The Employer’s 2024 Guide to Hiring Employees in Texas

Whether you’re looking for your first employee or your 40th, hiring isn’t an easy task for most small business owners. In order to keep your business compliant, you need to adhere to countless labor and employment laws at the federal, state, and local levels.

The bright side? The Lone Star State is an employer-friendly state with more protections for your business than, say, California or New York.

To cover your bases, make sure to follow these six steps when hiring employees in Texas:

Do your research

Before you kick off the hiring process, it’s important to know what you’re getting into. Use the information below to get a better understanding of your responsibilities as an employer in Texas, then plan your hiring efforts accordingly.

Determine whether you need employees or independent contractors

The first thing you need to consider is whether your business needs employees or independent contractors. Classifying your workers one way or the other changes your responsibilities as a business owner, so you should understand the differences between the two.

On one hand, companies have much more control over how, when, and where employees perform their work. As a result, employees receive many more benefits and legal protections than contractors do. And while independent contractors lack employment benefits like employer-sponsored health insurance, they operate independently and have more control over their work conditions.

Learn more about classifying your workers correctly by visiting the Texas Workforce Commission (TWC) website.

Understand your hiring costs and tax liability as an employer

If you decide to move forward with hiring employees for your business, you’ll want to determine how much you need to budget for each worker. For reference, the Small Business Administration estimates that the cost of hiring a new employee falls between 1.25 and 1.4 times their salary.

Included in this cost are employee wages and benefits, as well as recruiting expenses and employment taxes. Here are some of the taxes Texas employers need to know about:

All employers must withhold federal income taxes from their employee’s paychecks. The amount withheld depends on each employee’s wages and withholding allowances.
Because the state of Texas doesn’t levy income taxes on its taxpayers, you’re not responsible for state withholding taxes.
Under the Federal Insurance Contributions Act (FICA), both employers and employees make contributions toward Social Security and Medicare. The Social Security tax rate is 6.2% for employers and employees, while the Medicare tax rate for both is 1.45%.
The state unemployment insurance (SUI) tax rate for new employers in Texas is 2.7% (or the average NAICS tax rate for their industry, if it’s higher) on a taxable wage base of $9,000.
Employers pay a 6% tax on the first $7,000 of each employee’s wages under the Federal Unemployment Tax Act (FUTA). But if you pay your SUI taxes in full and on time, you can get a FUTA tax credit of up to 5.4%.

Use Gusto’s hiring calculator to get an estimate of how much money you’ll need to hire a new employee in Texas.

Review Texas labor laws

Prospective employers should also brush up on the employment and labor laws they’ll need to adhere to in Texas. Below are some important state laws to know about:

Minimum wage: The minimum wage in Texas is $7.25, the same rate as the federal minimum wage. The minimum wage for tipped employees is $2.13.
At-will employment: Unless otherwise stated in their contract, employees can be terminated at any time and for any (non-discriminatory) reason.
Retail breaks: Retail employers must provide employees who work more than 30 hours in a week with at least 24 consecutive hours off work every seven days.
Paid leave: Employers must provide employees with paid leave for voting. Employers are not required to provide paid or unpaid vacation leave to employees.
Unpaid leave: Employees are allowed to take leave for jury duty, emergency evacuation, appearing as a witness in court proceedings, and military service.
Child labor: Children under the age of 14 are prohibited from working, except under certain circumstances. Minors between the ages of 14 and 15 are allowed to work, but there are numerous restrictions on the days and hours they can work. For more information on the state’s child labor laws, read the Texas Workforce Commission’s child labor law summary.

Note that this list isn’t exhaustive, and that there may be additional laws depending on your industry or municipality. Federal and state laws can also change over time, so it’s important to check with the US Department of Labor and the Texas Workforce Commission each year to ensure you have the most up-to-date information.

Take care of logistics

Get a federal employer identification number from the IRS

Businesses operating in the United States must get an employer identification number, or EIN, before they hire their first employee. This number helps the federal government identify your business on the tax forms and other documents you submit.

If your business is set up as a partnership, multi-member limited liability company (LLC), C corporation, or S corporation, you probably already have an EIN. If you don’t have one yet, you can register for one online using the EIN application from the IRS.

For more information on employer identification numbers, visit the IRS website.

Register with the Texas Workforce Commission (TWC)

Employers in the state of Texas will also need to register their business with the Texas Workforce Commission within 10 days of becoming a liable employer. More information on what businesses qualify as a liable employer can be found on the TWC website.

To register for an unemployment tax account, go to the Texas Workforce Commission online portal. Completing the registration application will then allow you to report new hires and pay state unemployment taxes.

Visit the TWC website to learn more about registering for a state unemployment tax account.

Find workers’ compensation coverage

Workers’ compensation insurance provides employees with money to cover medical expenses and lost wages if they get injured or sick on the job. Even if your business isn’t required to carry this type of insurance, it can protect your company if an incident does happen or if an employee files an injury-related lawsuit.

The state’s Department of Insurance outlines three ways to get workers’ compensation:

Buying coverage from a licensed insurance company
Self-insuring your claims (after getting approval from the Department of Insurance’s Division of Workers’ Compensation)
Joining a self-insurance group

Read the Department of Insurance’s workers’ compensation guide for further information on each of these coverage methods.

If you don’t get workers’ compensation, on the other hand, your business will be considered a nonsubscriber. You’ll need to notify your employees that they won’t be covered, and file an annual notice with the Department of Insurance.

Get organized

Once you begin hiring, you’ll inevitably have stacks of employee records to keep secure, and yet accessible in case the government requests that information during an audit.

So before you even begin advertising the job opening, take time now to set up your organizational system and gather all the paperwork you need. If new employees will need things like access cards, uniforms, and specialized equipment, handle that now as well.

According to regulations from the Equal Employment Opportunity Commission (EEOC), employers must keep all personnel records on file for at least one year (or one year after their date of termination). These records include:

Tax forms
Verification of eligibility to work
Benefits forms
Withholding agreements
Performance evaluations
Disciplinary records
Other agreements made between the employer and employee

Additional federal record-keeping requirements can be found on the EEOC website.

Prepare your business for hiring

Put together an employee handbook

Employee handbooks (also known as employee manuals) aren’t mandatory in the state of Texas, but they’re useful documents for employers and employees alike.

Employee manuals outline a business’s policies and procedures so employees understand what’s expected of them in the workplace. By clearly stating your guidelines, setting appropriate consequences for violations, and following through on them, you can also protect your company from potential complaints or lawsuits.

Here is some important information you may wish to include:

At-will employment
Code of conduct and work rules
Equal employment and anti-discrimination policy
Compensation and benefits
Paid and unpaid leave
Dress code, if applicable
Business expense reimbursement procedures
Drug and alcohol use policy
Sexual harassment policy
Workplace privacy
Discipline and termination procedures

Prepare a compensation package

You’ll also need to put together an employee compensation plan, particularly if you plan on hiring full-time employees.

A thoughtfully designed compensation package can be the deciding factor for candidates who are interviewing with you and another company. Even if you don’t have a large budget, the right combination of benefits shows prospective employees that you still care about investing in the well-being of your workforce.

Some of the best employee benefits today include:

Affordable health insurance coverage
Retirement savings plans
Remote or hybrid work arrangements
Flexible schedules
Paid time off
Four-day work weeks
Professional development opportunities
Child care assistance
Paid volunteer days

Once you’ve chosen your employee benefits, use Gusto’s guide to help you set up an employee benefits program for your business.

Advertise the job opening

Creating a compelling job description will be key in attracting applicants. At the very least, your job post should state the following information:

Job title and description
Type of employee (full-time, part-time, seasonal, temporary)
Job location
Expected hours of work per week
Wage or salary range
Educational requirements, if applicable
Skills needed for the role

But to win job seekers over, you’ll need more than just the bare minimum. Take some time to understand what your ideal candidate is looking for in their next opportunity, and what your competitors are offering to promote positions just like yours.

Think about what information candidates want to see in your job description. Include descriptive details about your company culture and benefits as well. Then look up job listings of other businesses in your industry, and look for ways you can improve on theirs (all while staying true to what you can actually offer, of course).

Once you’ve finished with your job post, it’s time to get as many eyes on it as possible. In addition to publishing your opening on websites like Glassdoor and Indeed, make use of community resources like college career centers and local newspapers too.

Assess and interview top candidates

Once applications start coming in, assess each one and extend interviews to the top candidate(s).

When designing your interview process, think about the information you’ll need to determine a candidate’s fit for the role—then build around that. So if you’re hiring a developer, you might ask them to complete a couple of short assessments after the initial interview. Graphic designer candidates might receive a paid design assignment, followed up by a short presentation of their project and thought process.

However, it’s important that you keep your interview process to the essentials. Put yourself in your candidate’s shoes: There’s nothing more frustrating than preparing (and likely taking time off from work) for a six-step interview process that goes nowhere. Be considerate of each applicant’s time and effort.

Hire and onboard your first employee

Now that you’ve found your ideal candidate, it’s time to bring them onto your team. Follow the steps below to create a streamlined onboarding process, while also remaining compliant with federal and state regulations.

Send the offer letter

After confirming the details of your offer with your candidate over the phone, send them an official offer letter. Make sure to include details like:

Job title
Duties and responsibilities of the position
Start date
Wage or salary details
Expected work hours
Outline of employee benefits, if applicable
Conditions of employment, if applicable
Onboarding requirements

Once you send your offer letter off, give the candidate a few days to review the terms of the job offer and sign the document.

Conduct a background check

At this point, you may also decide to conduct a background check as part of your due diligence.

Keep in mind that employers must follow certain regulations when doing background checks on prospective employees. These guidelines include:

Conducting background checks for all applicants, if you choose to run background checks on applicants at all
Notifying candidates in writing and getting their written permission before conducting a background check
Providing the candidate with a notice, a copy of their report, and at least five business days to respond if you decide not to hire them because of their background check results

Note that some municipalities in Texas have additional laws that affect when and how you’re allowed to run background checks. For further guidance on conducting background checks in the state, review the TWC’s guidebook for employers.

Collect new hire forms from your employee

All employers must collect new hire paperwork from employees by their first day of work, including the following:

IRS Form W-4: Determines your employee’s federal tax withholding liability
Form I-9: Verifies that your new hire can legally work in the US (keep this form in your records for at least three years after their start date or until a year after their employment ends)
Voluntary Self-Identification of Disability form: Allows employees to voluntarily disclose any disabilities (required for federal contractors and subcontractors)

The following forms are not required, but generally recommended:

Employment contract
Employee personal data form, including the employee’s contact information, emergency contact information, and Social Security number
Benefit enrollment forms, if applicable
Direct deposit authorization form, if applicable

Make copies of all the forms you collect from your employees, and keep them in your records.

Report the new hire to the Texas Office of the Attorney General

Texas employers are required to report new hires and rehires to the Child Support Division of the Office of the Attorney General within 20 calendar days of the worker’s start date. You can do this online through the Office of the Attorney General’s employer portal.

In addition to providing information like your business name and EIN, you’ll also need to share your employee’s name, address, Social Security number, and first day of work.

Visit the Texas Workforce Commission website to learn more about the state’s new hire reporting requirements.

Set up payroll

After you’ve successfully onboarded your first employee, set aside some time to set up your payroll system. Doing so ensures your employee(s) get paid on time and your business stays compliant with payroll tax laws. Because setting up and running payroll manually can be time-consuming, working with payroll software or a payroll service provider is ideal.

Once you’ve chosen your payroll method, follow Gusto’s guide to setting up payroll for the first time. If you have team members working remotely, read Gusto’s article on paying out-of-state employees too.

Because setting up payroll can be complicated, consider booking an appointment with your accountant so they can walk you through the process and answer any questions.

Put up labor law posters and notices in the workplace

Both the federal government and the state of Texas require employers to put certain labor law posters and notices in the workplace so your workers are informed about their rights. These posters should be hung in areas where employees and job applicants can easily see them, such as in the breakroom.

Federal law requires businesses to display the following posters and notices:

Posters required by the state of Texas include:

These lists aren’t exhaustive, and you may have additional signage requirements based on your company’s industry, municipality, business activities, or number of employees. The US Department of Labor’s Poster Advisor tells you what federal labor posters you’re required to have in your workplace. The Texas Workforce Commission website also has a list of the state’s required and optional labor law posters for printing.

Take the guesswork out of your hiring process with Gusto

After reading this guide, you know that hiring even just one employee requires a lot of planning and effort on your part. But with Gusto’s hiring and onboarding software, you can go from publishing your job advertisement to hiring your ideal candidate that much faster. Track and manage applicants automatically, then take advantage of our custom onboarding checklists so your new hires hit the ground running from their first day on the job.

See how Gusto can make hiring easier than ever for your business by creating an account today.