Texas is unique among states in that workers’ compensation is not mandatory for most private employers. However, ‘not required’ doesn’t mean ‘not needed.’ The decision to go without coverage exposes your business to significant legal and financial risks.

What opting out means:

Loss of liability protection: Employers who don’t carry workers’ comp lose important legal defenses. Injured employees can sue you directly, and you cannot argue that the employee was at fault or that a coworker caused the injury.

Unlimited exposure: Without the workers’ comp system’s structured benefits, jury awards for workplace injuries can be substantial and unpredictable.

Contract limitations: Many clients, especially larger companies and government entities, require proof of workers’ compensation coverage before awarding contracts.

For most Texas employers, the relatively modest cost of workers’ compensation insurance is far outweighed by the protection it provides. Discuss your specific situation with an insurance professional who understands Texas employment law.

Employment practices liability insurance (EPLI) protects your business against claims made by employees alleging wrongful employment practices. As your workforce grows, so does your exposure to these claims, which can be expensive to defend even when you’ve done nothing wrong.

Common claims EPLI covers:

Discrimination: Allegations of unfair treatment based on race, gender, age, religion, disability, or other protected characteristics.

Harassment: Claims of hostile work environment, sexual harassment, or bullying by supervisors or coworkers.

Wrongful termination: Allegations that an employee was fired illegally, such as in retaliation for whistleblowing or filing a complaint.

Retaliation: Claims that an employee faced adverse action for exercising legal rights.

Wage and hour disputes: Some policies cover claims related to overtime, breaks, or classification issues.

EPLI provides both defense costs and settlements or judgments. Even frivolous claims can cost tens of thousands to defend, making EPLI increasingly essential as your team grows.

From an insurance perspective, part-time and full-time employees generally require the same types of coverage. The distinction matters more for benefits eligibility than for risk management, but there are nuances worth understanding.

Coverage considerations:

Workers’ compensation: Part-time employees are covered just like full-time employees. Premiums are based on payroll, so part-time workers naturally contribute less to your premium, but they must still be included.

EPLI: Part-time employees can bring employment claims just as full-time employees can. In some ways, part-time workers may feel more vulnerable and be more likely to perceive unfair treatment.

Health insurance (ACA): The Affordable Care Act’s employer mandate applies to employees averaging 30+ hours per week. This affects which employees must be offered coverage, not your liability insurance.

General liability: Any employee acting on your behalf creates liability exposure, regardless of hours worked.

The key is ensuring all employees are properly accounted for in your policies. Underreporting part-time workers to reduce premiums can result in audit adjustments and coverage disputes.

That first hire transforms your insurance requirements dramatically. As an employer, you take on legal obligations and liability exposures that didn’t exist when you worked alone.

Minimum coverage for employers:

Workers’ compensation: Required in Texas for many employers and practically essential for all. Covers employee injuries regardless of fault.

Employment practices liability: Protects against claims of discrimination, harassment, wrongful termination, and other employment-related allegations.

Increased general liability: Your liability exposure increases when employees interact with the public on your behalf.

Even before hiring, begin conversations with your insurance agent about employer coverage. Some policies require application and underwriting that takes time. Starting early ensures coverage is in place on day one of employment.

The distinction between employees and contractors affects multiple insurance coverages, and getting it wrong can create serious problems. Insurance companies and government agencies scrutinize these classifications carefully.

Key differences for insurance:

Workers’ compensation: Employees must be covered; true independent contractors are not. But if someone you’ve classified as a contractor is actually an employee under the law, you may be liable for their injuries without coverage.

General liability: Your liability policy covers acts of employees but may not extend to independent contractors, who should carry their own coverage.

Auto insurance: Non-owned auto coverage applies when employees use personal vehicles for work. Contractor vehicle use may need different arrangements.

Employment practices: EPLI covers claims by employees. Contractors generally can’t bring employment claims, but misclassification can turn a ‘contractor’ into an employee retroactively.

The IRS and state agencies use behavioral control, financial control, and relationship factors to determine classification. When in doubt, consult with both a legal and insurance professional.

Employers’ liability insurance is included in your workers’ compensation policy but serves a different purpose. While workers’ comp covers employee injuries through a no-fault system, employers’ liability protects you when employees or their families sue you directly.

How they differ:

Workers’ compensation: Pays medical bills and lost wages for injured employees according to a statutory formula, regardless of fault. Employees receive benefits; they don’t sue you.

Employers’ liability: Covers lawsuits that fall outside the workers’ comp system. These typically involve claims of gross negligence, third-party actions, or situations where workers’ comp immunity doesn’t apply.

Common employers’ liability claims:

Third-party over actions: An employee is injured by a third party’s product, sues that party, and that party sues you for contribution.

Loss of consortium: A spouse sues for the loss of their injured partner’s companionship and support.

Dual capacity: You’re sued as a product manufacturer, not just as an employer.

Intentional acts: Claims that you deliberately caused unsafe conditions or ignored known hazards.

Review your employers’ liability limits. The standard $100,000/$500,000/$100,000 limits may be inadequate for serious claims.

Without workers’ compensation insurance, you lose the legal protections that the workers’ comp system provides, and you become directly liable for workplace injuries. The financial and legal consequences can be severe.

What you face without coverage:

Direct lawsuits: Injured employees can sue you in civil court. Unlike workers’ comp, which limits benefits to medical care and wage replacement, civil suits can include pain and suffering, punitive damages, and other categories.

No legal defenses: Texas law removes several defenses from non-subscribing employers. You cannot argue that the employee was negligent, that a coworker caused the injury, or that the employee assumed the risk of the job.

Out-of-pocket costs: All medical bills, lost wages, and any settlement or judgment come directly from your business (and potentially personal) assets.

Regulatory penalties: Depending on your industry and the circumstances, you may face OSHA fines or other regulatory consequences.

Reputation damage: Word spreads. Injured workers, their families, and your other employees will remember how you handled (or failed to handle) the situation.

The modest cost of workers’ compensation is essentially insurance against business-ending liability.