Texas Non-Subscriber Employers: What Opting Out of Workers' Comp Actually Means

Texas is the only state where private employers can legally choose not to carry workers' compensation insurance. Approximately one-third of Texas employers—covering roughly 20% of the private workforce—exercise this option.

The decision to operate as a non-subscriber is a legitimate business strategy. Some employers find that alternative benefit programs, combined with strong safety cultures, produce better outcomes and lower costs than the traditional workers' comp system. Others discover that non-subscriber status creates liability exposure they didn't anticipate.

This isn't a debate about whether to subscribe or not. It's a practical guide for employers who have already opted out—or are seriously considering it—covering the legal requirements, the real-world litigation exposure, and the compliance infrastructure that non-subscriber status demands.

The Legal Framework for Non-Subscribers

What the Texas Labor Code Requires

The Texas Workers' Compensation Act (Texas Labor Code, Title 5) establishes two critical obligations for non-subscribers:

1. Notify the DWC

You must file DWC Form-005 with the Texas Division of Workers' Compensation within 30 days of becoming a non-subscriber. This form is also filed annually to confirm your continued non-subscriber status.

Filing is done through the DWC's online portal. It's straightforward—but failure to file is one of the most common non-subscriber compliance violations. Many employers simply don't know the requirement exists.

2. Notify Your Employees

You must inform every employee that you do not carry workers' compensation insurance. This requires:

• Posting DWC Form-005 in a conspicuous location at every workplace
• Posting in English and Spanish if you have Spanish-speaking employees
• Obtaining written acknowledgment from each employee

The employee acknowledgment is not optional and not a formality. In non-subscriber litigation, one of the first things a plaintiff's attorney establishes is whether the employee knew the employer was a non-subscriber. If you can't produce a signed acknowledgment, you've already lost ground.

What the Texas Labor Code Takes Away

When you opt out of workers' compensation, you lose the exclusive remedy doctrine. This is the core trade-off.

Under the workers' comp system, an injured employee's remedy is limited to workers' comp benefits. They cannot sue their employer for negligence (with narrow exceptions). This protection is enormously valuable—it caps the employer's exposure at workers' comp benefit levels and eliminates the uncertainty of jury trials.

Non-subscribers forfeit this protection entirely. More importantly, the Texas Labor Code strips non-subscribers of three common-law defenses:

Contributory negligence cannot be used as a defense. Even if the employee's own carelessness substantially caused the injury, the employer cannot use this to reduce or eliminate liability.

Assumption of risk cannot be asserted. Even if the employee knew the work was dangerous and voluntarily chose to perform it, the employer cannot argue the employee assumed the risk.

Fellow servant doctrine is eliminated. The employer cannot shift blame to a co-worker whose negligence contributed to the injury.

What remains? The employer must prove it was not negligent—that it exercised ordinary care in providing a safe workplace. Any finding of employer negligence, however minor, exposes the employer to full compensatory damages.

The Litigation Reality

What Non-Subscriber Lawsuits Look Like

A non-subscriber negligence lawsuit proceeds through the Texas civil court system. Here's what employers face:

Discovery: The plaintiff's attorney will request your complete safety records, training documentation, incident history, OSHA logs, maintenance records, and communications about workplace conditions. If your documentation is thin, the absence itself becomes evidence of negligence.

Damages: Unlike workers' compensation (which provides scheduled benefits), civil jury verdicts are uncapped. Juries award:

• Past and future medical expenses
• Past and future lost wages
• Pain and suffering
• Mental anguish
• Physical impairment
• Disfigurement
• Punitive damages (if gross negligence is found)

Verdict ranges: According to Texas trial data, non-subscriber verdicts commonly range from $200,000 to $2 million for moderate injuries. Catastrophic injuries and deaths regularly produce verdicts exceeding $5 million. Some reach $10 million or more.

Attorney involvement: Plaintiffs' attorneys take non-subscriber cases on contingency because they win the majority of them. The legal landscape heavily favors the injured employee.

Who Should Not Be a Non-Subscriber

Non-subscriber status is a poor fit for:

• High-hazard industries with frequent serious injuries (heavy construction, manufacturing, oil field services)
• Employers with inconsistent safety programs who cannot demonstrate a systematic approach to workplace safety
• Employers with poor documentation practices who cannot produce evidence of safety training, hazard abatement, and incident response
• Small employers who lack the financial reserves to absorb a six- or seven-figure jury verdict

Building a Defensible Non-Subscriber Program

If you operate as a non-subscriber, your entire defense strategy in a negligence lawsuit rests on proving that you exercised ordinary care. This means building and documenting a safety program that demonstrates proactive, systematic attention to employee safety.

Alternative Benefit Plans

Most sophisticated non-subscribers provide some form of injury benefits through an occupational accident insurance policy or a self-funded benefit plan. These plans are not workers' compensation—they're employer-funded benefit programs that provide medical and income benefits for work-related injuries.

What a good alternative plan includes:

• Medical benefits for work-related injuries (no dollar cap on medical is ideal)
• Temporary disability payments (percentage of wages during recovery)
• Permanent disability benefits for catastrophic injuries
• Death benefits
• Rehabilitation benefits

What makes alternative plans risky:

• Low benefit caps that leave employees with significant uncompensated losses (which motivates lawsuits)
• Narrow definitions of "work-related" that exclude common injury scenarios
• Lengthy waiting periods before benefits begin
• Requiring employees to use specific providers or follow restrictive treatment protocols

The irony of cheap alternative plans is that they increase litigation risk. Employees who receive adequate benefits from an employer-funded plan are less likely to sue. Employees who feel the plan was inadequate—or who weren't informed about it—are highly likely to sue.

Safety Program Documentation

Your safety program is your defense. Every element must be documented:

1. Written safety policies: Specific to your operations, not generic templates
2. Hazard assessments: Regular, documented inspections with corrective actions tracked to completion
3. Training records: Who was trained, on what, when, with sign-in sheets and training content preserved
4. PPE programs: Documentation of PPE requirements, issuance, and training
5. Incident investigation: Root cause analysis for every incident with corrective actions documented
6. Safety meetings: Regular safety meetings with attendance records and topics covered
7. New-hire orientation: Comprehensive safety orientation before the employee begins work

Incident Response Protocol

When a workplace injury occurs at a non-subscriber employer:

1. Provide immediate medical care: Never delay treatment—this becomes powerful evidence of negligence
2. Document the incident thoroughly: Complete incident reports within hours, not days
3. Report fatalities to the DWC within 24 hours: This is a legal requirement
4. Preserve evidence: Don't alter the incident scene until it's been documented
5. Notify your occupational accident carrier: Trigger the alternative benefit plan immediately
6. Contact legal counsel: If the injury is serious, engage employment defense counsel early
7. Maintain contact with the injured employee: Regular, documented communication reduces litigation probability

OSHA Obligations Don't Change

Non-subscriber status affects your relationship with the Texas DWC and your litigation exposure. It does not change your obligations under the Occupational Safety and Health Act.

All employers—subscriber and non-subscriber—must comply with:

• OSHA General Duty Clause (Section 5(a)(1))
• Applicable OSHA standards for your industry
• OSHA recordkeeping requirements (OSHA 300 Log, 300A Summary, 301 Incident Reports)
• OSHA reporting requirements (fatalities within 8 hours, hospitalizations within 24 hours)

OSHA citations and penalties apply equally to non-subscribers. An OSHA violation at the time of an injury also becomes powerful evidence in a non-subscriber negligence lawsuit.

The Financial Analysis

The decision to subscribe or not should be driven by data, not ideology. Here's a framework:

Workers' Comp Premium (Subscriber)

• Annual premium based on payroll, classification codes, and EMR
• Predictable, budgetable cost
• Includes exclusive remedy protection

Non-Subscriber Costs

• Occupational accident insurance premium (typically 40-60% less than workers' comp premium)
• Safety program investment (training, equipment, documentation systems)
• Legal defense reserves (budget for potential litigation)
• Administrative costs (DWC filings, employee acknowledgments, benefit plan administration)

Break-even analysis: Non-subscriber status is financially advantageous when the combined cost of alternative coverage, safety programs, and litigation reserves is less than the workers' comp premium. For employers with strong safety cultures and low loss history, this calculation often favors non-subscriber status. For employers with poor safety records or high-hazard operations, it rarely does.

How AlignSure Supports Non-Subscriber Compliance

AlignSure automates the compliance workflows that non-subscriber employers must execute:

• DWC Form-005 filing and renewal tracking: Automated annual filing reminders and document management
• Employee acknowledgment workflows: Digital signature collection with audit-ready storage
• Incident reporting and documentation: Structured incident reports that capture the detail needed for legal defense
• Safety program management: Training tracking, inspection documentation, and corrective action workflows
• Alternative benefit plan administration: Claims intake, medical authorization tracking, and benefit payment documentation
• Fatality reporting: 24-hour reporting workflow with DWC notification

All integrated with Microsoft 365—documentation in SharePoint, alerts in Outlook, collaboration in Teams.

Next Steps

1. Review your DWC compliance: Verify that your Form-005 is current and posted at every location
2. Audit employee acknowledgments: Confirm you have signed acknowledgments from every current employee
3. Evaluate your alternative benefit plan: Is it adequate to reduce litigation incentive?
4. Assess your safety documentation: Could you produce defensible evidence of ordinary care in your safety program?
5. Consult with defense counsel: Understand your current litigation exposure and how to reduce it

Schedule a non-subscriber compliance review with our advisory team.