Workers' Compensation in Texas: What You Need to Know to be Prepared
Securing quality workers' comp insurance in Texas at a reasonable cost is vital for long-term business success and employee satisfaction.
The saying goes: "Everything is bigger in Texas." That certainly applies to its economic influence.
A huge part of the state's attraction lies in a unique combination of advantages that support enterprise growth. With no personal or corporate income tax, a predictable regulatory environment, and a business-friendly climate, Texas supports companies of all sizes.
According to recent data, the Lone Star State is home to more than 2.9 million businesses – employing more than 15.5 million people. In fact, if Texas were its own country again, it's gross domestic product (GDP) would rank as the ninth-largest economy in the world.
Yet with such a large and active workforce, the potential for workplace accidents is significant.
While workers' compensation coverage is not universally required for Texas employers, it remains a valuable investment for protecting your employees and your bottom line.
In this article, we'll explore the essentials of the Texas Workers' Compensation Law, including who needs the insurance, what benefits are covered, and provide a list of steps on how you can best prepare your business to stay compliant.
Who needs workers' compensation insurance in Texas?
Unlike most states, Texas generally leaves the decision of whether to purchase workers' compensation insurance to private employers. Options for doing so include participating in the state-regulated workers' compensation system, self-insuring, or declining coverage entirely as a "non-subscriber."
However, in some cases, workers' comp insurance is mandatory. For instance, public-sector employers such as cities, school districts, or state agencies must provide coverage. Likewise, if your business engages in a government-funded, contracted project, you'll likely be required to carry it. Some transportation companies also need it in order to comply with federal or state requirements.
If your business ultimately decides not to carry workers' compensation, you still need to file Form DWC005 annually with the Texas Department of Insurance, Division of Workers' Compensation (DWC), to declare your non-subscriber status.
Additionally, within the workplace, employers are required to post notices in appropriate languages, as well as give written notice to all employees confirming whether they do or do not carry workers' comp coverage. Failure to do so can result in administrative penalties.
What does workers' compensation insurance cover?
Through workers' comp insurance, business owners can provide financial protection and medical care benefits to their employees who are hurt or become ill because of a work-related illness or injury.
In Texas, medical expenses, such as doctor's visits, hospital stays, surgeries, medication and rehabilitation, are standard within most plans. For income assistance, partial wage replacement can help an employee in a number of ways. For instance, temporary income benefits (TIBs) can be paid out until the employee returns to work. For more serious cases, impairment, supplemental, and even lifetime income benefits are also available.
One key feature of Texas workers' comp is "exclusive remedy" protection. If an employer carries coverage, injured employees typically cannot sue for damages, unless they can prove gross negligence or intentional harm.
"The no-fault system benefits both sides," says Matt Krause, licensed agent at Automatic Data Processing Insurance Agency, Inc. (ADPIA®) and vice president of ADP®. "Employees get prompt care, while employers avoid prolonged, costly legal battles."
For more information, please visit the Texas Department of Insurance Division of Workers' Compensation website.
4 tips to help keep your business compliant in Texas
"It's not a good idea to assume that you'll save money by opting out," adds Krause. "Your employees' well-being isn't a short-term expense – it's an ongoing responsibility. Managing it well keeps your workforce healthy, your people engaged, and your business strong."
With that in mind, here are a few tips to consider when developing your workers' comp strategy:
1. Know your obligations and how the law applies to you.
As a business owner, you should familiarize yourself with how Texas workers' comp laws and regulations regarding insurance will affect you. Keep proof that employees received proper written notice about your status. If you're a non-subscriber, ensure that you file Form DWC005 annually and post notices in any languages common among your workforce. Another good practice would be to create a monitoring system to stay up-to-date on policies and regulations.
2. Document and report workplace injuries.
Even if you don't carry workers' comp coverage, maintain a log of all incidents that take place. If you do carry workers' comp, report injuries promptly to your insurer, and to the appropriate agencies, such as the DWC, if required. Detailed records are also critical for defending against claims or lawsuits.
3. Weigh all your coverage options to get the best results.
Texas employers have options as to where they can purchase quality workers' comp insurance. If you choose to purchase insurance directly, it must be from a company licensed by the Texas Department of Insurance (TDI). The TDI also provides workers' comp rate guides to assist with comparison shopping for coverage.
You can also choose to self-fund your workers' comp insurance, as long as you apply for a certificate and comply with Texas state laws and regulations. If you choose to join a self-insurance group, the group must get approval from the TDI.
If you want to work with a private insurance carrier, it's best to call on the experts, like ADP® affiliate, Automatic Data Processing Insurance Agency, Inc. (ADPIA®), to assist you. Discussing your individual business needs with a licensed insurance broker, agent, and other professionals will help you to stay compliant with laws and regulations, as well as get the most out of your insurance plans. For example, ADP's Pay-by-Pay® Premium Payment Program could be a viable option to manage your workers' comp administration.
4. Review and update your policies regularly.
As your business grows, so will your workforce risks. Therefore, it's necessary to review your insurance and safety programs, at least on an annual basis. Incorporating proper training for your employees, and maintaining a safe work environment, can also help you reduce the likelihood of incidents and claims.
"Texas offers employers a choice that comes with responsibility," concludes Krause. "Knowing the requirements and investing in coverage is the best way to protect both your business and your employees."
To learn more about protecting your employees and your business in Texas, check out ADP® affiliate, Automatic Data Processing Insurance Agency, Inc. (ADPIA®), for the latest in workers' compensation insurance.
Automatic Data Processing Insurance Agency, Inc. (ADPIA) is an affiliate of ADP, Inc. All insurance products will be offered and sold only through ADPIA, its licensed agents or its licensed insurance partners; One ADP Blvd. Roseland, NJ 07068. CA license #0D04044. Licensed in 50 states. Certain services may not be available in all states with all carriers. Some carriers may charge an additional fee for services. This information is not intended as tax or legal advice. If you have any questions, contact a tax or legal professional. ADP, the ADP logo and ADPIA are registered trademarks of ADP, Inc. Copyright © 2025 ADP, Inc. All rights reserved.
