an independent contractor—and Texas law looks at the reality of the relationship, not just what your contract says.
Administrative Requirements for Non-Subscribers
Choosing not to carry workers' compensation doesn't mean you're free from all obligations. Non-subscribing employers in Texas face specific administrative requirements that you must follow to stay compliant with state law.
First, you must file DWC Form-005 (Employer Notice of No Coverage or Termination of Coverage) with the Texas Division of Workers' Compensation every single year between February 1 and April 30. Miss this deadline, and you could face administrative fines. It's a simple form, but it's mandatory—mark your calendar now so you don't forget.
Second, you must post a Notice of No Coverage to Employees in a prominent location at your workplace where employees can easily see it. This notice tells your workers that you don't carry workers' comp insurance and explains what that means for them if they get injured. Failing to post this notice can result in penalties.
Third, you must provide written notice to each new employee you hire, informing them that you don't carry workers' compensation coverage. This needs to happen during the hiring process, not months later. The goal is transparency—employees deserve to know upfront that they won't have automatic coverage if they're hurt on the job.
Finally, if you have five or more employees, you're required to report workplace injuries and illnesses to the state regardless of whether you carry coverage. This reporting requirement exists to track workplace safety trends across Texas and isn't waived just because you opted out of insurance.
The Real Cost of Going Without Coverage
Here's where the rubber meets the road: should you actually opt out of workers' compensation coverage? For most businesses, the answer is probably not. While you might save money on premiums in the short term, you're gambling with your company's financial future.
Without workers' comp coverage, a single serious workplace injury could bankrupt your business. Imagine a construction worker falls from scaffolding and suffers a traumatic brain injury. Medical bills could easily exceed $500,000. Lost wages during recovery could add another $100,000. Pain and suffering damages in a lawsuit? The sky's the limit. With workers' comp, the insurance company handles all of this. Without it, you're paying out of pocket—or liquidating your business to settle the judgment.
Some employers try to offset this risk by carrying occupational accident insurance or other alternative policies, but these don't provide the same legal protections as true workers' compensation coverage. You might have some financial assistance, but you still don't get the exclusive remedy protection that prevents lawsuits.
Making the Right Decision for Your Business
The decision to carry workers' compensation coverage depends on your industry, your risk tolerance, and your ability to absorb catastrophic losses. If you operate in a high-risk industry like construction, manufacturing, or transportation, going without coverage is playing with fire. Even in lower-risk industries like office work or retail, one slip-and-fall or repetitive stress injury can create serious liability.
Talk to an insurance professional who understands Texas workers' comp law and can help you evaluate your specific situation. Get quotes from multiple carriers to understand what coverage actually costs versus the risk you're assuming by going bare. And if you do decide to opt out, make absolutely certain you're meeting all the administrative requirements—the last thing you need is to face penalties on top of unlimited liability exposure.
Texas gives you the freedom to choose, but freedom comes with responsibility. Make sure you understand exactly what you're choosing and what it means for your employees, your business, and your personal assets before you make the call.
