Many Texas contractors I talk to think workers' compensation is optional. While that's technically true on a state level, it’s a dangerous assumption for any serious contracting business. The reality on the ground is much different.
Is Workers' Comp Really Optional in Texas?
Texas is unique in that it does not legally require most private employers to carry workers' compensation insurance. Companies that choose not to are called “non-subscribers.” However, this doesn’t mean you can just ignore it.
Most general contractors and commercial clients will not award you a contract unless you can provide a certificate of insurance proving you have a workers' comp policy in force. For most trade contractors, carrying this coverage is a basic requirement to even bid on a job. It’s a business requirement, not a state one.
More importantly, being a non-subscriber opens you up to significant legal risk. If an employee is injured on your job site, they can sue you directly for negligence. As a non-subscriber, you lose key common-law defenses, making it much harder to defend yourself. A single lawsuit could easily bankrupt your business.
What a Policy Actually Covers
A workers' compensation policy is designed to be the exclusive remedy for workplace injuries. When a worker is hurt on the job, the policy pays for specific, defined benefits. The employee, in turn, generally cannot sue you for the injury.
- Medical Bills: All necessary medical care to treat the job-related injury or illness.
- Lost Wages: A portion of the employee’s lost income while they are unable to work.
- Rehabilitation: Services like physical therapy to help the employee recover and return to work.
- Death Benefits: Payments to the employee’s family if the injury is fatal.
The 1099 Subcontractor Problem
Here is where most contractors get into trouble. You hire a crew of subcontractors, pay them via 1099, and assume you’re not responsible for their injuries. Unfortunately, it’s not that simple.
The Texas Workforce Commission (TWC) has a strict, 20-factor test to determine if a worker is a true independent contractor or a misclassified employee. If you direct their work, set their hours, or provide the primary tools, the TWC will likely consider them your employee, regardless of how you pay them.
Just because you issue a 1099 doesn't mean the State of Texas or your insurance carrier considers that person an independent contractor.
If a sub you’ve hired gets hurt and doesn't have their own workers' comp policy, their claim could fall on your policy. Your insurance carrier will almost certainly charge you a premium for any uninsured subcontractors at your annual audit, which can be a very expensive surprise.
How to Control Your Premiums
Your premium is determined by a few key factors: your total payroll, the type of work being done (class codes), and your company's specific claims history (your experience modifier, or “mod”). You have control over all three.
- Get Certificates of Insurance: Always require your subcontractors to provide a certificate of insurance showing they have their own workers' comp policy. If they don't have one, you should expect to pay to cover them under your own.
- Classify Payroll Correctly: A roofer (a high-risk job) has a much higher rate than a clerical employee. Ensure your payroll is split accurately between the correct class codes. Don’t let your bookkeeper's salary get lumped in with your field crew's.
- Focus on Safety: A documented safety program is your best tool for long-term cost control. Fewer injuries lead to a lower experience mod, which directly reduces your premium.
Workers' compensation is a complex but necessary tool for managing risk in the construction and trade industries. Don't leave your business exposed. If you're a Texas contractor, we can help you navigate the requirements and find a policy that protects you and your team.
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