Texas Non-Subscriber Employers: What Workers' Comp Opt-Out Means for Your Business

Texas is the only state where most private employers can choose not to carry workers' compensation insurance. An employer that has opted out of the Texas workers' compensation system is known as a non-subscriber. Going without coverage can lower costs and give you more control over how injured employees are cared for, but it also exposes your business to injury lawsuits and comes with filing and notice rules of its own. This guide explains what non-subscription means, what the law requires, and how to decide whether it makes sense for your company.

What is a Texas non-subscriber?

A non-subscriber is a Texas employer that does not have a workers' compensation insurance policy and is not a certified self-insurer. In most states, workers' comp is mandatory once you have employees. Under Texas law, most private employers in Texas may choose whether to carry workers' compensation insurance, so a business can subscribe to the state comp system or stay outside it.

Employers that subscribe buy a workers' comp policy. In exchange, injured employees receive no-fault medical and income benefits, and the employer is generally protected from negligence lawsuits by its employees. Non-subscriber employers keep the premium dollars but give up that protection, and their workplace injuries can turn into negligence lawsuits.

How many Texas employers are non-subscribers?

According to the Texas Department of Insurance, Division of Workers' Compensation (DWC), about 24% of Texas employers were non-subscribers in 2024, the lowest share since 2016. Those employers had about 13% of Texas employees, the lowest share in a decade. In other words, most Texas employers, and especially larger ones, now carry workers' comp insurance, but non-subscription is still common among small businesses.

Negligence lawsuits: the legal defenses non-subscriber employers lose

The biggest difference for a non-subscriber is legal exposure. Under Texas Labor Code Section 406.033, when an employee of a non-subscribing employer sues over a work injury, the employer cannot use three common defenses:

• Contributory negligence: it is not a defense that the employee was partly at fault.
• Assumption of risk: it is not a defense that the employee knew the job was dangerous.
• Fellow employee negligence: it is not a defense that a coworker caused the injury.

The employee still has to prove the employer, or someone acting for the employer, was negligent. The employer can defend on the grounds that the injury was caused by the employee's intoxication or by the employee's intentional act to cause the injury. Waivers signed before an injury are void, and a waiver signed after an injury is valid only under strict conditions, including a waiting period of at least 10 business days after the injury report and a medical evaluation by a non-emergency doctor.

Because these defenses are gone, one serious injury can lead to a large jury verdict. That lawsuit risk is a big reason most Texas employers choose to carry workers' comp coverage.

What happens when an injured employee files a claim or personal injury lawsuit

When an employee of a subscriber is injured at work, they report the injury and file a claim in the Texas workers' compensation system. The insurance company pays medical care and income benefits, and the injured worker generally cannot sue the employer.

When an employer is a non-subscriber, the process is different. An injured worker can receive compensation in two ways:

• Through the employer's injury benefit plan, if the non-subscriber has one, which pays medical bills and part of lost wages under the plan's rules.
• Through a personal injury lawsuit against the employer, where the employee must show the employer was negligent, for example by failing to provide safe equipment, training or enough staff.

Personal injury lawyers in Texas actively advertise for work injury cases against non-subscriber employers, because these claims can result in damages for medical costs, lost earnings, and pain and suffering. A single workplace accident can turn into a non-subscriber case with a law firm on the other side, so non-subscriber employers should have a plan for workplace injuries before one happens: report the injury promptly, get the employee medical care, document what happened and notify your liability insurance company.

Texas non-subscriber requirements for employers

Opting out of workers' comp does not mean opting out of the rules set by the State of Texas. Non-subscribers must meet these requirements set by the DWC:

• File DWC Form-005 every year: the Employer Notice of No Coverage or Termination of Coverage must be filed between February 1 and April 30 each year you operate without coverage. New employers must file within 30 days of hiring their first employee, and you must also file within 10 days of a DWC request or after ending a policy.
• Notify employees: post the DWC's notice of non-coverage (Notice 5) where employees will see it, in English, Spanish and any other language common among your workers, and give each new hire written notice that you do not carry workers' comp.
• Report injuries: non-subscribers with more than four employees must file DWC Form-007 to report each work-related injury that causes more than one day of missed work, occupational illnesses and fatalities, no later than the 7th day of the following month.

Failing to file or to notify employees can lead to administrative penalties from the DWC.

When Texas employers must carry workers' comp

Coverage is elective for most private employers, but there are exceptions. Public employers must provide coverage, and Texas Labor Code Section 406.096 requires contractors and subcontractors on building or construction projects for a governmental entity to certify that their employees are covered. Many general contractors, property owners and large customers also require proof of workers' comp before you can work on their job sites, so non-subscription can cost you contracts.

Covering workplace injuries: benefit plans for non-subscriber employers

Responsible non-subscribers do not leave injured employees on their own. Many set up an occupational injury benefit plan, a private compensation program that pays medical bills and lost wages after a workplace injury. These plans are usually structured as employee welfare benefit plans under ERISA, the federal law that governs employer benefit plans, which brings plan document, disclosure and claims procedure requirements.

Non-subscribers often pair the plan with:

• Non-subscriber liability insurance: employer liability coverage that helps pay legal defense costs and judgments if an employee sues.
• Arbitration agreements: many non-subscribers ask employees to agree to resolve injury claims through arbitration instead of a jury trial.
• Safety and return-to-work programs: fewer injuries and faster returns lower both benefit costs and lawsuit risk.

Plan design, ERISA compliance and arbitration agreements should be reviewed with an attorney who handles Texas non-subscriber programs, because an injured worker's injury attorney will look closely at every document if a claim turns into a lawsuit. An employer may also need to update its plan as the law and court decisions change.

Pros and cons of leaving the Texas workers' comp system

Subscriber or non-subscriber: how to decide

The right choice depends on your industry, your injury history and your contracts. Ask these questions before you decide:

• How risky is the work? Construction, trucking, manufacturing, oil and gas and auto repair carry far more injury exposure than office work.
• Do your customers, general contractors or government contracts require a certificate of workers' comp insurance?
• Could your business absorb the cost of a serious injury lawsuit, including legal fees?
• Are you prepared to run an injury benefit plan, file with the DWC each year and keep your notices current?
• What would a workers' comp policy actually cost you?

For most small businesses with physical work, a workers' comp policy is the safer and simpler choice. Non-subscription tends to fit larger employers with the resources to manage claims, buy liability coverage and run a compliant benefit plan.

Compare your workers' comp options

Benefits On Us is an independent agency in Houston, serving employers across Texas since 2001. We can quote workers' compensation insurance from multiple A-rated carriers so you can see the real cost of coverage before you decide, explain what workers' comp covers, help you lower your workers' comp costs, and coordinate coverage with your group benefits. Book a free 15-minute call, in English or Spanish, to compare your options.

Frequently asked questions

Is workers' comp required in Texas?

Not for most private employers. Texas lets private employers choose whether to carry workers' compensation insurance. Public employers and contractors on government building or construction projects must provide coverage.

Can an employee sue a non-subscriber employer in Texas?

Yes. An injured employee can sue a non-subscriber for negligence, and the employer cannot argue that the employee was partly at fault, assumed the risk or was hurt by a coworker's negligence.

What form do non-subscribers file in Texas?

Non-subscribers file DWC Form-005, the Employer Notice of No Coverage or Termination of Coverage, with the Texas Division of Workers' Compensation between February 1 and April 30 each year. Employers with more than four employees also report certain injuries on DWC Form-007.

Do non-subscribers have to pay injured employees?

The law does not require a non-subscriber to provide workers' compensation benefits, but an employee injured while working can file a personal injury lawsuit against the employer to recover compensation. Many responsible non-subscribers provide an injury benefit plan to care for employees and reduce lawsuit risk.

How do employees know if their employer is a non-subscriber?

Texas law requires a non-subscriber to post a notice of non-coverage at the workplace and to tell each new hire in writing. Workers can also ask the employer directly or check with the Texas Division of Workers' Compensation.

Is it cheaper to be a non-subscriber?

It can be, since you save on insurance premiums, but one serious lawsuit can cost far more than years of premiums. Comparing a workers' comp quote against the cost of a benefit plan, liability insurance and administration gives you the real answer.

*This article is general information, not legal advice. Talk with a Texas attorney about your specific situation.*