As Texans, we pride ourselves on our rugged independence and our determination to forge our own path. That is certainly what Texas has done in the area of Workers' Compensation, the state-regulated insurance program that pays medical bills and replaces certain lost wages for employees who are injured on-the-job or contract occupational diseases.
Currently Texas is the only state that does not mandate that private employers maintain workers' compensation insurance. Instead companies and their owners can choose to assume the risks associated with a potential lawsuit should an employee be injured at work.
A Brief History Lesson
Before Workers Compensation insurance, employees injured in the workplace had no recourse but to sue their employer. Their suit hinged on an employer's common law obligations: to provide a safe workplace with competent fellow employees and safe tools and equipment; to enforce safety rules; and to warn employees of inherent work related dangers.
In turn, employers came to rely on three common law defenses: the employee knew of the inherent dangers and assumed the risk; the employee contributed to their own injury or illness (any negligence on the employee's part, however small, prevents the employee from collecting for injuries); or a fellow employee's negligence caused the injury.
While these helped employers defend themselves against lawsuits, the bigger issue of injured workers being destitute and employers having acrimonious relationships with employees remained unaddressed.
Enter Workers' Compensation
Workers' Compensation changed the status quo by creating a no fault system. In return for paying premiums toward Workers' Compensation insurance, workers are guaranteed to be compensated for their injuries and lost wages in the event they suffer a work-related injury or illness, regardless of fault.
Texas employers who choose to maintain Workers' Compensation insurance can elect to purchase an insurance policy from a private insurance company, or self-insure. To self-insure, an employer must meet the requirements of the Texas Workers' Compensation Act and become certified by the Texas Workers' Compensation Commission. Self-insured employers have the same rights and responsibilities as employers who buy policies from private insurance companies.
Opting Out
Texas employers can, of course, choose to "opt out" from subscribing to Workers' Compensation. Those that do so, however, face unlimited liability, including possible punitive damages, if they lose lawsuits arising from workplace accidents. And in the event of a lawsuit, they forfeit their right to claim one of the three common law defenses outlined above.
Regardless, it is currently estimated that between 100,000 and 125,000 Texas employers opt out of providing workers' compensation insurance. These employers range from "Mom and Pop" operations to some of the largest employers in the State. The retail and service industry comprise the largest number of non-subscribers.
The primary reason employers elect not to subscribe is cost. With the cost of Workers' Compensation coverage rising, many employers prefer to take their chances with a lawsuit or select an alternative program.
Occupational Accident Insurance
Perceived by many as a worthy alternative to Workers' Compensation, Occupational Accident Insurance is a growing insurance option that provides employers and their employees a degree of protection should a work injury or accident occur.
Occupational Accident Insurance provides coverage for medical costs associated with the injury, disability payments for the injured worker while he/she is recovering from their injury, and a scheduled benefit for accidental death and dismemberment. The employer chooses a benefit period, usually 2 or 3 years, as well as a deductible that is applied to each accident.
Despite the potential savings, Occupational Accident Insurance does have draw backs for employers. For instance, because Occupational Accident policies contain dollar and time limits, employers may be responsible for any additional expense outside the original limits. Workers' compensation policies, in contrast, cover all related medical expenses even if an expense occurs years after the accident. In addition, an injured worker may still be able to sue the employer for damages even if a claim is covered under Occupational Accident Insurance.
Perhaps the key drawback, however, is that Occupational Accident Insurance is not considered an equivalent to Workers' Compensation under Texas Law. Employers who wish to contract with governmental entities are required to provide Workers' Compensation coverage for each employee working on the public project. In addition, some clients may require their contractors to have workers' compensation insurance.
Workers Compensation Revisited
"Small and mid-size companies that want to subscribe to Workers Compensation but find the cost or paperwork to be daunting may want to consider engaging a Professional Employer Organization (PEO)," said Anthony R. Grijalva Jr., Vice President of Marketing for G&A Partners, a Professional Employer Organization (PEO) that manages human resources, benefits, payroll, accounting and risk management for its clients. "Firms like ours can cover our clients under our Workers' Compensation policy. The cost savings can be significant and we handle almost all of the paperwork."
Grijalva stated that the advantages can be significant because clients can avoid paying an initial deposit and instead pay-as-they-go. They can also avoid the hassles of the year end workers comp audit.
Texas law gives employers the right to choose whether to subscribe to Workers' Compensation or not. Companies owe it to themselves to investigate both paths before they forge ahead.
For more information about Texas Workers' Compensation, visit www.twcc.state.tx.us/information/aboutwc.html or contact G&A Partner's Anthony Grijalva at 713-784-1181.
