This article is part of a larger series on Workers' Compensation Insurance.
Texas workers’ compensation laws are unique because they don’t require employers to have coverage. Businesses that do buy policies are covered for their obligations after a worker is injured, including the workers’ medical expenses, prescriptions, and partial weekly wages. Texas employers can expect to pay an average of 55 cents for every $100 of payroll on workers’ comp insurance.
Texas Workers’ Compensation Insurance Requirements
Workers’ compensation laws vary by state, but Texas is the only state that doesn’t require coverage. Instead, a business can either be a subscriber or nonsubscriber to workers’ compensation insurance. Companies that subscribe to workers’ comp plans are covered for injuries regardless of fault. Nonsubscriber companies are considered “bare” and may be sued by an injured worker.
Subscribers and nonsubscribers have certain requirements to fulfill. Subscribers, for example, must:
- Notify new hires of their subscriber status using Notice 6
- Post the same notice in a prominent location and in the languages of their workforce
- Inform new hires they have five days to waive their right to workers’ compensation benefits
- Avoid “benefits stacking” where workers’ comp and other health and disability benefits in a manner that provides more than 100% of the employee’s regular weekly wages
- Report work-related injuries that cause more than one day of lost time and all work-related illnesses and injuries to their insurance carriers
- Inform the Division of Workers’ Compensation (DWC) of their status using Form DWC005
- Notify new hires of the nonsubscriber status using Notice 5
- Post the same notice in a prominent location and in the languages of their workforce
- Report work-related injuries that cause more than one day of lost time and all work-related illnesses and injuries to the DWC
Industries Required to Carry Workers’ Comp in Texas
While workers’ compensation is considered voluntary in Texas, it is required in some industries, including:
- All public employers, including city, county, and state agencies
- State universities
- Construction contractors for public entities
- Motor carriers
- Liquid propane and natural gas dealers
- Those employing inmates in work furlough programs
Risks for Texas Workers’ Compensation Nonsubscribers
A company that opts out of purchasing workers’ compensation insurance in Texas is subject to civil lawsuits brought by their injured employees. Moreover, Texas laws restrict the defenses available to nonsubscribers in these lawsuits. Should a claim arise, the Texas Department of Insurance must be notified, and the company must take care of all medical and legal costs along with wages for injured parties.
Many major corporations like Walmart and Hobby Lobby elect to save on workers’ compensation insurance cost and not subscribe. These companies choose to settle claims internally when employees get injured at work. Smaller companies may not be able to offset both the cost and distraction from work to survive workers’ comp claims.
How Much Does Workers’ Compensation Cost in Texas?
Workers’ compensation insurance premiums are based on payroll costs and the riskiness of the work employees perform. The average cost for workers’ comp in Texas is 55 cents per $100 of payroll, according to the National Academy of Social Insurance, but there are many factors that impact premiums. Additionally, many carriers charge a minimum premium of $250 annually for a workers’ compensation policy.
The formula to determine business premium base costs is:
Premium = (Payroll / $100) x classification code rate x experience modification rate (EMR)
The first part of the formula is the company’s payroll, which is divided by $100 and then multiplied by its classification code rate. A workers’ comp class code is a four-digit number insurers use to categorize businesses with similar operations. Each code is assigned a rate with riskier operations seeing higher rates.
Sample Texas Workers’ Compensation Rates by Class Code
Industry Class Code
5183 Plumbing Contractors
7219 Towing Company
8742 Sales Professional
8810 Clerical - Office
8828 Home Healthcare
8831 Animal Shelters
9063 Fitness Center
The next part of the formula is the EMR, which is a number based on a company’s claim history. A company with more claims than similar businesses has a higher EMR, so when it’s factored into the rate calculations, the company’s premium goes up.
Carriers also adjust rates based on their appetite or desire to take on certain types of business risk. So, while the baseline formula is essentially the same for every carrier, rates can vary significantly, making it important to shop around for the best rate.
In the News
The ratings bureau that governs Texas workers’ compensation class codes and rates, the National Council on Compensation Insurance, announced recently that business owners can reclassify employees who are no longer working because of COVID-19 but continue to be paid. Once reclassified, these workers’ payroll will be excluded from workers’ compensation premiums.
Texas Workers’ Comp Cost Example
To understand how insurance companies price a workers’ compensation policy better, let’s look at an example. Assume a home healthcare company has seven employees: one clerk and six home care workers. We’ll use the low rate in the table to estimate this company’s workers’ comp premium:
- Clerk: Class code 8810; rate 7 cents
- Home care workers: Class code 8828; rate 84 cents
Furthermore, assume that the clerk earns $35,000 annually, the total payroll for the home care workers is $200,000, and the company is assigned an EMR of 1 meaning it is exactly at the industry standard.
Now, we plug this data into the workers’ comp equation:
- Clerk: ($35,000 / $100) x 7 cents x 1 = $24.50
- Home care workers: ($200,000 / $100) x 84 cents x 1 = $1,680
By adding the two job classifications together, we get $1,704.50 in total estimated premium.
Texas Workers’ Compensation Audit
Insurers have to use a payroll estimate to charge workers’ compensation premiums at the start of a policy. Because payroll is hard to predict, insurers conduct premium audits where they review the company’s payroll records when each policy ends. This allows them to determine if the company paid the appropriate amount.
For example, assume a bookkeeping company in Dallas applies for workers’ comp and estimates its payroll to be $120,000 per year. The insurance carrier plugs this number into its workers’ comp formula and charges a premium. If one person leaves the bookkeeping company, the company’s payroll is reduced, but the premium has already been collected. The premium audit reconciles this difference and results in a refund for the bookkeeping company.
However, the reverse can also be true. If the company hires another person, that payroll cost is added in and the bookkeeping company is billed for the missing premiums.
Top Workers’ Compensation Insurance Insurers in Texas
Texas workers’ compensation providers include private insurance carriers and the state fund, The Texas Mutual Insurance Company. One of the most important things to consider when choosing a provider is the price for your industry. Not every provider is the “best priced” for every type of risk. Some workers’ compensation insurance providers serve riskier industries or small businesses better than others.
Top Texas Workers’ Compensation Insurance Companies
Main Street businesses in standard risk classifications
Companies in high-risk industries
Lowering costs with safety programs
Workforces extending across state and country lines
Mom-and-pop businesses with fewer than five employees
*Liberty Mutual quote provided by our partner, Commercialinsurance.net.
The Hartford is a national name when it comes to small business insurance. It keeps the client’s interests in mind when building policies that have more inclusion for a lower cost.
The Hartford is an ideal choice for small businesses serving consumers in day-to-day life. These are low- to mid-level risk companies like offices, retail locations, and health and fitness providers.
Texas Mutual Insurance
Texas Mutual Insurance is the largest workers’ compensation insurance carrier in the state with almost three times the market share as the next largest provider. This carrier is the state insurance fund but operates as a private carrier in the market. Texas Mutual covers the widest range of risks in the state, handling industries other carriers refuse to insure.
As the leader in Texas workers’ compensation policies nationally, Travelers is a competitive provider of workers’ compensation insurance for Texas companies. The company is competitive, comprehensive, and the ideal workers’ comp option for businesses that want to improve safety and lower workers’ comp costs. Policyholders can use Travelers’ Risk Management Information Service portal to access data and analytics they can use to create a safer work environment for their employees.
AIG is a leader in commercial insurance throughout the country, offering both insurance and financial services to its clients. Its coverage is available in all 50 states, as is its claims processing and account servicing, making AIG the perfect insurance carrier for Texas companies with workforces in multiple states.
Liberty Mutual is the second-largest Texas workers’ compensation insurance provider behind the state fund. The insurer specializes in mom-and-pop businesses, particularly those with a few employees. While Liberty Mutual does cover a wide range of risk classifications, it serves professional and personal service companies like accountants or plumbers best.
*Liberty Mutual quote provided by our partner Commercialinsurance.net.
How to Self-insure Workers’ Compensation in Texas
By self-insuring, a company can bypass lengthy legal battles when there is a claim. According to the Texas Department of Insurance, a company can self-insure once it:
- Has an estimated unmodified manual insurance premium of at least $500,000 in Texas or $10 million nationwide
- Provides audited financial records
- Posts a $300,000 security deposit
- Gets excess insurance of $5 million
- Pays a nonrefundable $1,000 application fee
- Maintains either a:
- 3A1 Dun & Bradstreet rating or higher
- BBB Standard & Poor’s rating or higher
- Baa Moody’s rating or higher
- Have a minimum net worth of $5 million or a 1.5 to 1 or better long-term debt ratio
As you can see, self-insurance is really for the very large, high-net-worth companies.
What Does Workers’ Compensation in Texas Cover?
Texas workers’ compensation insurance covers costs associated with work-related injuries, such as medical bills and partial lost wages. The key benefits provided by Texas workers’ compensation insurance policies are:
- Medical expenses: Pays ambulance, emergency room, hospital, and all medical expenses pertaining to the work injury or illness
- Rehabilitation expenses: Pays for physical therapy as prescribed by the attending doctor to restore the patient to the best possible condition
- Occupational therapy: May pay for occupational therapy and retraining so that the employee can return to work in a new capacity
- Wages while out injured: Provides employees wages up to 88% of the average weekly wage for up to 104 weeks; benefits start after the seventh day of missed work; waiting period is covered retroactively after a disability lasts more than 14 days
- Long-term disability: Settles long-term disabilities based on the level of injury up to 75% of employee’s average weekly wage with a 3% annual increase
- Death benefits: Pays dependents up to 75% of the deceased workers’ average weekly wage and up to $10,000 in funeral expenses
Employees should know that, in Texas, refusing light-duty work can stop workers’ compensation benefits.
Workers’ compensation policies come in two parts. Part one is what most people think of as workers’ comp while part two, employer’s liability, covers the business owner’s legal bills if they’re sued for a workplace injury. Part two has coverage limits, with most policies capping at $1 million per injury claim and $2 million in total claims paid by the policy per year. Employers may be held liable for benefits exceeding the policy limits.
Texas Workers’ Compensation Coverage Example
Jose works for an Austin florist as a delivery driver. He is involved in a car accident that leaves him unconscious for a week. His employer has a workers’ comp policy, so Jose and his family won’t have to sue to get benefits. The policy pays all medical bills immediately.
Once Jose regains consciousness, he has six months of rehabilitation to help him recover. All of his medical benefits continue to be paid. Additionally, Jose meets the seven-day waiting period for wage benefits while still in a coma. He can get 88% of his average weekly wage paid retroactively from day one of his injuries since he was out of work for more than 14 days.
How Do I File a Workers’ Compensation Claim in Texas?
It’s important that employees notify their employer of an injury as soon as possible. This ensures the timely processing of benefits. Employees should tell employers what happened, where it happened, what the circumstances were around the accident and anyone who witnessed it.
Employers then complete the Employer’s First Report of Injury or Illness. This is filed with the insurance company and sent to the Texas Department of Insurance Division of Workers’ Compensation.
During the course of the claim, employees typically receive paperwork from the insurance carrier. Often, these are progress reports that must be completed by doctors and care providers. Employees should be diligent to meet each form’s deadline as dictated in the correspondence accompanying the form. Failure to do so could result in an early termination of benefits.
Can You Get Fired After Workers’ Comp Claim?
Texas is considered an “at-will” state, meaning companies can fire employees for any reason with or without cause at any time. However, employers cannot fire an employee for filing a workers’ comp claim. Injured employees could still be let go during a workers’ compensation claim. The claim can’t be the reason for termination.
Texas Workers’ Compensation Insurance Deadlines
There are no real deadlines to consider when looking to purchase a workers’ compensation insurance policy in Texas. However, there are a couple of timelines to understand when filing claims and stopping workers’ compensation.
Some timeline issues to consider with Texas workers’ compensation insurance are:
- Ceasing coverage notification: Business owners who want to stop coverage must notify the DWC. The language states notification must happen “as soon as possible” but should be done within days of stopping coverage
- First impairment appeals: Employers have 90 days of a workers’ comp claim issuance to file a formal appeal if they feel the claim is not due to a work-related injury; the 90 days begin when the first issues of injury were noticed
- Statute of limitations: Injured parties have 30 days to notify employers of an injury; the claim must be filed within one year with the Texas Department of Insurance
Failure to meet deadlines could result in the denial of claims or appeals of claims depending on the responsible party. It can even lead to civil lawsuit judgments. Even if an employer is not covered by workers’ compensation, filing claims with the Department of Insurance is required to preserve all parties’ rights.
Texas Workers’ Comp Resources
- Texas Department of Insurance: Workers’ Compensation
7551 Metro Center Dr., Suite 100
Austin, TX 78744-1645
- Employer’s First Report of Injury or Illness
- Notice to Employee Concerning Workers’ Compensation in Texas Notice 5
- Notice to Employees Concerning Workers’ Compensation in Texas Notice 6
- Employer Notice of No Coverage or Termination of Coverage
- Injured Employee Checklist
Even though workers’ compensation insurance isn’t required in Texas, it is an important protection for every business owner that can’t pay employee claims. When employees get hurt at work, workers’ comp pays for medical attention, medications, physical therapy, and weekly wages. Pricing varies among insurance companies.
Get competitive pricing for the right workers’ compensation coverage in Texas by visiting The Hartford. In a few minutes, you’ll be able to get all your business insurance needs quoted. Its experienced small business agents will help you classify your risk and get you protected today.