Who Is Exempt from Workers’ Compensation Insurance in Texas?

In Texas, almost every private employer is exempt from carrying workers’ compensation insurance, because state law makes coverage elective rather than mandatory. That is the headline answer to who is exempt from workers’ compensation insurance in Texas, but the full picture has several layers: public employers must participate, certain worker categories are left out even when their employer does carry a policy, independent contractors sit outside the system entirely, business owners are covered by default unless they take steps to opt out, and a handful of federal laws replace the state scheme for specific industries.

Private Employers Are Exempt by Default

Texas Labor Code § 406.002 states that, except for public employers, any employer in Texas “may elect to obtain workers’ compensation insurance coverage.”¹ The word “may” is what sets Texas apart. In most other states, employers above a certain size must carry a policy. Here, a business with five employees and a business with five thousand employees face the same rule: coverage is optional, with no size or industry trigger that forces participation.

Employers who skip coverage are called non-subscribers. The label itself doesn’t trigger fines or license revocations. A non-subscriber simply operates outside the workers’ compensation system and handles workplace injuries through its own benefit plans or, when claims are disputed, through the civil courts.

Public Employers Are Not Exempt

The elective framework applies only to the private sector. Counties, cities, school districts, and other political subdivisions must extend workers’ compensation benefits to their employees. Texas Labor Code § 504.011 gives them three options: self-insure, buy a standard policy, or enter an interlocal agreement with other political subdivisions for joint self-insurance.² State agencies are handled through separate provisions in the same subtitle. If your employer is a government entity, coverage is not optional.

Workers Excluded Even When the Employer Has Coverage

An employer who does carry a workers’ compensation policy still doesn’t necessarily cover everyone on the payroll. Texas Labor Code § 406.091 carves out three categories of workers who fall outside mandatory coverage:

Domestic workers employed in a private household, including nannies, housekeepers, and personal caregivers.³
Casual workers performing tasks that fall outside the employer’s usual line of business, such as a one-time handyman job for a restaurant owner.³
Farm and ranch employees, unless the operation crosses the payroll threshold described below.³

Employers can voluntarily extend coverage to any of these workers by electing it, but the law doesn’t require it.

The 2026 Agricultural Payroll Threshold

The farm and ranch exemption disappears once the operation grows past a certain size. Under Subchapter H of the Texas Workers’ Compensation Act, farm and ranch employers must provide coverage for migrant and seasonal workers when gross annual payroll reaches an inflation-adjusted threshold. For January 1 through December 31, 2026, that threshold is $73,163.⁴ The figure increases slightly each year with inflation; in 2025 it was $72,025. Agricultural employers whose payroll stays under this amount remain exempt for those workers.

Independent Contractors Fall Outside the System

Independent contractors are not employees, so workers’ compensation rules do not apply to them. The real question is whether a worker is genuinely independent or just labeled that way on paper. Texas Labor Code § 406.121 defines an independent contractor as someone who contracts to perform work for another and ordinarily controls the manner of the work, including setting their own hours, furnishing their own tools and materials, directing their own employees, and possessing the skills the job requires.⁵ If a hiring entity directs the day-to-day methods rather than just the end result, the worker is likely an employee regardless of what the contract says.

Construction Industry Agreements

The construction industry gets its own forms because subcontracting runs through nearly every project. Two state forms formalize the independent relationship and cut off workers’ compensation obligations between the parties:

DWC Form-083, used when a hiring contractor and an independent contractor in building or construction work agree under Texas Labor Code § 406.145 that the independent contractor is not the hiring contractor’s employee. Once signed, the independent contractor and the independent contractor’s employees are not entitled to coverage from the hiring contractor, and the hiring contractor’s insurer will not charge premiums for them.⁶
DWC Form-085, used between a general contractor and a subcontractor under Texas Labor Code § 406.122 to establish that the subcontractor operates independently and assumes the responsibilities of an employer, so the subcontractor’s employees are not treated as the general contractor’s employees for workers’ compensation purposes.⁵

These forms are the legal mechanism that stops workers’ compensation obligations from cascading up the contracting chain. Without a signed agreement on file, a general contractor can be held responsible for covering an injured subcontractor’s worker.

Sole Proprietors, Partners, and Corporate Officers

Here is where plenty of guides get the story backward. Under Texas Labor Code § 406.097, sole proprietors, partners, and corporate executive officers of a business that carries workers’ compensation insurance are automatically covered as employees unless they are specifically excluded through an endorsement to the policy.⁷ Coverage is the default. Owners have to opt out, not opt in.

A corporate officer who owns at least 25% equity in the business can be excluded through a policy endorsement, and the dual capacity doctrine will not invalidate that exclusion. A sole proprietor or partner who prefers to handle personal injury risk through private health or disability insurance needs to work with the carrier to add the exclusion endorsement. Without that paperwork, the policy covers them and the premium calculations include their compensation.

Workers Covered by Federal Law Instead

Some Texas workers sit outside the state system because federal compensation schemes apply to them. Whether their employer carries state workers’ compensation insurance is beside the point.

Railroad Workers

Employees of railroads engaged in interstate commerce are covered under the Federal Employers’ Liability Act in Title 45 of the U.S. Code. Under FELA, a railroad is liable in damages for injuries caused in whole or in part by the negligence of its officers, agents, or employees.⁸ Railroad workers do not file state workers’ compensation claims; they sue under FELA in federal or state court.

Maritime and Harbor Workers

Workers engaged in maritime employment on navigable waters or at adjoining piers, docks, and terminals are covered by the Longshore and Harbor Workers’ Compensation Act, which pays compensation for work-related disability or death regardless of fault.⁹ For several categories of maritime workers (office staff, restaurant employees, marina workers not engaged in construction, and others), the federal exclusion from LHWCA coverage applies only if those workers are already subject to a state workers’ compensation law. In Texas, where many employers opt out, a maritime worker who would otherwise fall through the gap may actually gain federal coverage because no state coverage exists.

What Opting Out Costs a Texas Employer

Being exempt from the obligation to carry coverage is not the same as being free of consequences. Under Texas Labor Code § 406.033, a non-subscriber employer loses three common-law defenses in any lawsuit by an injured worker:

Contributory negligence. The employer cannot argue that the worker’s own carelessness caused or contributed to the injury.¹⁰
Assumption of risk. The employer cannot claim the worker knowingly accepted the danger of the job.¹⁰
Fellow employee negligence. The employer cannot shift blame to a coworker’s mistake.¹⁰

An employer who subscribes gets protection from most personal-injury lawsuits by employees. An employer who skips that protection faces civil litigation in which the injured worker can pursue full damages, including pain and suffering, without those three defenses in play.

Non-subscribers also pick up ongoing paperwork. Every non-subscriber with one or more non-exempt employees must file DWC Form-005 with the Texas Department of Insurance, Division of Workers’ Compensation, between February 1 and April 30 of each calendar year, and must file at any time the employer terminates an existing policy. Non-subscribers must give written notice of non-coverage to every new employee at hire, give written notice to existing employees if coverage is terminated, and post a workplace notice in English, Spanish, and any other language common among the workforce.¹¹ Non-subscribers with five or more employees also file DWC Form-007 when a workplace death occurs, an injury causes one or more days of absence, or the employer learns of an occupational disease, by the seventh day of the month following the event.¹² Administrative violations under Texas Labor Code § 415.021 can reach up to $25,000 per day per occurrence, with each day of noncompliance counted separately.¹³

1
State of Texas. Texas Labor Code Section 406.002 – Coverage Generally Elective
2
State of Texas. Texas Labor Code LAB 504.011
3
State of Texas. Texas Labor Code 406.091 – Exempt Employees; Voluntary Coverage
4
Texas Department of Insurance. Adjusted Gross Annual Payroll Requirements for Coverage of Seasonal Workers
5
TDI.texas.gov. Agreement Between General Contractor and Subcontractor to Establish Independent Relationship
6
TDI.texas.gov. Joint Agreement to Affirm Independent Relationship for Certain Building and Construction Workers DWC083
7
Texas.Public” Law. Texas Labor Code Section 406.097 – Executive Employees of Certain Business Entities
8
Office of the Law Revision Counsel. Title 45 – Railroads, Chapter 2 – Liability for Injuries to Employees
9
Office of the Law Revision Counsel. Title 33 USC Chapter 18 – Longshore and Harbor Workers Compensation
10
State of Texas. Texas Labor Code Section 406.033 – Common-Law Defenses; Burden of Proof
11
Texas Department of Insurance. Non-subscriber Notice to Division of Workers Compensation DWC005
12
Texas Department of Insurance. Non-subscriber Filing Requirements
13
State of Texas. Texas Labor Code Chapter 415 – Administrative Violations