The Texas construction industry follows the state legislature closely when it is in session, especially when bills that require building and construction contractors and subcontractors to provide workers’ compensation coverage are pending.
“The proposed legislation represents a potential shift for the state, where most private businesses are not mandated to carry workers’ compensation insurance,” reported Insurance Business Magazine in November 2024. “Currently, only companies contracting with government entities must provide coverage for employees working on public projects, according to the Texas Department of Insurance (TDI).”
The 119th Congress adjourned on June 2, 2025, with the proposed workers comp legislation not advancing out of committee so Texas continues to not require most private employers to have workers' compensation insurance, making it unique among other states.
“Texas doesn’t require most private employers to have workers’ compensation. But private employers who contract with government entities must provide workers’ compensation coverage for the employees working on the project,” explains the Texas Department of Insurance. “Some contractors may require their subcontractors and independent contractors to have workers’ compensation.”
Whether you're a general contractor, construction company owner, or business manager working with independent contractors, knowing your legal obligations and risk exposure is crucial for protecting your business and ensuring compliance with Texas contractor law.
Texas operates under a unique workers' compensation system that sets it apart from most other states. In Texas, private employers are generally not required to offer coverage, making it one of the few states where workers' compensation insurance is optional for most private employers.
However, this "opt-in" system comes with significant implications. When employers choose not to carry workers' compensation insurance, they must file an annual notice with the Division of Workers Compensation, post notices in their offices and workplaces, and tell new employees in writing that they're not covered by workers' compensation.
Workers' compensation construction projects present additional complexities because they typically involve multiple parties, including general contractors, subcontractors, and various specialty trades working on the same job site.
Workers' compensation insurance provides several critical protections:
Workers' comp also provides an exclusive remedy defense, protecting employers from most injury-related lawsuits.
Recent TDI research found that 83 percent of private-sector employees in Texas worked for an employer that had workers’ compensation coverage, the highest rate in over a decade.
One of the most complex aspects of subcontractor insurance Texas law involves determining who qualifies as a true independent contractor versus an employee. This distinction significantly impacts workers' compensation obligations and coverage requirements.
Independent contractors are not considered employees and are therefore exempt from workers' compensation coverage. However, businesses must prove that the working relationship truly constitutes an independent contractor arrangement.
Texas courts and regulatory agencies consider multiple factors when evaluating worker classification:
Control and Independence Factors:
Financial Relationship Factors:
Relationship Duration:
General contractors face unique responsibilities when working with subcontractors, especially regarding workers' compensation coverage. Understanding these obligations is essential for Texas contractor law compliance.
General contractors can extend workers' compensation coverage to subcontractor employees through written agreements, thus upholding the exclusive remedy defense. This arrangement can provide legal protection for general contractors while ensuring injured subcontractor employees receive benefits.
When general contractors extend coverage to subcontractors, they typically:
Many general contractors require subcontractors to provide certificates of insurance demonstrating they carry their own workers' compensation coverage. This approach helps:
Whether you're required to provide workers' compensation coverage or not, implementing comprehensive risk management strategies protects your business from potential financial exposure.
Contract Language: Include clear provisions in subcontractor agreements specifying insurance requirements, worker classification, and liability allocation. Require subcontractors to maintain their own workers' compensation coverage and provide certificates of insurance.
Regular Audits: Conduct periodic reviews of subcontractor relationships to ensure proper classification and documentation. Misclassification can result in significant financial penalties and unexpected coverage obligations.
Safety Programs: Implement comprehensive safety protocols that apply to all workers on your job sites, regardless of employment classification. This proactive approach reduces injury frequency and demonstrates your commitment to worker safety.
Obtain Your Own Coverage: Even though Texas doesn't require workers' compensation for most employers, carrying your own policy provides valuable protection and makes you more competitive when bidding on projects.
Understand Client Requirements: Many general contractors and property owners require proof of workers' compensation coverage before awarding contracts. Having coverage expands your potential client base.
Proper Documentation: Maintain clear records of your independent contractor status, including business licenses, separate insurance policies, and documentation of multiple client relationships.
Staying compliant with Texas contractor law requires ongoing attention to several key areas:
The decision about workers' compensation coverage for subcontractors involves balancing legal requirements, risk exposure, and business economics. While Texas law provides flexibility, the potential consequences of inadequate coverage can be severe.
At Dean & Draper, we specialize in helping Texas contractors and businesses understand their insurance obligations and find coverage solutions that fit their unique needs. Our experienced team stays current with Texas contractor law developments and can help you evaluate your risk exposure, ensure proper compliance, and secure appropriate coverage at competitive rates.
Contact Dean & Draper today for a comprehensive consultation about your workers' compensation construction insurance needs. We'll help you develop a strategy that protects your business, satisfies client requirements, and provides peace of mind as you focus on growing your operation.
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