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’ Comp Insurance Requirements
In Texas, a business can either be a subscriber or nonsubscriber to workers’ compensation insurance. Companies that subscribe to workers’ comp insurance plans are covered for injuries regardless of fault, whereas non-subscriber companies may be sued by an injured worker. Both have certain requirements to fulfill.
Subscribers must:
- Notify new hires of their subscriber status using a Notice 6 form
- 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
Nonsubscribers must:
- 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 English, Spanish, and any other applicable languages
- Report work-related injuries that cause more than one day of lost time and all work-related illnesses and injuries to the DWC
- Report work-related deaths
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 costs 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.
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
If you have more questions about small business insurance requirements in Texas, then check out our overview of Texas business insurance.
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 back 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
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 capped 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.
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 and he is able to 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 Much is Workers’ Compensation Insurance in Texas?
The cost of workers’ comp insurance in Texas is based on payroll costs and the risk 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 annual premium for a workers’ compensation policy.
The formula to determine business premium base costs is:
| Total cost of workers’ compensation insurance = | Employee’sestimated annual payroll__________________$100 | × | Premium rate for the class code | × | Experience modification rating (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.
| Examples of Texas Workers’ Compensation Rates by Class Code | ||
|---|---|---|
| Industry Class Code | Low Rate | High Rate |
| 0042 Landscaping | $1.88 | $6.76 |
| 5022 Masonry | $2.45 | $11.96 |
| 5183 Plumbing Contractors | $2.45 | $11.96 |
| 7219 Towing Company | $2.82 | $13.76 |
| 8742 Sales Professional | 11 cents | 37 cents |
| 8810 Clerical - Office | 7 cents | 26 cents |
| 8828 Home Healthcare | 84 cents | $4.10 |
| 8831 Animal Shelters | 12 cents | 40 cents |
| 9063 Fitness Center | 30 cents | $1.46 |
The next part of the formula is the experience modification rate (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.
Our list of the ways to save money on business insurance may be of interest to you. We go over how to get affordable yet quality coverage.
To better understand how insurance companies price a workers’ compensation policy, 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
Further, assume that the
- clerk earns $35,000 annually
- total payroll for the home care workers is $200,000
- 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) × 7 cents × 1 = $24.50
- Home care workers: ($200,000 ÷ $100) × 84 cents × 1 = $1,680
By adding the two job classifications together, we get $1,704.50 in total estimated premium.
Texas Workers’ Compensation Insurance Deadlines
You cannot purchase insurance retroactively. Beyond that, 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
Where To Buy Workers’ Comp in Texas
If you would like to offer workers’ comp, or you are in one of the industries where it is necessary, then we have compiled a list of insurers that offer workers’ comp in Texas. These include private insurance carriers and the state fund, Texas Mutual Insurance Company (TMIC).
One of the most important things to consider when choosing an insurer is the price for your industry. Not each one is the “best priced” for every type of risk. Some workers’ compensation insurance companies serve riskier industries or small businesses better than others.
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. It is an ideal choice for small businesses serving consumers in day-to-day life, such as low-level or midlevel risk companies like offices, retail locations, and health and fitness providers.
TMIC is the largest workers’ compensation insurance carrier in the state, with almost three times the market share as the next largest provider. It is the state insurance fund but operates as a private carrier in the market. Because it is the state fund, it 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. It is competitive, comprehensive, and the ideal workers’ comp option for businesses wanting 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 it 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. It specializes in mom-and-pop businesses, particularly those with a few employees. While it does cover a wide range of risk classifications, it best serves professional and personal service companies, like accountants and plumbers.
Check out our guide to the best workers’ compensation insurance companies for additional recommendations and more information.
Frequently Asked Questions (FAQs)
Does Texas permit a business to self-insure for workers’ compensation?
Texas business owners can self-insure for workers’ compensation—provided they meet specific criteria established by the Texas Department of Insurance. The criterion is such that self-insurance is really for larger companies with strong financial reserves. For example, a company that self-insures must be able to post a security deposit of a minimum of $300,000.
What is a workers’ compensation audit?
Since the estimated payroll is used when calculating the workers’ compensation premium, insurers conduct a premium audit at the end of the year where they will review the company payroll records. This could result in a partial refund to a small business or a bill for additional workers’ comp premium. Our guide on how to prepare for a workers’ comp audit can help minimize stress.
How do I file a workers’ comp claim in Texas?
To file a workers’ comp claim, notify the insurance carrier using any of its available or preferred methods, such as phone, email, app, or agent. Importantly, Texas requires a small business to fill out and file the “Employer’s First Report of Injury or Illness” form within eight days after the employee’s absence from work or receipt of a notice of occupational illness. This form is also called DWC Form-001 and is available on the Texas Department of Insurance website.
Can I get fired after filing a workers’ comp claim?
No, an employer cannot terminate an employee for filing a workers’ comp claim. It can terminate an employee while they are injured from a claim but the cause of termination cannot be the filing of the claim.
Is workers’ comp insurance required in Texas?
No, Texas is one of two states that does not broadly require all employers to offer workers’ compensation insurance to employees.
Bottom Line
Even though workers’ compensation insurance isn’t required in Texas, it is an important protection for every business owner who 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.
