Workers' compensation insurance in Texas is optional for most private employers — a distinction Texas shares with no other state. That doesn't mean it's simple or inexpensive, and it certainly doesn't mean most businesses should go without it. What it means is that business owners in Texas have a real choice to evaluate: carry workers' comp, self-insure (allowed for qualifying large employers), or operate as a non-subscriber and face a different legal and financial landscape if an employee is injured.
This guide explains how workers' comp premiums are calculated in Texas, what 2026 loss costs mean for your renewal, which class codes drive the highest rates, what experience modification does to your premium, and how to think clearly about the non-subscriber option rather than treating it as a simple cost savings.
How Workers' Comp Premiums Are Calculated
Workers' comp premiums are calculated on payroll. The basic formula is:
(Payroll / 100) × Class Code Rate × Experience Mod = Base Premium
Each employee's payroll is classified into a workers' comp class code that reflects the hazard of their work. A clerical employee working in your office has a different class code — and a much lower rate — than a roofer or heavy equipment operator. The class code rate is expressed as a dollar amount per $100 of payroll.
The experience modification factor (experience mod, or e-mod) adjusts your premium up or down based on your claims history compared to the industry average. A 1.00 mod is industry average. A 0.85 mod means you pay 15% less than average — you've had fewer or less severe claims than expected. A 1.25 mod means you pay 25% more — your loss history is worse than expected.
The 2026 rate update: loss costs are down
The Texas Department of Insurance (TDI) and the National Council on Compensation Insurance (NCCI) filed loss cost updates effective July 1, 2026, reflecting a decrease of approximately 3.8% across most classifications compared to the prior year. Loss costs are the underlying actuarial benchmark that carriers use to develop filed rates.
What this means in practical terms: if your workers' comp renews on or after July 1, 2026, your base rates should be lower than last year, all else being equal. If your experience mod is stable and payroll hasn't changed significantly, expect a modest premium decrease at your next renewal. The workers' comp market in Texas has been favorable for buyers over the past several years — loss costs have generally declined as medical cost trends stabilized and safety practices improved across the commercial workforce.
Lower loss costs don't guarantee a lower premium if your mod went up. A carrier can file lower loss costs while your experience mod increases due to claims you filed in the past three years. The two move independently. When you get your renewal quote, ask your broker to show you the calculation components: class codes, payroll, loss costs, and mod — so you understand which direction each element is moving.
Workers' Comp Rates by Trade in Texas
The following are general indicators of loss cost levels and resulting rate ranges for common Texas trades and industries. These are directional ranges — your actual premium depends on the specific class codes applied, your payroll by code, your experience mod, and the carrier's individual rate filings on top of the NCCI loss costs. Get an actual quote rather than relying on these as precise numbers.
| Trade / Classification | Typical class codes | Rate range (per $100 payroll) | Risk profile |
|---|---|---|---|
| Clerical office employees | 8810 | $0.10–$0.30 | Very low — sedentary, minimal hazard |
| Retail / sales employees | 8017, 8018, 8033 | $0.40–$1.00 | Low-moderate — slip/fall, lifting |
| Landscaping / lawn care | 0042 | $4.00–$8.00 | Moderate — equipment, outdoor exposure |
| Janitorial / cleaning | 9014 | $1.50–$3.00 | Moderate — slip/fall, chemical exposure |
| Electrical contractors | 5190 | $2.50–$5.50 | Moderate-high — electrocution, falls |
| Plumbing contractors | 5183 | $2.50–$5.00 | Moderate-high — burns, falls, tool injuries |
| Carpentry / framing | 5651, 5403 | $5.00–$10.00 | High — fall exposure, structural work |
| Concrete and masonry | 5213, 5022 | $5.00–$11.00 | High — heavy material, fall exposure |
| Painting contractors | 5474 | $4.00–$9.00 | High — falls, chemical/fume exposure |
| Roofing contractors | 5551 | $12.00–$25.00+ | Very high — fall exposure is dominant risk |
| Trucking (local/intermediate) | 7228, 7229 | $4.00–$8.00 | High — vehicle accidents, loading/unloading |
| Trucking (long-haul) | 7230, 7231 | $5.00–$10.00 | High — long-haul accident, fatigue-related |
| HVAC contractors | 3724, 5537 | $3.00–$7.00 | Moderate-high — heat, refrigerants, heights |
| Demolition | 5040 | $10.00–$20.00+ | Very high — structural collapse, debris |
These ranges are illustrative. Roofing, demolition, and steel erection are consistently the highest-rated construction classes. Clerical, retail, and office operations are the lowest-rated. Most commercial trades fall somewhere in between, with rates driven by fall exposure, equipment hazards, and the severity of claims common in that class.
The Experience Modification Factor
Your experience mod is calculated annually by NCCI using three years of your claims history (typically the most recent three complete policy years, not including the current year). The calculation compares your actual losses to the expected losses for an employer of your size and class mix.
A mod of 1.00 means your losses match the industry average exactly. A mod below 1.00 means you've had fewer or less severe claims than expected — you get a credit. A mod above 1.00 means worse-than-average loss history — you pay a surcharge.
What a mod change actually costs
The impact of a mod change is multiplicative. If your base premium (before mod) is $50,000, a 1.00 mod means you pay $50,000. A 1.25 mod means you pay $62,500 — $12,500 more per year. A 0.80 mod means you pay $40,000 — $10,000 less per year. Over a three-year window where a claim is fully in the experience period, the cost of a single significant claim ripples through three policy years of elevated premiums.
The severity of a claim matters more than the frequency for experience mod purposes. A single lost-time claim with $80,000 in benefits paid will move your mod more than five minor first-aid claims totaling $5,000. Managing serious claims aggressively — through early return-to-work programs, modified duty, and active claims management — is how employers keep their mods down even when injuries occur.
Experience mod eligibility
Not every employer qualifies for an experience mod. You need a sufficient premium history (typically a minimum of $10,000 in premium over the experience period). Smaller employers — those paying less than $10,000 per year in workers' comp — are rated on loss costs alone, without an individual experience mod. This is actually advantageous for small employers with bad luck (a single claim at small payroll can produce a terrible mod), but it also means small employers don't get credit for clean loss histories until they're large enough to be individually rated.
The Texas Non-Subscriber Option
Texas is the only state in the US where most private employers can legally opt out of the workers' compensation system — the "non-subscriber" status. This is a real option, and it's chosen by a meaningful portion of Texas employers. Understanding it honestly, rather than treating it as either a free money option or an obviously bad idea, is how to make an intelligent decision.
What non-subscriber status means
A non-subscriber employer does not pay into the workers' comp system. If an employee is injured, the employee must sue the employer in civil court to recover damages. The workers' comp system's caps on benefits and exclusive remedy protections don't apply. An injured employee can sue for actual economic damages (lost wages, medical expenses) plus pain and suffering and, in some cases, punitive damages.
A key legal difference: in a negligence suit against a workers' comp subscriber, the employee generally cannot claim that the employer was negligent. The comp system is the exclusive remedy. Against a non-subscriber, the employee can claim employer negligence, and if the employer was negligent, the standard comparative fault rules apply — but the employer cannot use the defenses of contributory negligence by the employee, assumption of the risk by the employee, or co-employee negligence that are available to employers in workers' comp states.
Who reasonably considers non-subscription
Non-subscription makes the most sense for employers where:
- The workforce is primarily clerical or low-hazard (office workers, call center staff, retail) where claim frequency is low and severity is low
- The employer can demonstrate substantial assets and cash flow to absorb a significant injury claim
- The employer has negotiated commercial contracts that don't require workers' comp (most commercial B2B and GC contracts require it — this effectively eliminates non-subscription as an option for construction contractors)
Non-subscription is not a reasonable choice for employers in high-hazard trades — roofing, demolition, steel erection, excavation — where serious injuries are a statistical reality and the potential liability of a catastrophic injury claim is enormous. The actuarial certainty of claims in high-hazard trades makes non-subscription a strategy of hoping you're lucky, not a sound financial decision.
What non-subscribers actually do
Most non-subscriber employers who take it seriously purchase an occupational accident policy — a first-party benefit policy that pays injured employees for medical expenses and lost wages without requiring a lawsuit. This isn't workers' comp (the employee still has the right to sue), but it provides a benefit that resolves most routine injuries and demonstrates good-faith intent to take care of injured workers. The combination of an occupational accident policy plus an employer's liability policy (which pays defense costs and settlements on negligence claims) is the non-subscriber's functional equivalent of workers' comp, often at a lower total cost for lower-hazard operations.
Commercial contracts almost always require workers' comp. If you work as a subcontractor for general contractors, provide services to hotels, hospitals, or large commercial clients, or do any federally connected work, the contract will require workers' comp. Non-subscription removes you from these markets. For contractors, this is the most important practical consideration — the savings from non-subscription often don't survive contact with a GC's subcontract requirements.
Factors That Affect Your Workers' Comp Premium Beyond Class Codes
Payroll accuracy
Workers' comp is a payroll-based product. Your premium at inception is estimated based on projected payroll. At the end of the policy year, the carrier audits your actual payroll and adjusts the premium. If your actual payroll was higher than projected, you owe additional premium. If lower, you get a refund. Accurate payroll projections at inception minimize the audit adjustment surprise.
Subcontractor certificates
GL policies for contractors audit subcontractor costs at year-end. Workers' comp audits similarly examine whether your subs carried their own workers' comp. Uninsured subs whose payroll isn't accounted for elsewhere can be charged back to your policy at audit as if they were your employees. Collect certificates from all subs before they start work and verify that their workers' comp is current.
Claims management
How you handle a claim after an injury affects both the direct cost and the long-term mod impact. Prompt injury reporting to your carrier, early return-to-work accommodations, modified duty programs, and active oversight of medical treatment typically produce better outcomes and lower total claim costs than a hands-off approach. A well-managed claim resolves faster and costs less — which means a smaller hit to your experience mod.
What to Ask Your Broker
- What are the specific class codes being applied to my employees? Are they the most accurate codes for the work each person actually does?
- What is my current experience mod, and is there a trend over the past three years?
- What claims are in my experience period, and what's the total incurred cost of each? Are any claims eligible for closure or reserves reduction that would improve my mod at next recalculation?
- For my renewal effective date, will the July 2026 loss cost changes apply?
- Am I eligible for any schedule credits or debits beyond the experience mod?
For more on how workers' comp fits into the broader commercial insurance program, see our guides on workers' compensation in Texas and the general liability insurance guide.
Frequently Asked Questions
Is workers' comp required by law in Texas?
Texas law does not require most private employers to carry workers' comp. However, state agencies and public entities must carry it for their employees, and federal contracts require it. Many commercial contracts require it as a condition. The legal non-requirement and the practical commercial requirement are different things — understand which applies to your specific situation.
Can my workers' comp carrier cancel mid-term?
Yes, with required notice. Texas carriers must provide notice of cancellation — the required advance notice varies by reason for cancellation. Mid-term cancellations for non-payment can happen faster than cancellations for other reasons. A workers' comp cancellation creates both a coverage gap and a certificates of insurance problem if your clients require current workers' comp.
What happens if my payroll grows significantly mid-year?
Your workers' comp premium will be adjusted at audit to reflect actual payroll. If you expect payroll to grow significantly — you're hiring more crew, taking on a large contract — notify your broker so your policy can be endorsed to reflect the higher projected payroll. This avoids a large audit bill at year-end. Some carriers also require advance reporting of significant payroll changes to keep the policy in force properly.
My experience mod is 1.40. What can I do to bring it down?
The experience mod looks back at three years of claims. You can't retroactively remove claims, but you can affect the reserves on open claims by working with your carrier to close them when medically appropriate. Going forward, a clean year of claims reduces the mod as the worst year ages out of the experience window. Some insurance programs (safety group programs, loss-sensitive policies) reward immediate safety improvements with program credits that operate faster than the three-year mod cycle. Ask your broker what options exist for your class and carrier.