Most private employers in Texas can skip workers’ compensation and still operate legally. That is a choice with a price, and the price shows up after someone gets hurt. This guide covers what the choice is called, what the paperwork looks like, what it costs in legal protection, and where the choice disappears. Everything here is current as of October 2026, and none of it is legal advice.
What the statute says
Texas Labor Code Section 406.002 is short. It says that “except for public employers and as otherwise provided by law, an employer may elect to obtain workers’ compensation insurance coverage.” An employer that elects coverage is subject to the Texas Workers’ Compensation Act. One that does not is outside the system.
The Texas Department of Insurance, Division of Workers’ Compensation (TDI-DWC) calls those employers nonsubscribers. Its nonsubscriber page says private employers “can choose whether to provide workers’ compensation insurance coverage,” and that an employer that ends its policy also becomes a nonsubscriber on the date the policy ends.
How common is it? TDI’s 2024 biennial report to the Legislature, published in November 2024, put nonsubscribers at 24% of Texas employers, the lowest share since 2016. The same report said 13% of Texas employees worked for a nonsubscriber, the lowest in a decade. Most employees work for employers that carry coverage.
What a nonsubscriber has to file and post
Opting out is not silent. The law requires notice in two directions.
Notice to employees. Texas Labor Code Section 406.005 requires every employer to tell employees whether it has coverage. The employer must post a notice at conspicuous locations in the workplace, and it must tell each new employee at the time of hire. TDI-DWC says nonsubscribers post the notice in English, Spanish, and any other language the workforce needs, in a place employees see regularly. Under 28 Texas Administrative Code Section 110.101, the written new-hire notice is due when the employee completes the federal W-4 and I-9 forms. Failing to post or to give notice is an administrative violation under that rule.
Notice to TDI-DWC. Texas Labor Code Section 406.004 requires an employer that does not carry coverage to notify the division in writing, on forms the commissioner prescribes. The form is DWC Form-005, the notice of no coverage. TDI-DWC says to file it between February 1 and April 30 of each year, after hiring the first employee, and after terminating a policy. TDI-DWC also runs an online filing tool called Employer E-File. Missing the filing is an administrative violation under Section 406.004.
Injury reports. TDI-DWC says nonsubscribers with five or more employees must report work-related injuries, illnesses, and deaths that involve more than one day of lost time. A 2018 TDI bulletin identifies the report as DWC Form-007, the Employer’s Report of Non-covered Employee’s Occupational Injury or Disease. The TDI-DWC page puts the deadline at one month and seven days from the date of death, from the date the employer learns of the illness, or from when lost time began.
I did not find a penalty dollar amount in the sources above. Ask a licensed agent or an employment attorney what enforcement looks like for a specific filing.
What a nonsubscriber gives up
Here is the trade. An employer with coverage gets what the Act calls the exclusive remedy. Texas Labor Code Section 408.001 says recovery of workers’ compensation benefits is the exclusive remedy of a covered employee against the employer for a work-related injury or death. A narrow exception allows exemplary damages for a death caused by gross negligence or an intentional act.
A nonsubscriber does not get that shield. TDI’s 2024 report says nonsubscribers “lose the protection of statutory limits on liability and may be sued by their employees who are injured on the job.”
Section 406.033 sets the rules of that lawsuit, and they favor the employee. In a suit against an employer without coverage, it is not a defense that:
- the employee was guilty of contributory negligence,
- the employee assumed the risk of injury, or
- a fellow employee’s negligence caused the injury.
Two defenses survive. The employer can argue the injury came from an act of the employee intended to cause it, or happened while the employee was intoxicated. The employee still has to prove negligence by the employer or by someone acting for the employer. And an employee cannot sign away the right to sue before an injury. Section 406.033(e) makes that kind of waiver void. After an injury, a waiver has to meet four conditions, including a medical evaluation and a wait of at least ten business days after the initial injury report, and its waiver provisions must be conspicuous (Source).
Section 406.033(b) also says the section does not reinstate or affect other common-law defenses. What that means in a live case is exactly the kind of thing to put in front of an attorney.
Where coverage is required
Two rules override the choice, and contracts can add a third source of pressure.
Public employers. The opening words of Section 406.002 carve them out.
Public building and construction contracts. Texas Labor Code Section 406.096 says a governmental entity that enters into a building or construction contract “shall require the contractor to certify in writing that the contractor provides workers’ compensation insurance coverage for each employee of the contractor employed on the public project.” Each subcontractor on the project provides a certificate to the general contractor, who passes it to the governmental entity. The statute defines governmental entity as the state or a political subdivision, including a municipality. It defines building or construction broadly: erecting a structure, remodeling, repairing, demolishing, or otherwise improving real property. A contractor can meet the requirement through a group plan “or other method satisfactory to the governing body of the governmental entity.” The statute does not say that an opt-out qualifies.
Why a general contractor can still require it
Section 406.002 says the law does not force coverage on most private employers. It does not stop a private party from making coverage a condition of doing business. A general contractor writing a subcontract can ask for a certificate of insurance, and a subcontractor with no coverage may find the job goes to one that has it. The statute does not explain why a contractor would want that, and I will not guess at each contractor’s reasons. Read the subcontract.
Two statutes show how the system treats the relationship. Section 406.123 lets a general contractor and a subcontractor agree in writing that the general contractor provides coverage to the subcontractor and the subcontractor’s employees. The premiums, based on payroll, may be deducted from the contract price. A general contractor that does this must file a copy of the agreement with its carrier by the tenth day after the contract is executed, and failing to file is an administrative violation. The agreement makes the general contractor the employer of the subcontractor’s workers only for workers’ compensation purposes.
Section 406.124 addresses a different problem. If a person with coverage subcontracts work “with the intent to avoid liability as an employer,” the subcontractor’s injured employee is treated as the person’s employee for workers’ compensation, and also has a separate right of action against the subcontractor.
Whether a subcontractor’s lack of coverage exposes a particular general contractor is a contract and facts question. Ask an employment attorney, or ask a licensed agent how the general contractor’s own policy responds.
If you hire contractors for your own property
I own two rentals, and I hire people to work on them. The lesson is the same as with any policy. Ask the contractor whether it carries workers’ compensation, and ask to see the certificate rather than take its word. If it says no, find out what its notice to employees and TDI-DWC says, and ask an attorney what that means for you. For how liability layers stack on a rental, see our guide to umbrella policies and LLCs for Texas rentals. For what a landlord policy does and does not pay for, see landlord insurance in Texas. Tenant-caused damage is a separate question, covered in our tenant damage guide.
Read the form, not the brochure.