Hiring your first employee in Texas means clearing a short list of federal and state requirements before that first paycheck goes out. You’ll need a federal Employer Identification Number, a state unemployment tax account with the Texas Workforce Commission, completed I-9 and W-4 forms for the new hire, a new-hire report filed with the state within 20 days, and a decision about workers’ compensation coverage. Texas has no state income tax, which removes one layer of withholding paperwork, but the federal payroll rules and Texas-specific deadlines still carry penalties if you miss them. Here is how to hire employees in Texas, step by step.
Get a Federal Employer Identification Number
You can’t run payroll or file an employment tax return without an Employer Identification Number (EIN). It’s free, it’s issued by the IRS, and you apply on Form SS-4.1Internal Revenue Service. Employer Identification Number The form asks for your business’s legal name, structure (sole proprietorship, LLC, corporation, and so on), and the Social Security Number or ITIN of the person responsible for the entity.2Internal Revenue Service. Instructions for Form SS-4
The online application issues an EIN immediately. Faxing Form SS-4 takes about four business days; mail takes roughly four weeks.1Internal Revenue Service. Employer Identification Number If your business is an LLC, partnership, or corporation, register with the Texas Secretary of State before you apply for the EIN.
Register for Texas Unemployment Tax
The Texas Unemployment Compensation Act requires employers to register with the Texas Workforce Commission (TWC) within 10 days of becoming liable for unemployment tax.3Texas Workforce Commission. Unemployment Tax Registration – Register a Tax Account For most general businesses, liability kicks in when you pay $1,500 or more in wages in a calendar quarter, or when you have at least one employee working part of a day in 20 different weeks during the year.
You register through TWC’s free online Unemployment Tax Registration system. New employers in 2026 get an entry-level rate of 2.70% on the first $9,000 of wages paid to each employee per year.4Texas Workforce Commission. New Texas Employer Information That rate later adjusts based on your experience, meaning how many former employees have drawn unemployment against your account.5Texas Workforce Commission. Unemployment Tax Basics
Paperwork Every New Hire Must Complete
Form I-9 for Work Authorization
Every person you hire has to complete Form I-9 to prove they’re authorized to work in the United States. This applies to citizens and non-citizens alike, and comes from the Immigration Reform and Control Act of 1986.6U.S. Citizenship and Immigration Services. I-9, Employment Eligibility Verification The employee fills out Section 1 on or before their first day. You complete Section 2 within three business days of the hire date after examining their original documents.
Acceptable documents come from three lists. A single List A document, such as a U.S. passport, proves both identity and work authorization. Otherwise the employee shows one List B document (like a driver’s license) and one List C document (like a Social Security card). You have to judge whether the documents reasonably appear genuine and relate to the person presenting them.7U.S. Immigration and Customs Enforcement. Form I-9 Inspection Under Immigration and Nationality Act 274A You cannot tell the employee which documents to bring. Specifying is document discrimination.
E-Verify, the federal database check that supplements I-9, is voluntary for most Texas private employers. Texas state agencies must use it, but no state law currently requires it of private businesses.
Form W-4 for Federal Withholding
Each new employee also completes IRS Form W-4 so you can calculate federal income tax withholding. The form captures filing status, dependents, and any adjustments for other income or deductions.8Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate Employees can update their W-4 whenever their situation changes.
There’s no Texas equivalent because the state doesn’t have a personal income tax. If you employ someone who lives or works in another state, though, you may need to withhold that state’s income tax and should check its rules.
Report the New Hire to the State Within 20 Days
Texas law requires you to report every newly hired or rehired employee to the State Directory of New Hires within 20 calendar days of their start date. The report must include seven items: the employee’s name, address, Social Security Number, and date of hire, plus your business name, address, and federal EIN.9Cornell Law School. 1 Texas Admin Code 55.303 – Employer New Hire Reporting Requirements
The Texas Employer New Hire Reporting portal accepts individual entries or uploaded files. A paper form can go by mail or fax. Employers who file electronically may instead submit two monthly batches no more than 16 days apart.9Cornell Law School. 1 Texas Admin Code 55.303 – Employer New Hire Reporting Requirements
Missing the deadline carries a civil penalty of $25 per unreported employee. If you and the employee conspire to avoid reporting or file a false report, the penalty climbs to $500.10Texas Workforce Commission. New Hire Reporting Laws The state also uses these reports to locate parents who owe child support, so after you file you may receive an income withholding order. You must start withholding no later than the first pay period after you receive the order and remit the money as directed.11Office of the Attorney General of Texas. Income Withholding Responsibilities
Federal Payroll Taxes You’ll Owe
Beyond income tax withholding, you’re on the hook for Social Security, Medicare, and federal unemployment tax.
Social Security tax runs 6.2% each on employer and employee, on the first $184,500 in wages per employee in 2026. Medicare is 1.45% each with no wage cap.12Social Security Administration. Contribution and Benefit Base Once an employee’s wages pass $200,000 in a calendar year, you also withhold an additional 0.9% Medicare tax from that employee. There’s no employer match on that piece.
The Federal Unemployment Tax Act imposes an employer-only tax of 6.0% on the first $7,000 of each employee’s annual wages. Paying your Texas unemployment taxes on time earns a credit of up to 5.4%, which drops the effective FUTA rate to 0.6%, or about $42 per employee per year.13Internal Revenue Service. Topic No. 759, Form 940 – Employer’s Annual Federal Unemployment Tax Return
You report withheld income tax, Social Security, and Medicare on quarterly Form 941, due April 30, July 31, October 31, and January 31.14Internal Revenue Service. Instructions for Form 941 FUTA is reported annually on Form 940. The IRS assigns your deposit frequency (monthly or semiweekly) based on tax reported in a prior lookback period.
Decide on Workers’ Compensation Coverage
Texas is one of the few states where private employers aren’t required to carry workers’ compensation insurance.15Texas Department of Insurance. Employer Resources You can subscribe or opt out, and each path has its own notice and filing rules.
If you subscribe, give each new hire a written notice about the coverage and their right to reject it, and post Notice 6 (“Notice to Employees Concerning Workers’ Compensation in Texas”) in conspicuous workplace locations in English, Spanish, and any other language common among your employees.16Texas Department of Insurance. Employer Rights and Responsibilities Subscribers must also post notice of the Office of Injured Employee Counsel’s Ombudsman Program, which offers free help to injured workers.17Cornell Law School. 28 Texas Admin Code 276.5 – Employer’s Notice of Ombudsman Program
If you opt out, file DWC Form-005 with the Texas Department of Insurance’s Division of Workers’ Compensation. The filing is due within 30 days of hiring your first employee, within 10 days of canceling existing coverage, and again every year between February 1 and April 30.18Texas Department of Insurance. DWC Form-005, Non-Subscriber Notice Non-subscribers must give each employee written notice of the lack of coverage and post the same information at the workplace. Opting out also means giving up certain legal protections: employees can sue you directly for workplace injuries without the limits the workers’ compensation system normally imposes.
Wage, Hour, and Final Paycheck Rules
Texas follows the federal minimum wage of $7.25 per hour with no higher state floor. Nonexempt employees who work more than 40 hours in a workweek are entitled to at least 1.5 times their regular rate for the extra hours. A salaried employee may be exempt from overtime if they earn at least $684 per week ($35,568 annually) and perform executive, administrative, or professional duties. This is the threshold currently being enforced after a federal court vacated a higher amount set by a 2024 rule.19U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemption
Under the Texas Payday Law, nonexempt employees must be paid at least twice per month, with each pay period covering roughly equal numbers of days. Exempt employees must be paid at least once per month.20Texas Workforce Commission. Frequency of Pay
Final paychecks have their own deadlines. If you fire, lay off, or otherwise involuntarily separate an employee, their final pay is due within six calendar days of the discharge date. If an employee quits, the final pay is due on the next regularly scheduled payday.21State of Texas. Texas Labor Code Chapter 61 – Payment of Wages Accrued fringe benefits, commissions, or bonuses follow the same schedule unless a written policy sets something different.22Texas Workforce Commission. Final Pay
Post the Required Notices at Work
You’ll need to display several federal and state posters where employees can see them, typically in a break room, near a time clock, or on a central bulletin board.
TWC requires posters covering the Texas Payday Law and, if you’re liable for it, the Unemployment Compensation Act. If you have 15 or more employees, or hold federal grants and contracts, you must also display the federal Equal Employment Opportunity poster.23Texas Workforce Commission. Posters for the Workplace TWC posters are free to download.
Common federal posters include the Fair Labor Standards Act minimum wage poster, the Family and Medical Leave Act notice (for employers with 50 or more employees), and the Occupational Safety and Health Act poster.24U.S. Department of Labor. Workplace Posters Not every poster applies to every business. The Department of Labor’s Poster Advisor tool identifies the specific ones you need based on your size and industry.
Classify Employees and Contractors Correctly
Calling a worker an independent contractor when they should be an employee can trigger back taxes, penalties, and liability under multiple federal and state laws. Fixing a misclassification later costs far more than getting it right at the start.
For federal Fair Labor Standards Act purposes, the Department of Labor uses a six-factor economic reality test that looks at the whole working relationship. The core question is whether the worker is economically dependent on your business (employee) or genuinely in business for themselves (contractor). The factors weigh opportunity for profit or loss, each side’s investments, permanence, your control over the work, whether the work is central to your business, and whether the worker’s specialized skills reflect independent business judgment. No single factor decides the outcome.25Federal Register. Employee or Independent Contractor Classification Under the Fair Labor Standards Act
For Texas unemployment tax, TWC applies a “direction or control” test rooted in common law. A worker is presumed to be an employee unless you can show the person’s performance is and will remain free from your control or direction, both under the contract and in practice.26Texas Workforce Commission. Independent Contractors / Contract Labor The IRS uses its own common-law test that overlaps heavily with the Texas approach.
Keep the Right Records for the Right Amount of Time
Hiring generates paperwork with different retention windows:
- Form I-9: three years after the hire date or one year after employment ends, whichever is later.6U.S. Citizenship and Immigration Services. I-9, Employment Eligibility Verification
- Payroll records: at least three years under both the FLSA and the Age Discrimination in Employment Act.27U.S. Equal Employment Opportunity Commission. Recordkeeping Requirements
- Personnel and employment records: one year from the date of creation, or one year from the termination date if the employee was involuntarily terminated.27U.S. Equal Employment Opportunity Commission. Recordkeeping Requirements
Store records securely and keep them available for government inspection. Tax records such as W-4s and payroll tax filings should be kept at least four years, consistent with IRS guidelines.
Understand At-Will Employment
Texas follows the at-will employment doctrine. Either you or your employee can end the relationship at any time, for any lawful reason, with or without notice.28Texas Workforce Commission. Pay and Policies – General The same rule lets you change job duties, pay, or other terms. At-will status does not override anti-discrimination laws, so you cannot fire or refuse to hire someone because of race, sex, religion, national origin, age, or disability. A written employment contract can also override at-will status by setting a term of employment or requiring cause for termination.