Texas Small Businesses are Dropping Workers’ Compensation Insurance

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Texas saw an uptick in small businesses dropping workers’ compensation in 2018, according to a new survey.

Unlike other states, Texas allows employers to choose whether they want to purchase workers’ compensation insurance. Most states require employers to have workers’ compensation insurance, although exemptions may apply to some small businesses. In Nevada, employers who do not having workers’ compensation insurance may be fined up to $15, 000 and face other penalties.

The survey, which included more than 2, 000 Texas businesses, showed that small businesses chose to drop their workers’ compensation policies between 2016 and 2018.

The state’s subscriber rate, which indicates the percentage of employers who chose to buy workers’ compensation, fell 6% between 2016 and 2018, from 78% to 72% of employers.

The decline in 2018 was primarily driven by small businesses with less than 50 employees. The most common reasons cited for not purchasing workers’ comp insurance were too few injuries or too few employees to justify the cost. Among the employers who have opted out of workers’ compensation cover, 19% said the premiums were too high.

Businesses that employed between five and nine employees saw the biggest decline in purchasing workers’ compensation insurance. In 2018, 27% chose not to subscribe, while in 2016, that figure was at 19%.

About 36% of employers who have between one and four employees opted not to have coverage.

Educational and health care services reported the most employers without workers’ compensation in 2018, with 39% of survey respondents claiming they did not purchase it.

Among larger employers with 500 or more employees, 20% have chosen to opt out of the system.

According to the study, 82% of employees in Texas worked for a company that had workers’ compensation last year. In 2018, 18% of employees worked for a company that did not have workers’ compensation coverage. Among those employees, 64% said they would be covered by an alternative benefits plan that paid wage or medical benefits to employees who are injured.

It’s not uncommon for small employers and startups to opt out of providing workers’ compensation cover. Subcontractors typically opt out because it allows them to offer lower bids on jobs.

Small businesses move in and out of the program based on premium rates. The higher the premiums, the more businesses that opt out of the workers’ compensation scheme.

Despite not being required to purchase workers’ compensation insurance, the rate of participation in 2016 remains the highest since 1993.

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Melissa Thompson

Melissa is a mother of 2, lives in Utah, and writes for a multitude of sites. She is currently the EIC of HarcourtHealth.com and writes about health, wellness, and business topics.