Texas nonsubscribers: opting out of workers' comp

Texas is the best-known state where most private employers can legally choose not to carry workers' compensation (South Dakota's labor department says no law there requires it either). The employer that does is a "subscriber"; one that does not is a "nonsubscriber." A nonsubscriber is not shielded by the exclusive-remedy bar, so an injured employee can sue for negligence, and the employer loses key defenses under Texas Labor Code section 406.033.

What the law says

Labor Code section 406.002(a) says that, except for public employers and as otherwise provided by law, "an employer may elect to obtain workers' compensation insurance coverage." The Texas Department of Insurance (TDI) states on its coverage page (updated June 2026) that coverage is "not required in most cases" for private employers, and that all Texas governmental entities must have it. TDI's research group has called Texas the only state that allows any private-sector employer the option of not purchasing workers' comp, but South Dakota's labor department now says no South Dakota law requires an employer to carry comp either; an uninsured South Dakota employer simply loses the Act's protection (see South Dakota). Texas remains the state with a formal, regulated nonsubscriber system. (Wyoming's mandate is limited to extra-hazardous work; see Monopolistic state funds: workers' comp in ND, OH, WA and WY.)

Opting out is not the same as having no rules. A nonsubscriber must:

• Notify the Division of Workers' Compensation (DWC). Section 406.004 requires an employer who does not obtain coverage to notify the division in writing, in the time and form set by rule, and makes failure an administrative violation. DWC Form-005 (Rev. 01/25) is the form. It must be filed every year between February 1 and April 30, and also when a business terminates coverage or has other changes. It can be filed online through TDI's Employer E-File system.
• Notify employees. Section 406.005 requires an employer to tell each employee whether it has coverage, to tell a new employee at hire, and to post a notice at conspicuous locations. The posted notice is DWC's Notice 5 (28 Tex. Admin. Code section 110.101), in English, Spanish and any other appropriate language. If coverage is later obtained, terminated or cancelled, employees must be told within 15 days.
• Report injuries. The DWC Form-005 affirms that employers with five or more employees will report work-related injuries or illnesses monthly on DWC Form-007 when a known injury causes one or more missed days of work or a death, or when a work-related illness is known.

TDI maintains a list of registered nonsubscribers on the Texas Open Data Portal, and customers can ask DWC to verify whether an employer has coverage.

The price of opting out: Section 406.033

The statute is the reason most Texas lawyers advise caution. In a suit against a nonsubscriber for an employee's injury or death in the course and scope of employment:

1. It is not a defense that the employee was contributorily negligent.
2. It is not a defense that the employee assumed the risk.
3. It is not a defense that a fellow employee's negligence caused the injury.

Section 406.033(c) leaves two defenses: the injury was caused by an act of the employee intended to bring about the injury, or happened while the employee was intoxicated. Under 406.033(d), the plaintiff must still prove the negligence of the employer or its agent acting within the scope of employment. The employee must therefore prove a case, but the usual comparative defenses are off the table, and damages are not limited by a comp benefit schedule. A jury can award medical costs, lost earnings, pain and mental anguish, and in a gross negligence case, exemplary damages. Those awards are what a nonsubscriber is exposed to.

Waivers do not fix this. Under 406.033(e), an agreement by an employee to waive the cause of action before an injury is void and unenforceable. Section 406.033(f) allows a post-injury waiver only if it is voluntary, signed no sooner than the tenth business day after the initial injury report, preceded by a nonemergency doctor's evaluation, and written conspicuously with the true intent stated. We read the statute in the TDI-hosted compilation of the Texas Workers' Compensation Act (81st Legislature, 2009); check the current text on the Texas Legislature's site, because the Legislature amends the code.

A related provision, Labor Code 406.034, goes the other way for subscribers: an employee of a subscriber waives the right to sue unless he or she gives written notice within five days of starting work that they retain common-law rights. An employer may not require that as a condition of employment.

What the data shows

TDI's Research and Evaluation Group and the Public Policy Research Institute at Texas A&M surveyed 1,619 year-round private employers for the 2022 estimate, published in April 2023. It is the most recent survey we found in October 2026.

Earlier TDI surveys put the employer subscription rate at 78% in 2016 and 72% in 2018. The most common reason nonsubscribers gave for not buying coverage was having too few employees (26% in the 2022 survey). Alternative plans are written by the employer or a vendor and are not regulated by DWC. TDI's report shows plans vary: for example, some exclude chiropractic care, acupuncture, or injuries not reported the same shift.

Why employers still buy coverage

• Contracts. Many customers, general contractors, and owners require a certificate of insurance showing comp coverage. Texas also requires a governmental entity that awards a building or construction contract to require the contractor to certify coverage (Labor Code 406.096). Confirm the current text.
• Lawsuit exposure. One serious injury with a negligence claim can cost far more than years of premium. An employers' liability policy can respond to some suits against subscribers, but nonsubscribers who want comparable protection buy "nonsubscriber" or occupational accident coverage, and their terms vary by form.
• Recruiting and retention. Workers and unions often prefer employers with statutory benefits.
• Insurers and licensing. Some licensing boards and lenders require coverage.
• Subcontractor liability. A nonsubscriber that is a subcontractor may fail a general contractor's insurance requirements.

TDI's survey gives the other side: 20% of subscribers in 2022 listed concern about lawsuits as a reason for buying coverage.

Hypothetical example

Say a 12-employee Texas landscaping company chooses not to buy comp and instead provides an occupational injury plan. A crew member is crushed by a mower in a rollover. The company has filed DWC-005 and posted Notice 5, so it is in administrative compliance. The injured worker can still sue. The company cannot argue that the worker was partly at fault, assumed the risk of mowing, or was hurt by a co-worker's carelessness. It has to defend on whether it was negligent, whether it trained the worker and maintained the mower, and the two narrow defenses in 406.033(c). This is a hypothetical, not a prediction of any outcome, and the company's attorney would shape the defense.

Checklist for a Texas employer

1. Decide with a broker and an attorney whether to subscribe, comparing premium, mod and class to your lawsuit exposure. Use the workers' comp premium calculator to get a rough premium. See how workers' comp premiums are calculated.
2. If you opt out, file DWC-005 between February 1 and April 30 each year, post Notice 5, notify new hires in writing and report qualifying injuries monthly if you have five or more employees.
3. If you subscribe through Texas Mutual or a private carrier, give employees the notice of coverage required by 406.005.
4. Check customer and contractor requirements, including construction on public projects.
5. Review the state overview in Texas and compare other states in workers' comp and benefits requirements by state.

Key takeaways

• Under Labor Code 406.002, most Texas private employers may choose not to carry workers' comp; TDI says coverage is not required in most cases.
• Nonsubscribers must file DWC-005 annually (February 1 to April 30), post Notice 5, notify employees and report injuries on Form-007 if they have five or more employees.
• In a negligence suit a nonsubscriber loses the contributory negligence, assumption-of-risk and fellow-employee defenses under Labor Code 406.033, and pre-injury waivers are void.
• TDI's 2022 survey found 75% of private employers and 83% of employees in the system, with small employers the likeliest to opt out.
• Contract requirements, lawsuit exposure and recruiting push many employers to subscribe, so compare the costs with counsel and a broker.