Texas Workers' Comp 2026: Employer & Agent Guide

If you run a business in Texas, you have probably heard about workers' compensation insurance. But unlike most states, Texas does not require most private employers to carry it.

That does not mean you should ignore it. Workers' comp protects both employers and employees when workplace injuries happen. And for insurance agents, helping clients understand their options is an important part of serving them well.

Here is what Texas employers and agents need to know about workers' compensation insurance in 2026.

Quick Summary: Key Points for Texas Employers

• Texas is the only state where most private employers can opt out of workers' comp
  
• Not required for most businesses, but coverage is strongly recommended
  Certain industries must carry it — government contractors, public employers, motor carriers, and others
  
• Non-subscribers must file Form DWC005 annually and report workplace injuries
  
• No workers' comp = employees can sue for workplace injuries, and the employer cannot use employee negligence as a defense
  
• 2026 update: Workers' comp loss costs are decreasing by 3.8% effective July 1, 2026

What Is Workers' Compensation Insurance?

Workers' compensation is a type of insurance that pays for medical care, lost income, and other benefits when employees are injured or become ill because of their jobs.

What workers' comp covers:

• Medical treatment for work-related injuries or illnesses
  
• Partial replacement of lost wages while the employee recovers
  
• Rehabilitation and training services
  
• Burial expenses and benefits to the employee's family if a work-related death occurs

What workers' comp does NOT cover:

• Injuries the employee intentionally caused
  
• Injuries while playing around or while intoxicated
  
• Injuries outside work or during off-duty sports or social events
  
• Injuries from "acts of God" like floods or hurricanes, unless the job had high exposure to these events

Texas Is Different: Workers' Comp Is Optional for Most Employers

Texas is unique. Most states require employers to carry workers' compensation insurance. Texas does not.

Who is NOT required to carry workers' comp:

• Most private employers
  
• Small businesses in most industries

Who IS required to carry workers' comp:

• Public employers (cities, counties, state agencies)
  
• Companies that contract with government entities
  
• State universities
  
• Building and construction contractors for public employers
  
• Motorbus companies
  
• Motor carriers providing transportation over public highways
  
• Liquid propane gas and compressed natural gas dealers
  
• Employers of inmates in work furlough programs

Even if your business is not required to carry workers' comp, you must have at least one employee to buy coverage. Part-time employees count.

What Happens If You Don't Carry Workers' Comp?

If you choose not to carry workers' compensation insurance, you become a non-subscriber.

Non-subscriber requirements:

• File Form DWC005 annually with the Texas Division of Workers' Compensation
  
• Report workplace injuries to the state

The risk: If an employee is injured on the job at a business with no coverage, that person can sue the employer. In that lawsuit, the employer cannot defend itself by arguing that the employee was negligent. This legal protection is one of the main reasons many employers choose to carry workers' comp.

Why Employers Choose to Carry Workers' Comp

Even though it is not required, about 76% of Texas employers now subscribe to the workers' compensation system, covering approximately 87% of employees.

Reasons employers choose coverage:

• Protection from lawsuits — If an employee is injured and you have workers' comp, the employee generally cannot sue you for that injury
  
• Predictable costs — Workers' comp covers medical bills and lost wages, which can be much less expensive than defending a lawsuit
  
• Employee protection — Injured workers get medical care and income replacement without having to prove fault
  
• Better employee relations — Offering workers' comp shows you value your employees' well-being

2026 Updates: Rates and Regulations

Several changes took effect in 2026 that affect Texas workers' compensation insurance.

1. Loss costs are decreasing

Effective July 1, 2026, the Texas Department of Insurance approved a 3.8% decrease to NCCI's advisory loss costs for Texas workers' compensation. This means the underlying cost of coverage may be going down.

Insurance companies must base rates for policies effective on or after July 1, 2026, on the new loss costs — not on any prior years' figures.

2. New classification codes

TDI approved new workers' compensation classification codes, including code 8871 for clerical telecommuters, effective July 1, 2026. This reflects the growing number of remote workers in Texas.

3. New surcharge system

Starting January 1, 2026, Texas replaced its existing workers' compensation "maintenance tax" structure with a more flexible surcharge system to bolster funding for regulation, fraud prosecution, and administrative oversight.

4. Benefit changes for death investigators

New rules require carriers to expedite and prioritize claims for medical benefits for death investigators who suffer serious bodily injury in the course and scope of employment.

How Premiums Are Calculated

Workers' compensation premiums in Texas are calculated using several factors.

The formula:

• Your business is assigned one or more classification codes based on the type of work you do
  
• Each employee's payroll is assigned to the appropriate classification
  
• Total payroll for each classification is multiplied by the company's rate for that classification (rate per $100 of payroll)

Example: For roofing work (Code 5551), the July 1, 2026, loss cost is 1.946. If a company files a loss cost multiplier of 1.50, the rate becomes 2.919 per $100 of payroll (1.946 × 1.50 = 2.919).

Average rates: TDI reports average workers' comp rates around $1.06 per $100 of payroll. For a business with $500,000 in annual payroll, that translates to roughly $5,300 per year.

Factors that can affect your premium:

• ence rating modifier — reflects your past loss history
  
• Schedule rating — debits or credits based on characteristics of your business
  
• Deductibles or retrospective rating — optional plans that may reduce premiums
  
• Safety group discounts — up to 12% for joining industry-specific safety groups
  
• Healthcare network discount — up to 12% for participating in a carrier's network

Common Questions About Texas Workers' Comp

Do I need workers' comp if I have no employees?
You must have at least one employee to buy workers' compensation insurance. However, some insurance companies will sell a policy to cover executive officers of a business that has no other employees.

Do sole proprietors and independent contractors need coverage?
It is not required by law, but it may be a smart financial move — especially if you work in a risky industry or do physical labor. Your health insurance company might deny a claim for a work-related injury, leaving you responsible for costly medical bills.

Does workers' comp cover part-time employees?
Yes. Part-time employees count for coverage purposes.

What if an employee is injured and I don't have workers' comp?
The employee can sue you. In that lawsuit, you cannot use employee negligence as a defense.

Can I self-insure for workers' comp?
Yes. Private employers can be certified to self-insure by applying with the Texas Department of Insurance, Division of Workers' Compensation. This means they pay for their own workers' compensation claims.

Do I need to tell the state if I don't have coverage?
Yes. Employers without coverage must notify the state and their employees. You must file Form DWC005 annually.

How Agents Can Help Clients

For Texas insurance agents, workers' compensation presents an important opportunity to serve business clients.

What clients need to know:

• Whether they are required to carry workers' comp
  
• The risks of being a non-subscriber
  
• How premiums are calculated and how to save money
  
• What to do if an employee is injured

2026 updates to discuss with clients:

• The 3.8% decrease in loss costs effective July 1, 2026
  
• New classification codes for remote workers
  
• The new surcharge system replacing the maintenance tax

Agents who understand workers' compensation can help clients make informed decisions about coverage and avoid costly mistakes.

Staying Informed and Educated

Workers' compensation is just one area where Texas insurance laws and regulations are evolving. Staying current helps agents serve clients better and avoid compliance issues.

Time2Renew offers TDI-approved continuing education courses covering workers' compensation, ethics, and legal updates — all online and self-paced.

👉 Stay current with Time2Renew CE

About Time2Renew: Texas insurance agents trust us for practical, up-to-date continuing education. TDI-approved. Ethics, general, and specialty courses available. Start today.