Workers’ Compensation vs. Nonsubscribers

As business owners in the state of Texas, we are fortunate to have options when it comes to choosing workers’ compensation insurance in that we have the option to opt out of the state’s system and become a “nonsubscriber.” Employers can choose to implement their own insurance programs that provide medical benefits, wage replacement benefits, disability benefits and death benefits. In the past, this has been a much more affordable option and approximately 44% of Texas businesses operate as non-subscribers today.

However, alternative coverages and accident policies are not exact substitutes for workers’ compensation. Since “tort reform” in 1993, the cost of workers’ compensation insurance has decreased dramatically, many times bringing the cost to about the same as non-subscriber plans. There are many advantages associated with workers’ compensation and you could most likely benefit by revisiting your options when it comes to workers’ compensation and accidental insurance.

As a non-subscriber, you forfeit your common-law defenses if sued because of a work-related injury, meaning, as an employer, you cannot argue that the employee’s negligence contributed to the accident or that the employee knew the risk of injury and voluntarily assumed it. Furthermore, the court could order you to assume legal fees for the employee as well as compensation for suffering and punitive damages. Employers who subscribe to the state’s workers’ compensation program are protected by the Texas Workers’ Compensation Act which prevents employees from suing.

View the following chart provided by the Texas Department of Insurance to compare the various coverage types:

Coverage Comparison

Workers´ Compensation “Alternative” Policy Unauthorized Policy No Coverage
Who determines benefit levels? Texas law Court Court Court
Who pays medical and lost-income benefits? Insurance carrier Insurance company up to policy limits; employer pays rest Depends on the policy Employer
Who pays employer’s legal fees? Insurance company Governed by policy Depends on the policy Employer
Are benefits protected by a guaranty association? Yes Limited No No
Can aninjured worker win judgments for pain and suffering and punitive damages? No Yes, up to certain limits Yes, up to certain limits Yes, up to certain limits

ERA is a professional employer organization that provides workers’ compensation coverage to its client companies. If you have any questions about workers’ compensation or what we can do to assist you, please feel free to contact us at (214)739-0695 or visit our website at