Texas workers’ compensation guide for construction employers

Texas is currently the only state where workers’ compensation insurance is optional for private construction jobs. But that doesn’t mean contractors can get by without at least grasping the basics. Understanding workers’ compensation in Texas is critical for weighing the cost savings of opting out against the risks of exposing the business to lawsuits by injured employees. And for those who do opt in, compliant coverage comes with strict reporting and paperwork deadlines to stay ahead of.

This guide is a detailed overview of Texas workers’ compensation laws for employers. By the end, payroll managers and contractors will understand how workers’ comp insurance works, when it’s required, and what injured employees get when benefits kick in.

How does workers’ comp work in Texas?

The Texas Department of Insurance (TDI), specifically its Division of Workers’ Compensation (DWC), regulates and administers the workers’ compensation program. This program pays for medical care plus partial lost wages for employees who suffer work-related injuries or illnesses. 

Is workers’ comp required in Texas for employers?

Texas is the only state where workers’ compensation insurance is optional for private employers who don’t contract with government entities. 

Choosing whether or not to purchase workers’ comp insurance is more than a simple paperwork decision. It’s a bet on the company’s ability to absorb a jury verdict, both financially and reputationally. 

And since construction is such a dangerous industry, companies have a high risk of facing lawsuits. Nearly 20% of fatal work injuries across the U.S. happen in construction. More than half of those fatalities result from one of OSHA’s Fatal Four hazards: falls, caught-in or between incidents, struck-by incidents, and electrocution.

Failing to insure employees for these scenarios means they can sue employers for negligence.

Subscribers vs. nonsubscribers

Contractors who opt in pay for workers’ comp to protect them down the line, while those who opt out choose up-front savings over long-term coverage. Here’s what each side actually costs.

Subscribers

Workers’ compensation insurance shields construction employers from most lawsuits that come from workplace injuries, especially claims that allege employer negligence. For example, a carpenter sustains a spinal injury because the general contractor (GC) instructed them to bypass standard fall protection harnesses. If the GC subscribes to Texas workers’ comp insurance, the injured carpenter is usually legally barred from filing a negligence lawsuit. They must instead receive statutory benefits like medical care and wage replacement through the carrier, regardless of who was at fault.

There are only two exceptions: an intentional injury, and exemplary damages in a wrongful death case involving gross negligence. In those rare cases, workers can still sue.

Subscribed contractors must use an insurance carrier licensed by TDI or an approved self-insurance arrangement. Subscribers and their employees also have the right to use DWC’s dispute resolution process.

Nonsubscribers

Employers that opt out can be sued over a much broader range of issues and are prohibited from using common law defense arguments. That means they can’t exonerate themselves by proving that an incident resulted from an employee’s own negligence or a coworker’s negligence, or that the employee knowingly accepted the job’s risks. In that same example above, if the GC doesn’t subscribe to workers’ comp, the injured carpenter can file a lawsuit. If the carpenter proves employer negligence caused the accident, the GC will have to pay full damages.

Nonsubscribers can also be exposed to civil liability after a workplace injury. Injured employees can seek uncapped damages in civil court, including for pain and suffering.

And even though nonsubscribers don’t carry workers’ comp insurance, some still have to file an annual noncoverage form with the DWC and post a notice in the workplace that comp isn’t provided.

Texas workers’ compensation rules for reporting injuries

Subscribers and nonsubscribers alike have to adhere to specific reporting requirements and deadlines, including the following.

Posting required notices

Contractors have to post certain notices in the workplace depending on their workers’ comp insurance status:

• Notice 5 for nonsubscribers states that the employer doesn’t have workers’ comp insurance.
• Notice 6 for employers with commercial insurance states the insurance company and policy number.
• Notice 7 for certified self-insured employers states the name of the third-party administrator that handles claims.
• Notice 10 for employers that belong to a self-insurance group states the name of the third-party administrator that handles claims.

Meeting injury reporting deadlines

Employers and employees each have their own strict timelines for reporting injuries promptly. An employee must notify their employer within 30 days of any work-related injury. If an injury causes the employee to lose more than one day of work, the employer has to file DWC Form-001 with their insurance carrier within eight days of the first missed workday. This form states the details of the injury and employer information. If a workplace incident results in death or occupational disease, employers must report it immediately.

Filling out and filing wage statements

When an employee files a claim, their employer receives notice that the employee is entitled to income benefits or has passed away due to their injuries. At this point, the employer has 30 days to file a wage statement using DWC Form-003. This form lists all wages the employee received over the 13 weeks before the date of injury, plus how many hours they worked each week. Employers must provide a copy of the wage statement within seven days if the DWC requests it.

Maintaining accurate records

 The claim closing does not close the file. Texas law requires employers to hold onto injury and fatality records for five years. These records must contain specific pieces of information, such as the employee’s personal details, the cause of the injury, and when the incident took place.

Understanding penalties for noncompliance

The DWC has the power to levy fines of up to $25,000 for various offenses, such as reporting late or missing a filing. Each day of noncompliance counts as its own separate violation. For example, not maintaining injury records for the five-year minimum or refusing to provide them on request can lead to fines of up to $500.

While Texas doesn’t fine employers for opting out of the compensation system, choosing to opt out doesn’t exempt a business from DWC rules. Nonsubscribers must file DWC Form-005 to opt out. They must also report work-related injuries, illnesses, and fatalities with more than one day of lost time to the DWC, as well as maintain and provide injury records upon request. Failure to fulfill these duties makes a nonsubscriber subject to the above penalties and per-day fines.

Texas workers’ compensation benefits for injured employees

Workers’ comp in Texas primarily covers benefits related to medical care and lost income.

Medical benefits

Texas workers’ comp insurance covers all reasonable and necessary medical expenses approved or recommended by a doctor to treat a work-related injury or illness. Covered expenses include:

• Hospital visits
• Surgery
• Prescription medications
• Medical equipment
• Physical therapy
• Prescribed psychological services

The employer’s insurance carrier pays for everything.

Temporary income benefits (TIBs)

TIBs bridge the gap when an employee loses all or part of their income because of a work-related injury or illness. There’s a seven-day waiting period before benefits kick in, unless the disability lasts for longer than two weeks. In that case, the insurance carrier pays out that initial week retroactively.

Employers still covering the employee’s full salary for the duration of the claim should notify their insurance carrier to avoid overlapping payments. Employers are barred from requesting reimbursement from their insurance carrier or from the employee for the continued salary payments.

Impairment income benefits (IIBs)

An employee may qualify for IIBs if a certified doctor reports that they have a permanent disability after reaching maximum medical improvement (MMI). MMI is the point at which the doctor expects no further recovery, even with more medical care.

The level of benefits the employee receives depends on their impairment rating, a percentage determined by the doctor that reflects how much permanent physical damage the employee has sustained. Each percentage point gets the employee an additional three weeks of IIBs, paid at 70% of the employee’s average weekly wage (AWW).

Supplemental income benefits (SIBs)

Employees may be eligible for SIBs if they:

• Have a permanent impairment rating of at least 15%
• Either haven’t returned to work or make less than 80% of their pre-incident wages due to the injury they sustained
• Are actively looking for work

The DWC handles the first quarter of SIBs. After that, the insurance carrier determines eligibility every 13-week quarter.

Lifetime income benefits (LIBs)

Employees who suffer severe injuries like total blindness or traumatic brain injury may qualify to receive lifelong financial assistance at 75% of their average weekly wage. They also get a 3% increase every year to account for rising costs of living.

Take Texas workers’ comp from chaos to compliance with Miter

Texas contractors who opt out of workers’ compensation insurance expose themselves to potentially devastating lawsuits if someone gets hurt on the job. Those that opt in benefit from extensive legal protections but have no shortage of additional compliance obligations to manage: carefully tracking filing deadlines, pulling accurate wage statements, and keeping pristine records, just to name a few.

Handling these sensitive processes manually can introduce errors that lead to expensive fines and employee disputes. With Miter Payroll, construction companies can track workers’ comp codes by job, cost code, and state so premium and wage data stay accurate as field crews move between jobsites and tasks.

Miter also runs a workers’ comp report for monthly carrier reporting or an annual audit, showing subject earnings, premium, the overtime breakdown, and hours by class code, exportable grouped for the auditor or detailed by earning. It runs on the same calculation engine as the general ledger, so the report and the ledger agree. Certified payroll and union reports are just as straightforward.

Frequently asked questions

How is Texas workers’ comp average weekly wage calculated?

Contractors can calculate an employee’s AWW by adding up how much the employee earned over each of the 13 weeks leading up to the injury or illness and dividing by 13 to take the average.

What injuries aren’t covered by Texas workers’ compensation?

Workers’ compensation doesn’t apply if the employee:

• Intentionally caused their own injury
• Was intoxicated or engaging in horseplay
• Was injured outside work or during a voluntary off-duty sporting or social event
• Was injured by someone else for personal reasons unrelated to the job
• Was injured by an “act of God,” such as a flood or a hurricane

What are employer requirements for workers’ comp in Texas?

The core compliance obligations for employers who choose to purchase workers’ compensation insurance include:

• Using a TDI-licensed insurance carrier or an approved self-insurance program
• Posting required notices based on coverage type
• Meeting reporting and filing requirements and deadlines for injuries, wage statements, and benefit filings
• Maintaining injury records for five years