To hire an employee in Texas, you need a federal Employer Identification Number, a Texas Workforce Commission unemployment tax account, a completed W-4 and I-9 from the new hire, a decision about workers’ compensation coverage with the matching written notice, posted payday and workplace notices, a payroll tax system that deposits and files on schedule, and a new hire report sent to the Office of the Attorney General within 20 days of the person’s first paid day. Texas has no state income tax, which removes one piece of paperwork, but every other step still applies.
Get Your EIN and TWC Account Before the First Paycheck
Two numbers have to exist before you run payroll.
The federal Employer Identification Number is a nine-digit IRS number assigned to your business for tax reporting. You apply free on irs.gov and get the number immediately if you apply online during business hours.1Internal Revenue Service. Get an Employer Identification Number You need it to withhold and deposit payroll taxes, file quarterly returns, and open a business bank account. A sole proprietor who has been operating without an EIN needs one as soon as the first employee comes on.
On the state side, the Texas Unemployment Compensation Act requires you to register with the Texas Workforce Commission within 10 days of becoming liable for unemployment taxes, which happens when you start paying wages in a covered employment relationship.2Texas Workforce Commission. Unemployment Tax Registration – Register a Tax Account Registration asks for your business structure, ownership, and payroll details, and TWC uses that to set your unemployment tax rate. For 2026, new Texas employers without an experience rating start at 2.70% on the first $9,000 of each employee’s wages per year.3Texas Workforce Commission. Unemployment Insurance Tax Rates The rate changes over time based on your claims history. Skip the registration and the state can hit you with retroactive assessments and administrative fines once it catches up.
Confirm the Worker Is Actually an Employee
Before any form gets filled out, be sure the person is an employee and not an independent contractor. The distinction decides whether you owe payroll taxes, provide benefits, and follow wage and hour law. Both the IRS and the Department of Labor pursue misclassification aggressively.
The IRS applies a common-law test built on three categories of evidence:4Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
- Behavioral control. The more you direct when, where, and how the work gets done, the more the person looks like an employee.
- Financial control. Reimbursing expenses, supplying tools, and setting the pay method lean toward employment. A worker who invests in their own equipment and can profit or lose money on the job looks more like a contractor.
- Relationship type. Ongoing work central to your business, with benefits like insurance or paid leave, points toward employment.
No single factor controls. If you set someone’s daily schedule and they work only for you, calling that person a contractor is a gamble that rarely pays off.
Collect the Day-One Paperwork
Three documents belong in the file at or before the start date.
Form W-4
Every new employee fills out a W-4 so you can calculate federal income tax withholding.5Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate It captures filing status, dependents, and any extra withholding the employee wants. Texas has no state income tax, so there is no separate state version. If the employee doesn’t turn in a W-4, you withhold as if the person filed single with no adjustments, which usually means more tax than needed.6Internal Revenue Service. Form W-4 – Employee’s Withholding Certificate
Form I-9
Federal law requires every U.S. employer to verify work authorization. The employee completes Section 1 of Form I-9 no later than the first day of work. You examine original identity and work authorization documents and complete Section 2 within three business days of the start date.7U.S. Citizenship and Immigration Services. Form I-9, Employment Eligibility Verification A U.S. passport covers both identity and work authorization on its own; a driver’s license plus a Social Security card is a common alternative combination. Record the document title, issuing authority, number, and expiration date on the form.
The completed I-9 stays in your files rather than going to any agency, but it must be available for inspection by immigration authorities or the Department of Labor. Civil fines apply both for failing to complete the form and for knowingly accepting fraudulent documents. Most private Texas employers are not required to use E-Verify unless they hold a federal contract.8E-Verify. Federal Contractors
Payday Designation
Texas Labor Code Chapter 61 requires you to designate paydays and post them where employees can see them. Employees exempt from overtime under the Fair Labor Standards Act must be paid at least once a month; everyone else must be paid at least twice a month, with pay periods covering roughly equal spans.9State of Texas. Texas Labor Code Chapter 61 – Payment of Wages If you never designate paydays, the law defaults them to the 1st and 15th. The TWC Payday Law poster goes up in a common area.10Texas Workforce Commission. Payday Law Poster
Decide on Workers’ Comp and Post the Required Notices
Texas is one of the few states where private employers can choose not to carry workers’ compensation insurance.11Texas Department of Insurance. Employer Resources Employers who opt out are called nonsubscribers. Dropping the premium saves money but exposes the business to personal injury lawsuits without the legal protections coverage provides. A policy covers lost wages and medical bills for on-the-job injuries and limits your lawsuit liability except in gross-negligence cases that result in death.
Whichever route you choose, Texas law requires written notice to employees at hire. Nonsubscribers provide DWC Form-005 (Notice 5), which tells employees they are not eligible for workers’ compensation benefits and explains their common-law rights. The notice must be posted in English, Spanish, and any other language common to your workforce, in locations where employees will see it regularly.12Texas Department of Insurance. Notice to Employees Concerning Workers’ Compensation in Texas Employers who carry coverage provide DWC Form-006 (Notice 6) with the carrier’s name. Failing to post or provide these notices can lead to administrative penalties.
Other posters belong on the wall too: the TWC Payday Law poster, state minimum wage and child labor notices, and the federal OSHA “Job Safety and Health: It’s the Law” poster, which applies to virtually all employers.13Occupational Safety and Health Administration. 1903.2 – Posting of Notice; Availability of the Act, Regulations and Applicable Standards Texas does not run its own occupational safety plan, so federal OSHA standards apply directly to your business, including the general duty to maintain a safe workplace.
Run Payroll Taxes Correctly
Hiring makes you responsible for withholding, matching, and depositing federal payroll taxes on a schedule the IRS enforces strictly.
Social Security and Medicare
For 2026, you withhold 6.2% of each employee’s wages for Social Security and 1.45% for Medicare, then match both from your own funds. The combined rate is 7.65% on each side.14Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Social Security tax applies only to the first $184,500 of wages per employee in 2026.15Social Security Administration. Contribution and Benefit Base Medicare has no wage cap, and you must withhold an additional 0.9% Medicare tax on wages above $200,000 in a calendar year. That additional tax is the employee’s alone; you do not match it.
Federal Unemployment Tax
FUTA is an employer-only tax. The nominal rate is 6.0% on the first $7,000 of each employee’s annual wages. Pay your state unemployment taxes on time and you get a 5.4% credit, bringing the effective rate to 0.6%.16Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide FUTA is not withheld from employee paychecks.
Deposits and Quarterly Returns
New employers with no prior history generally start as monthly depositors. Taxes on wages paid in a given month are due by the 15th of the following month.14Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Regardless of deposit frequency, you file IRS Form 941 each quarter to reconcile deposits. Quarterly deadlines are April 30, July 31, October 31, and January 31.17Internal Revenue Service. Instructions for Form 941
Follow Wage and Hour Rules
The Fair Labor Standards Act sets the floor. Federal minimum wage remains $7.25 per hour in 2026, and Texas follows the federal rate with no state increase. You must pay non-exempt employees at least time and a half for hours worked beyond 40 in a workweek.
Whether an employee is exempt from overtime depends on both job duties and salary. After a court vacated a 2024 attempt to raise the threshold, the Department of Labor is applying the 2019 rule: an employee must earn at least $684 per week ($35,568 annually) on a salary basis and perform executive, administrative, or professional duties to qualify for the white-collar exemption.18U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemption A salary alone doesn’t make someone exempt. The duties test matters as much as the pay, and misclassifying a non-exempt worker as exempt creates unpaid overtime liability that can stretch back two or three years.
Report the New Hire to the Attorney General
Texas Family Code Chapter 234 requires employers to report every new hire and rehired employee to the Texas State Directory of New Hires, administered by the Office of the Attorney General.19Office of the Attorney General. New Hire Reporting The point is child support enforcement: the state cross-references the data against existing orders so income withholding can begin.
You must submit the report within 20 calendar days of the date the employee starts earning wages. The report includes the employee’s name, address, and Social Security number, plus your business name and EIN. A shortcut: anyone who filled out a W-4 needs to be reported. Submit through the OAG’s online employer portal for immediate confirmation, or mail the Texas Employer New Hire Reporting Form.19Office of the Attorney General. New Hire Reporting
Rehires count. If someone comes back to your payroll after a separation of 60 or more days, report them again as a new hire. Employers who knowingly fail to report face a $25 penalty per unreported employee, rising to $500 where the employer and employee conspire to avoid reporting.20Texas Workforce Commission. New Hire Reporting Laws – Texas Guidebook for Employers
Keep the Records
Federal retention rules apply from your first hire. Under the Fair Labor Standards Act’s recordkeeping regulations, you must preserve payroll records for at least three years from the date of last entry, including each employee’s name, Social Security number, address, weekly hours, wages paid, and overtime calculations.21eCFR. 29 CFR Part 516 – Records to Be Kept by Employers Supporting documents like time cards and wage rate tables must be kept for at least two years.
I-9 forms follow a separate rule: keep each one for three years after the date of hire or one year after the employee leaves, whichever is later. Hold W-4 forms at least four years after the tax becomes due or is paid, whichever is later, because the IRS can audit withholding during that window. A consistent filing system set up at the first hire costs almost nothing and spares you from reconstructing records when an audit or wage dispute lands.