Texas Payroll Laws

Everything You Need to Know About Texas Payroll Laws

As a business owner in Texas, it is important to understand the state’s payroll laws. In addition to federal laws, Texas has regulations for employers to abide by. These laws cover everything from minimum wage and overtime pay to payroll deductions and worker’s compensation insurance. Failure to comply with these laws can result in hefty fines and penalties.

This comprehensive guide will cover everything you need about Texas payroll laws. We will provide an overview of the state’s employment laws and regulations, explain how to classify employees correctly, discuss payroll taxes and deductions, and much more. By the end of this post, you will better understand how to ensure your business complies with Texas payroll laws.

Introduction to Texas Payroll Laws

Any employer must understand payroll laws to ensure compliance and avoid legal issues. Texas payroll laws are no exception. If you are an employer operating in Texas, you must know the state’s payroll laws to ensure you’re fulfilling your legal obligations.

Texas payroll laws govern various aspects of payroll, including minimum wage, overtime, employee classification, record-keeping, and payroll taxes. These laws aim to protect the rights of employees and ensure that they receive fair compensation from their employers.

One of the key aspects of Texas payroll laws is the state’s minimum wage requirement. The current minimum wage in Texas is $7.25 per hour, which is the same as the federal minimum wage. However, some employees may be exempt from this requirement, such as tipped employees who earn a certain amount of monthly tips.

Another important aspect of Texas payroll laws is overtime. Employers must pay overtime to employees who work more than 40 hours per week at a rate of 1.5 times their regular hourly rate. However, certain employees may be exempt from this requirement based on their job duties and salaries.

Understanding Texas payroll laws is crucial for employers to ensure compliance and avoid legal issues. As an employer, it’s important to stay up-to-date with any changes to these laws and consult with legal professionals when necessary.

Employee Wages & Overtime

Employee wages and overtime are crucial aspects of Texas payroll laws that employers must comply with. Texas follows the federal minimum wage, which is currently set at $7.25 per hour. However, some cities and counties in Texas have minimum wage ordinances, so it’s crucial to check the specific laws in your area to ensure compliance.

Regarding overtime, Texas law requires employers to pay employees one and a half times their regular pay rate for any hours worked over 40 hours in a workweek. It’s crucial to note that the law applies to all employees, regardless of whether they are salaried or hourly. Additionally, employers cannot offer compensatory time off instead of overtime pay, except for employees covered under certain exemptions (such as executive, administrative, and professional employees).

Employers must also keep accurate records of their employees’ hours and wages. Maintaining these records for at least two years is crucial, as the Texas Workforce Commission may conduct audits to ensure compliance with payroll laws. Failure to comply with these laws can result in fines, penalties, and even legal action, so it’s crucial to stay up-to-date with the latest regulations and ensure that your payroll practices are in accordance with Texas state laws.

Texas Payday Law

If you are an employer in Texas, it is important to understand the Texas Payday Law. This law sets out the requirements for when and how employees must be paid and how employers must keep records of their employee’s wages.

Under the Texas Payday Law, employers must pay their employees at least twice a month and no later than the 15th and the last day of each month. However, there are some exceptions to this rule. For example, employers who pay their employees weekly, bi-weekly, or semi-monthly can choose to pay their employees within eight days after the end of the pay period. Additionally, some types of employees, such as commissioned employees, may have different pay schedules.

Employers must also provide their employees with a statement of earnings and deductions each pay period. This statement must include the employee’s gross wages, any deductions from their wages, and net pay.

It is important to note that employers cannot withhold any part of an employee’s wages except as law permits. This includes things like taxes, court-ordered garnishments, and voluntary wage assignments.

Employees violating the Texas Payday Law may be penalized and fined. Therefore, employers must ensure they are familiar with and comply with this law to avoid any legal issues down the line.

Minimum Wage Law

As an employer in Texas, it is important to understand the minimum wage law. The minimum wage in Texas is tied to the federal minimum wage rate, which is currently set at $7.25 per hour. However, if an employer is covered by the Fair Labor Standards Act (FLSA), they must pay their employees at least the federal minimum wage rate. Additionally, the employer must make up the difference if an employee’s tips do not bring their pay up to the minimum wage.

It is important to note that certain minimum wage law exemptions exist. For example, employees under 20 who have been employed for less than 90 days may be paid a lower minimum wage of $4.25 per hour. Additionally, certain employees, such as outside salespeople and some farm workers, may be exempt from the minimum wage requirements.

Employers should also be aware that some cities in Texas have established their minimum wage rates higher than the federal minimum wage. For example, the minimum wage in Austin is currently $15.00 per hour for employers with more than 15 employees.

It is important for employers to stay up-to-date on the minimum wage law and any changes that may occur. Failure to comply with minimum wage laws can result in expensive fines and legal action, so ensuring your business follows all regulations is important.

 Tips & Gratuities

Tips and gratuities can be an important aspect of an employee’s income, and it’s important for employers to understand the legal requirements related to them. In Texas, employers have the right to implement a tip pool, a system where all tips are collected and distributed among employees according to a predetermined formula. However, there are some rules that employers must follow to maintain legal compliance.

Firstly, employers cannot retain any portion of tips meant for employees. This includes tips that are left on credit card transactions, which must be passed on to the employee in full. Additionally, employers are not allowed to use tips as a credit against minimum wage requirements. In other words, employers cannot pay tipped employees less than the minimum wage based on the assumption that they will earn tips to supplement their income.

Employers are also required to provide detailed information to employees about the tip pool, including the formula for distribution and any deductions or fees that may be taken out. It’s important for employers to keep accurate records of all tips received and distributed, as well as any fees or deductions taken out of the tip pool.

By understanding the legal requirements related to tips and gratuities, employers can ensure that their payroll practices comply with Texas law and that their employees receive fair compensation for their hard work.

Withholding Taxes

As an employer in Texas, you must withhold federal income tax, Social Security tax, and Medicare tax from your employee’s paychecks. In addition to these federal taxes, you must also withhold state income tax for Texas residents. You must verify your employees’ residency status and ensure that you withhold the proper amount of state income tax based on their income and exemptions.

It’s important to note that Texas does not have a state-level Social Security or Medicare tax, so you only need to withhold these federal taxes.
In addition to these taxes, you may also need to withhold other amounts from your employees’ paychecks, such as court-ordered wage garnishments or child support payments. It’s important to stay current on any changes to these withholding requirements and ensure that you comply with all applicable laws and regulations.

Failing to withhold the correct amount of taxes can result in penalties and fines, so it’s important to take this responsibility seriously and keep accurate records of all payroll transactions. Consider working with a payroll specialist or using payroll software to ensure compliance and avoid costly mistakes.

Texas Workforce Commission

If you are an employer in Texas, you must be familiar with the Texas Workforce Commission (TWC). This agency oversees employment and labor law in Texas and has a range of responsibilities, including administering unemployment benefits, investigating wage and hour disputes, and enforcing child labor laws.

The TWC also provides resources and guidance to employers to help them understand and comply with Texas payroll laws. This includes minimum wage rates, overtime requirements, and payroll taxes.
As an employer, it is important to keep up to date with any changes or updates from the TWC to ensure that you are in compliance with Texas payroll laws. Failure to comply can result in penalties and legal action, so it is important to take these regulations seriously.

The TWC website is a great resource for employers in Texas, offering a range of tools and information to help you navigate payroll laws and regulations. You can also contact the TWC directly with questions or concerns about your payroll practices.

Unemployment Benefits & Taxes

Unemployment benefits are a safety net for employees who have lost their jobs. Employers must pay unemployment taxes to the Texas Workforce Commission (TWC) to fund the unemployment benefits program in Texas. The amount of tax an employer pays is based on a percentage of their taxable payroll.

Employees who lose their job may be eligible to receive unemployment benefits. In Texas, the maximum weekly benefit amount is $521, and the maximum duration of benefits is 26 weeks. To qualify for benefits, employees must have earned a certain amount of wages for 12 months before filing a claim.

It’s important for employers to understand their obligations when it comes to unemployment benefits. Employers must provide employees with information about their eligibility for benefits and how to file a claim. Employers also have the right to contest an unemployment claim if they believe the employee was terminated for cause.

In addition to paying unemployment taxes, employers must comply with federal and state laws regarding withholding taxes from employee paychecks. Employers must withhold federal income tax, Social Security tax, and Medicare tax from employee wages. Texas also has a state income tax, but it does not require employers to withhold state income tax from employee wages.

Understanding unemployment benefits and taxes is important for employers to comply with all laws and regulations. Employers can avoid costly penalties and legal issues by staying informed and updated on payroll laws.

Workers’ Compensation

Workers’ compensation laws are designed to protect injured or ill employees while performing work-related duties. In Texas, most employers are not required to carry workers’ compensation insurance, but if they choose to do so, they must follow certain guidelines.

If an employer does not carry workers’ compensation insurance, they are considered a non-subscriber. In this case, the employer may be liable for any injuries and may be sued for damages. It’s important to note that non-subscribers cannot use contributory negligence as a defense in a lawsuit.

Employers who do carry workers’ compensation insurance must provide coverage for all employees, including part-time and temporary workers. The insurance must cover medical expenses, lost wages, and other related expenses. Employees injured must report the injury to their employer within 30 days and seek medical treatment. Employers must report the injury to their insurance carrier within eight days.

Texas also has a program called the Texas Workers’ Compensation Commission. This program benefits injured employees not covered by workers’ compensation insurance. It’s important for both employers and employees to be aware of their rights and responsibilities under Texas workers’ compensation laws.

Record-Keeping Requirements

As an employer in Texas, it’s important to understand the record-keeping requirements set forth by state and federal laws. These requirements are implemented to ensure accurate and fair payment to employees and protect both the employer and employee in case of disputes or legal issues.
According to Texas payroll laws, employers must keep records of employee information such as name, address, social security number, and job title. Records must also include the employee’s pay rate, hours worked, and any deductions or withholdings from their paycheck.

These records must be kept for at least three years and readily available for inspection by state or federal labor officials upon request.
In addition to these requirements, employers must keep track of any overtime work, sick leave, vacation pay, and other employee benefits.

Employers must also maintain records regarding any workplace injuries or illnesses and documentation related to any discrimination or harassment claims made by employees.

Overall, it’s vital for employers to maintain accurate and up-to-date records of their employees’ information, pay, and benefits. Failure to do so can result in legal consequences and financial penalties. It’s essential to consult with legal and payroll experts to ensure compliance with all state and federal record-keeping requirements.

Penalties for Noncompliance

Noncompliance with Texas payroll laws can result in severe penalties for employers. The penalties vary depending on the type of violation and its severity. Employers who fail to pay their employees on time or withhold the correct amount of taxes may face significant fines and legal action. The Texas Workforce Commission (TWC) is responsible for enforcing these laws and may impose penalties for noncompliance.

One of the most common penalties for noncompliance is assessing interest and fees on unpaid taxes. Employers who fail to pay their taxes on time may be charged interest and fees, which can quickly add up over time. Sometimes, the TWC may also assess penalties for failure to file tax returns or provide accurate payroll information.

In addition to monetary penalties, noncompliance can damage an employer’s reputation and lead to legal action. Employees who feel their rights have been violated may file a complaint with the TWC or pursue legal action against their employer. This can result in significant legal fees and damage the employer’s reputation.

To avoid penalties for noncompliance, employers must stay up-to-date with Texas payroll laws and ensure they follow all requirements. This includes timely payment of wages, accurate withholding of taxes, and proper record keeping. Employers are unsure about their obligations under Texas payroll laws should consult with an experienced employment law attorney or payroll specialist.

Action Steps for Compliance with Texas Payroll Laws

To conclude, complying with Texas payroll laws is essential to avoid legal issues and ensure that your employees are paid correctly and on time. Following the tips and guidelines in this article, you can stay on top of your payroll responsibilities and avoid penalties or lawsuits.

Some of the key action steps you can take include:

  1. Understanding the difference between exempt and non-exempt employees and properly classifying them.
  2. Ensuring that you comply with minimum wage and overtime laws and pay your employees accordingly.
  3. Keeping accurate records of employee hours, wages, and deductions.
  4. Providing detailed pay stubs to your employees.
  5. Filing and paying payroll taxes on time.

By taking these action steps, you can ensure that your business complies with Texas payroll laws and that your employees are paid fairly and legally. It’s always a good idea to consult a legal or accounting professional to ensure you follow all applicable laws and regulations. With these steps, you can focus on growing your business and motivating your employees.


As an employer in Texas, it’s crucial to understand the payroll laws to ensure you stay compliant. We covered everything you need to know in this article, from minimum wage and overtime requirements to tax withholding and payment schedules. Following these laws can avoid costly penalties and ensure your employees are paid fairly and on time. We hope this article has helped you understand Texas payroll laws better, and it’s time to get back to focusing on running your business!

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