Texas is the only U.S. state that gives employers a choice on whether or not to provide workers’ compensation insurance coverage. While most Texas employers do subscribe and pay premiums to provide this type of insurance for their employees, some businesses opt out of the system entirely.
Here is what you should know about the differences between subscribers and non-subscribers.
Overview of Workers’ Compensation System
Workers’ compensation is a state-regulated no-fault insurance system that was established to help protect both employees and employers – employees gain assistance for work accidents without having to prove employer negligence, while employers receive immunity from workplace injury lawsuits and liability in exchange for paying workers’ compensation insurance premiums.
This trade-off between limited but guaranteed benefits vs liability immunity forms the foundation of mandatory workers’ compensation systems in place across the country. However, not all companies in Texas have to sign up for workers compensation.
Subscribers in the Texas System
The vast majority of Texas employers elect to subscribe and pay premiums to secure workers’ compensation coverage for employees.
According to Texas law, any private employer with three or more employees, excluding certain domestic workers, must subscribe or notify employees that they do not carry workers’ comp.
Benefits for Employees
The following are the core benefits for injured employees in Texas:
- Payment of all reasonable and necessary medical costs related to the workplace accident/illness
- Replacement of a portion of lost wages while recovering (currently capped at $895/week for up to 104 weeks)
- Vocational rehabilitation services if injury causes permanent restrictions or disabilities
- For deaths on the job, partial wage replacement for surviving dependents
The insurance company pays for these benefits directly so the employer does not directly shoulder costs beyond premium payments. However, their premiums are likely to increase after claims are made.
Legal Protections for Employers
In exchange for paying the premiums to provide guaranteed benefits through an authorized insurance company, subscribing employers also gain certain legal protections:
Most notably, employees forfeit their right to sue their employer for negligence, dangerous working conditions, or other causes of action related to a workplace injury.
There are exceptions if an employer is non-compliant with the Texas Workers’ Compensation Act or in very rare cases of intentional torts. But generally, employees cannot hold their subscribing employer legally liable regardless of who was at fault for causing the workplace accident or illness.
Nonsubscribers in the Texas System
Texas employers with less than five employees are not even required to make an active decision on subscribing vs nonsubscribing. They are automatically considered nonsubscribers until electing into coverage.
For employers with between five and 500 employees, nonsubscriber status is a choice but one that does require notifying new hires and the Texas Department of Insurance Division of Workers’ Compensation.
Benefits for Employees
The most glaring downside of working for a nonsubscribing employer is the lack of guaranteed benefits and medical cost coverage if injured on the job. Nonsubscribers provide zero pre-set wage replacement or medical benefits for workplace injuries.
Employees must cover their own medical costs and make up for lost wages out of pocket while recovering. Some nonsubscribers may choose to pay costs directly or provide private insurance plans similar to workers’ compensation but they are not required to provide any type of benefits.
Without guaranteed coverage, injured employees of nonsubscribers face mounting medical debt, prolonged loss of regular earnings, and other long-term financial consequences simply for getting hurt at work through no fault of their own.
Legal Action for Employees
While nonsubscribers do not pay into the workers’ compensation system and can avoid those direct costs, they do face a major increase in liability risk.
Injured employees retain their full legal rights to take civil action seeking damages against nonsubscribing employers.
Damages in these types of lawsuits may include:
- Reimbursement for medical expenses related to accident/illness
- Payment for lost income and future loss of earning capacity
- Compensation for physical pain/mental suffering
- Potential punitive damages in some cases
Without the protections afforded by workers’ compensation coverage, nonsubscribers lose immunity from litigation. Multi-million dollar settlements against nonsubscribers are not unheard of.
Cost-Benefit Analysis
The decision over whether or not to subscribe to Texas workers’ compensation comes down to risk tolerance and cost-benefit analysis from an employer’s perspective. While premiums are an added business expense, nonsubscribers face exponentially higher liability risks and damages.
Most Texas employers rightly determine that guaranteed benefits and legal immunity are well worth the insurance costs given the hazards inherent in many workplaces. However, some nonsubscribers are willing to gamble that they can mitigate risks and still save money without coverage.
Carefully weighing these variables around benefits, legal exposure, costs, and risk management is how individual Texas employers approach the subscriber vs nonsubscriber decision.
Impact on Injured Employees
In the battle between subscriber vs nonsubscriber employers in Texas workers’ compensation system, employees can be left paying the steepest price both literally and figuratively.
Workplace injuries and illnesses already bring physical pain, emotional trauma, disrupted lives, and loss of income. The added financial stress and uncertainty brought on by nonsubscribers can exacerbate hardships for employees.
Some unlucky workers may have their situations go from bad to worse if serious health conditions arise from a workplace accident but they have zero coverage or recourse through a nonsubscribing employer.
Pre-existing Conditions and Lawsuits
Another area where nonsubscriber employees tend to fare worse is in the handling of pre-existing health conditions. These may be exacerbated by a workplace accident but disputed over liability by a nonsubscriber with no oversight.
Insurance companies regulate subscribers and have less incentive to deny reasonable benefits related to pre-existing conditions. However, nonsubscribers facing negligence lawsuits have the motivation to claim pre-existing conditions caused by health circumstances rather than the work accident.
These situations frequently set up “he said, she said” legal battles over to what degree a pre-existing condition may or may not have been aggravated by the workplace incident. Again, the employee tends to have less power and resources in these disputes.
Seeking Legal Counsel
Injured nonsubscriber employees in Texas do have the right to file personal injury lawsuits against employers. But these types of personal injury cases can still be challenging and employees with limited means are at a disadvantage without the no-fault benefits of workers’ compensation as a safety net.
Nonsubscriber employees may benefit from at least consulting with an experienced attorney to understand their rights and options. A lawyer may work on contingency and add expertise in building a strong negligence case against the nonsubscribing employer. They may also lend resources to match the employer’s defense team.
However, even successful lawsuits can take considerable time and stress to settle. There are certainly no guarantees. And in the interim, the injured employee likely still faces mounting medical bills, income losses, and overall uncertainty from having no workers’ compensation coverage to fall back on after a workplace accident.
Key Takeaways
The option for Texas employers to unsubscribe to workers’ compensation transfers more risk and liability onto employees in exchange for insurance cost savings.
Without coverage, nonsubscriber employees must pay their own substantial costs related to workplace injuries while pursuing legal action against employers. On the other hand, subscriber employees give up the right to sue but gain assured assistance and medical care when accidents strike.
Ultimately, nonsubscription presents employers with a money-saving but higher-risk proposition that typically disadvantages injured employees.
