Rocky Haire (the actual name of an attorney in town who gave permission for it to be used in this article) is thinking about opening his own small business Fine and Dandy Confectioners. He is considering purchasing medical and wage benefits for his employees because he expects the 8-10 new employees will stack crates head high, lift 25-pound bags of flour in awkward positions from slippery floors and sometimes access ovens without protective gloves. Is Haire required to buy workers’ compensation insurance in Texas?
Texas is the only state where having workers’ compensation insurance is not mandatory. Fine and Dandy Confectioners can “opt out” of the workers’ compensation system. If a business has workers’ compensation, it is protected from most lawsuits arising from on-the-job injuries because workers’ compensation benefits are the worker’s “exclusive remedy.” Yet, other insurance products besides workers’ compensation policies also provide injured workers disability and medical benefits that some business owners find are more cost effective for them. Rocky can elect not to have “the shield,” so-called because it is an employee’s exclusive remedy under a workers’ compensation plan. If Fine and Dandy elects to “go bare” without workers’ compensation insurance, then prove of only some negligence by the company is sufficient for a worker to collect a judgment against Fine and Dandy. Should Rocky and Fine and Dandy buy “the shield” or “go bare?”
Tilting the Scales in Your Favor:
Regular readers are discovering a recurring answer – it’s a business decision to be made carefully after thoughtful input from your experienced advisers.
Workers’ compensation in the Lone Star state is a kind of insurance, but it’s definitely not what you think of as a normal insurance plan. It is part of a statewide reform of the tort laws that address the respective rights of employers and employees when workers get injured on the job.
Recent statistics show that approximately 35% of Texas employers are nonsubscribers, with the number of nonsubscribing small businesses going down. However, the total percentage of nonsubscribers employees is going up because employers of 500 or more employees are more inclined to choose nonsubscription. In some industrial categories, the rate is closer to 50% or more. Many well-reasoned insurance agents note the understandability of “going bare” when workers’ compensation premiums are consuming a rising portion of the income of many businesses. Still, they argue that there is no realistic alternative to workers’ compensation insurance which covers all financial responsibility for a job-related injury. Unlike “going bare,” the “shield” limits the injured worker’s claim to the schedule of benefits based on the type and severity of the injury provided by the Texas Worker’s Compensation Commission.
On the other hand, those employers who choose nonsubscription argue that “going bare” suits them better because it helps them to eliminate fraudulent claims, they have fewer accidents due to an emphasis on safety, they avoid the high cost of workers’ compensation insurance premiums and rising medical costs, and they can require their injured employees to arbitrate any dispute related to an on-the-job injury.