The Importance of Proper Workers' Compensation Coverage for Small Businesses in Texas

June 25, 2024

BY elijah "big dan" vargas


Small businesses are the backbone of the Texas economy, providing employment and fostering local growth. However, many small business owners might be unaware of the critical importance of maintaining proper workers' compensation coverage through the Texas Department of Insurance (TDI). Failing to do so not only exposes businesses to significant financial liabilities but also strips them of essential legal defenses in the event of an employee injury.

Understanding Workers' Compensation in Texas

Workers' compensation insurance provides medical benefits and wage replacement to employees injured in the course of employment. In Texas, unlike many states, private employers are not required to carry workers' compensation insurance. However, those who choose not to are considered "non-subscribers" and face severe consequences.

Legal and Financial Risks of Non-Subscription

  1. Loss of Common Law Defenses:

    • Businesses that opt out of workers' compensation lose the right to assert common law defenses such as contributory negligence, assumption of risk, and the "fellow servant" rule in the event of an employee lawsuit.
    • This means that if an injured employee sues the employer, the business cannot argue that the employee's negligence contributed to their injury or that the injury was caused by a co-worker​​.
  2. Increased Liability Exposure:

    • Non-subscriber businesses are exposed to potentially unlimited liability in personal injury lawsuits. Without the cap on damages that workers' compensation provides, businesses could face substantial settlements or judgments that could jeopardize their financial stability.
    • Legal fees and court costs in defending these lawsuits can also be prohibitively high​​.
  3. Reputation and Operational Impact:

    • A lawsuit can damage a business's reputation, leading to a loss of customer trust and business opportunities.
    • The time and resources spent on legal battles could detract from day-to-day operations, affecting productivity and growth.

Benefits of Proper Coverage

  1. Legal Protection:

    • Proper workers' compensation coverage provides a statutory shield against employee lawsuits. It ensures that injured workers receive timely and adequate medical care and wage replacement, reducing the likelihood of litigation.
    • The insurance policy includes legal defense costs, further protecting the business from financial strain.
  2. Employee Well-being and Morale:

    • Offering workers' compensation coverage demonstrates a commitment to employee safety and well-being. This can boost morale and productivity, as employees feel secure knowing they are protected in case of a work-related injury.
  3. Regulatory Compliance and Avoidance of Penalties:

    • Maintaining proper coverage ensures compliance with Texas regulations and avoids potential fines or sanctions from regulatory bodies.


For small businesses in Texas, the decision to carry workers' compensation coverage through the Texas Department of Insurance is not just about compliance; it is a strategic move to safeguard the business from significant financial and legal risks. By providing this essential coverage, small business owners can protect their assets, ensure the well-being of their employees, and maintain a strong, positive reputation in their communities.