Texas gives most private employers a choice that no other state in the country offers: opt in or opt out of workers’ compensation insurance. For small business owners with just two or three employees, that choice can feel simple. Coverage costs money. Skipping it saves money. But the math changes fast when someone gets hurt on the job.
It’s also worth clearing up a common misconception right away: Texas has no five-employee threshold for requiring workers’ compensation. The number five does matter for certain non-subscriber injury-reporting requirements, which we cover below, but it doesn’t change the general decision about whether to carry coverage. If you’re new to the topic, our guide to what workers’ compensation is covers the basics.
Key Takeaways
- Texas is the only state where most private employers can legally opt out of workers’ compensation insurance, regardless of how many employees they have.
- Non-subscriber employers lose key legal defenses and can be sued by injured workers, who generally must prove employer negligence to recover damages.
- Many clients and general contractors in DFW require proof of workers’ comp coverage, and contractors on governmental building or construction projects are required by law to provide it.
- Low-risk businesses can sometimes obtain affordable coverage, but costs vary by payroll, job classification, claims history, and carrier.
- Opting out comes with state reporting requirements that carry their own penalties if ignored.
Is Workers’ Compensation Required for Small Businesses in Texas?
No. Texas is the only state in the country where most private employers can legally operate without workers’ compensation insurance [3]. There is no minimum employee count that triggers a mandate. A business with 20 employees faces the same opt-out freedom as a business with two.
There are exceptions. Texas law requires public employers to provide coverage [2]. Contractors and subcontractors working on building or construction projects for a governmental entity must also provide workers’ compensation coverage for each of their employees on the public project [2]. But the typical small business in Garland, Sachse, Murphy, Wylie, Rowlett, or elsewhere in the DFW area is not legally forced to carry it.
Why Texas Has No Minimum Employee Count for Workers’ Comp
The Texas Labor Code created what is often called the “non-subscriber” system, allowing private employers to opt out of the state’s workers’ compensation framework entirely [2]. The logic behind the system is employer choice, but that choice comes with consequences that many small business owners don’t fully understand until they’re in the middle of a claim.
When a Small Business Needs Coverage Anyway
Legal obligation isn’t the only reason to carry workers’ comp, and it helps to separate what the law requires from what a customer requires.
Required by law: If your business is a contractor or subcontractor on a building or construction project for a governmental entity, Texas Labor Code §406.096 requires you to certify that you provide workers’ compensation coverage for each employee working on that project [2]. The Texas Department of Insurance also notes that private employers who contract with government entities must provide coverage for the employees working on the project [1].
Required by contract: Other contracts, whether with a government agency or a private company, may set their own insurance requirements. Not every government contract carries the same rules, so read the insurance section of each contract carefully. Beyond contracts, lenders, commercial landlords, and clients in skilled trades may require it as a condition of doing business.
What Happens If an Employee Gets Hurt and You Have No Coverage
This is where the opt-out decision carries the most weight. Without workers’ comp, your business doesn’t get the protections that come with the system. You carry the financial and legal exposure directly.
Your Employee Can Sue Your Business Directly
Workers’ compensation functions as a no-fault system. Workers’ compensation generally provides statutory benefits for covered work-related injuries and illnesses without requiring proof of employer negligence, and generally protects subscribing employers from employee injury suits, subject to legal exceptions [1]. Benefits and wage replacement have eligibility rules and limits. One notable exception to that lawsuit protection: the surviving spouse or heirs of an employee whose death was caused by the employer’s gross negligence or intentional act can still seek exemplary damages [4].
When you opt out of workers’ comp, that protection doesn’t exist. An injured employee can file a lawsuit against your business and seek damages beyond what workers’ comp would have paid [1]. To recover, the employee generally must prove that the employer, or someone acting on the employer’s behalf, was negligent [2]. Being a non-subscriber doesn’t make you automatically liable for every workplace injury, but the loss of key legal defenses makes these cases particularly risky.
The Legal Defenses Texas Non-Subscribers Give Up
Here’s what most employers don’t realize: when you become a non-subscriber in Texas, you lose three legal defenses that are normally available in personal injury cases. You cannot argue that the employee’s own negligence contributed to the injury. You cannot argue that a coworker caused the injury. You cannot argue that the employee knew the risk and assumed it [2]. In a lawsuit, those are significant protections to give up.
How One Injury Claim Affects a Small Business Budget
Medical costs for a serious workplace injury can reach tens of thousands of dollars before you factor in lost wages, legal fees, or a potential jury verdict. For a small business operating on thin margins, a single claim paid out of pocket can be financially devastating. Workers’ compensation transfers that exposure to an insurer for an annual premium.
Why Small Businesses Carry More Risk Without Workers’ Comp
The legal exposure isn’t the only problem. The business consequences of being uninsured extend further than most owners expect.
Clients and General Contractors Often Require Proof of Coverage
Across the DFW construction trades, property management companies, and commercial services sector, clients and general contractors often require a certificate of insurance that includes workers’ compensation before a subcontractor can step foot on a job site. An electrical subcontractor in Garland, a plumber working in Collin County, or a landscaping crew in Wylie can lose contract opportunities simply by being uninsured. Not every contract requires the same coverage, but without a workers’ comp certificate, you may not qualify for some of the jobs you want to bid on.
Hiring and Keeping Good Employees
Skilled workers know the difference between an employer who carries workers’ comp and one who doesn’t. Coverage signals that you take workplace safety seriously and that an injured employee won’t have to fight you in court to pay their medical bills. In tight labor markets across Garland, Rowlett, and the rest of DFW, that matters. Workers’ comp is part of the compensation package that helps small businesses compete against larger employers.
What Workers’ Compensation Costs for a Small Texas Business
Cost is the most common reason small business owners skip coverage. But many owners make that decision without ever getting a quote.
How Workers’ Comp Premiums Are Calculated
Key factors include the type of work your employees perform, your total payroll, and your claims history, along with carrier pricing, minimum premiums, and other rating factors. Each employee’s payroll is assigned to a job classification, and each classification carries a rate per $100 of payroll [5]. An experience modifier based on your past losses can raise or lower the premium [5]. A roofing company pays a significantly higher rate than an accounting office because the physical risk is different. For more detail on how workers’ compensation benefits are structured and what they cover, that context matters when evaluating what the premium is actually buying.
Keep in mind that the premium you pay at the start of a policy is typically based on estimated payroll. Policies are generally subject to a payroll audit, and your premium may change after the audit if your actual payroll or employee classifications differ from the estimate.
What Low-Risk Businesses Should Know About Cost
Office-based businesses, retail operations, and low-hazard service companies can sometimes obtain affordable coverage. Still, costs vary by payroll, job duties, carrier, and applicable rating factors, so there’s no reliable rule of thumb. Whether you run a small marketing agency or a bookkeeping firm in Sachse, the best way to know what coverage would cost is a tailored quote based on your actual payroll and operations.
What Texas Non-Subscribers Must Do
Opting out of workers’ comp isn’t simply a matter of not buying a policy. If you have one or more employees who aren’t exempt from coverage, Texas requires you to file DWC Form-005, Non-subscriber notice, with the Texas Department of Insurance, Division of Workers’ Compensation (DWC) [6]:
- Every year between February 1 and April 30
- Within 30 days of hiring your first employee
- Within 10 days of terminating your workers’ compensation coverage
- Within 10 days of DWC asking you to file it
Certain employees, such as some domestic workers and some farm and ranch workers, are exempt from coverage. If all your employees are exempt, you don’t have to file [6].
You also have to tell your employees. Non-subscribers must give new employees written notice that they’re not covered by workers’ compensation, give written notice to employees if coverage is terminated, and post a notice of non-coverage at the workplace where employees can regularly see it, in English, Spanish, and any other appropriate language [1] [6]. Failing to file or failing to provide these notices can result in administrative penalties [2].
Where the Five-Employee Number Comes In
Having five employees doesn’t trigger a coverage requirement in Texas. It does trigger an injury-reporting requirement. Non-subscribers with five or more employees who aren’t exempt from coverage must file DWC Form-007 to report work-related deaths, injuries that cause an employee to be absent from work for more than one day, and work-related illnesses they know about. The report is due no later than the 7th day of the month after the month the event happened [7].
Both the DWC-005 and DWC-007 can be filed online through TDI’s Employer E-File system [8].
Other Options for Texas Employers Without Workers’ Comp
Some employers who opt out of workers’ comp attempt to fill the gap with occupational accident insurance, which covers medical expenses and some lost wages for injured workers, but does not provide the same legal protections as a standard workers’ comp policy. Occupational accident coverage limits are often lower, and the employee still retains the right to sue. It’s a partial solution, not an equivalent one. Reviewing your workers’ compensation insurance options with a licensed agent helps you understand exactly what each path covers and what it leaves exposed.
Frequently Asked Questions
1. Do I Need Workers’ Comp If I Am the Only Employee?
It depends on your business structure and policy elections. Under Texas Labor Code §406.097, a sole proprietor, partner, or corporate executive officer of a business that elects coverage is entitled to benefits as an employee unless specifically excluded by an endorsement to the policy [2]. Some insurers will also sell a policy that covers executive officers of a business that has no other employees [1]. If you work alone, ask your agent whether you can be included in coverage and which options fit your business structure. Once you hire someone, even part-time, the decision to subscribe or opt out also affects your employees, along with all the consequences that come with opting out.
2. Do Part-Time Employees Count for Workers’ Comp in Texas?
Yes. Part-time employees are treated the same as full-time employees for workers’ compensation purposes. Their payroll counts toward your premium calculation if you carry coverage, and they retain the right to sue if you don’t and they get hurt on the job. Part-time and temporary employees also count toward the five-employee threshold for DWC-007 injury reporting [7].
3. Does Workers’ Comp Cover Independent Contractors?
Independent contractors generally are not automatically covered as employees under the hiring business’s policy. However, Texas allows a general contractor and a subcontractor to enter into a written agreement under which the general contractor provides workers’ compensation coverage to the subcontractor and the subcontractor’s employees [2] [9]. Contractors may also obtain their own coverage. However, if the state determines that someone classified as a contractor was actually functioning as an employee, that classification can be challenged. Misclassification is a real risk for small businesses that rely on contractors to do the work their employees would otherwise perform. How you classify workers and structure these insurance arrangements can also affect your coverage and your premium audit.
4. Can I Buy Workers’ Comp After an Employee Gets Hurt?
No. Workers’ comp must be in place before an injury occurs. Purchasing a policy after a claim event will not cover that claim. This is one of the most important reasons not to treat coverage as something to think about later.
5. What Happens If a Non-Subscriber Does Not File the DWC-005?
Non-subscribers who fail to file the required DWC-005 notice with the Texas Department of Insurance can face administrative penalties [2]. The notice is due every year between February 1 and April 30, and also within 30 days of hiring your first employee or within 10 days of terminating coverage [6]. It applies to non-subscribers with one or more non-exempt employees, regardless of business size, and skipping it does not make a business a subscriber by default. Separately, non-subscribers with five or more non-exempt employees must report certain work-related injuries, illnesses, and deaths on DWC Form-007 [7].
Talk to a Garland Agent About Workers’ Comp for Your Business
Workers’ comp for a small Texas business isn’t just a line item on a budget. It’s the difference between a manageable injury claim and a lawsuit that threatens everything you’ve built.
The right decision isn’t about finding the lowest premium. It’s about understanding your actual exposure. As an independent agency serving Garland, Sachse, Murphy, Wylie, Rowlett, and the surrounding DFW area, Bickerstaff Insurance offers personalized service and can review your payroll, employee classifications, business operations, and any contractual insurance requirements before recommending coverage. We compare options from multiple insurance companies to find coverage that fits what your business actually does, not a generic policy that may leave gaps.
Request a business insurance quote, or request a coverage review and we’ll walk through your current situation together.
References
- Texas Department of Insurance — Workers’ Compensation Insurance Guide — Texas non-subscriber system, employer opt-out rules, annual non-subscriber notice, and loss of legal defenses for non-subscribers
- Texas Labor Code, Chapter 406 — statutory framework governing workers’ compensation subscription, non-subscriber obligations, and employer liability exposure, including §406.033 (burden of proof), §406.096 (government construction contracts), §406.097 (owners and executive officers), and §406.123 (general contractor and subcontractor agreements)
- Texas Department of Insurance — History of Workers’ Compensation in Texas — Texas as the only state that allows employers to choose whether to provide workers’ compensation
- Texas Labor Code, Chapter 408 — §408.001, exclusive remedy and the exception for exemplary damages in deaths caused by gross negligence
- Texas Department of Insurance — Texas Workers’ Compensation Rate Guide — how premiums are calculated from classifications, payroll, and experience rating
- TDI Division of Workers’ Compensation — DWC Form-005, Non-subscriber Notice — filing deadlines, exemptions, and employee notice requirements for non-subscribers
- TDI Division of Workers’ Compensation — DWC Form-007, Employer’s Report of Non-covered Employee’s Work-related Injury or Illness — injury, illness, and death reporting for non-subscribers with five or more employees
- Texas Department of Insurance — Online Filing for Employers — Employer E-File for DWC-005 and DWC-007
- TDI Division of Workers’ Compensation — DWC Form-081, Agreement Between General Contractor and Subcontractor — agreements for a general contractor to provide coverage to a subcontractor and its employees
