No matter what your business does in the state of Texas, running payroll can get complicated, even though Texas doesn’t have state income tax. As a small business owner, you need to follow the Texas Payday Law’s rules and regulations, administered by the Texas Workforce Commission (TWC). If you feel overwhelmed, rest assured that Gusto can handle your payroll needs for you. Before issuing paychecks in Texas, here’s what you should know.

Key regulations Texas payroll professionals need to know

Texas minimum wage

Texas minimum wage is $7.25 per hour, which is the same as the federal minimum wage. Texas employers can count tips and any applicable meal and lodging costs toward minimum wage payments, as long as they follow state guidelines. Tipped employees must receive a base wage of $2.13 per hour, supplemented by tips to reach the $7.25 minimum wage.

Texas pay stubs

Texas state law requires that all employees give workers pay stubs detailing the number of hours worked, rate of pay, and amount paid (gross and net). These pay stubs must also include payroll deductions and their purpose and the employee’s and your business’s name and address.

Texas pay periods

In Texas, all exempt employees under the Fair Labor Standards Act (FLSA) must be paid monthly or more frequently. Nonexempt employees must be paid twice per month or more frequently. If you pay employees semi-monthly, each of your semi-monthly pay periods must contain a roughly equivalent number of days. 

As long as you adhere to these guidelines, you can choose any pay dates that work well for your business. If you do not state otherwise, paydays occur the first and 15th of the month. No matter whether you opt to these default dates or set your own, you must post your pay schedule within plain sight in your workspace.

Determining time worked in Texas

Texas follows the national definitions of “workweek” and “hours worked” set by the Department of Labor (DOL). This means that in Texas, a workweek is any consecutive seven-day period—it can start on any day of the week and at any time, as long as it encompasses 168 consecutive hours. Likewise, since the DOL states that all hours during which an employee is present at an employer-determined location for work purposes are hours worked, Texas uses this definition as well.

Overtime pay and tracking in Texas

In Texas, nonexempt employees must be paid time and a half for any hours worked beyond 40 hours in a workweek, so timekeeping is important. Exemptions are based on salary and duties.

Texas final wage payment

Under state law, employers must pay all final wages to an employee who has been laid off, fired, dismissed, or involuntarily terminated within six calendar days. If an employee leaves voluntarily, their final pay is due on the next regularly scheduled payday.

Income tax withholding in Texas

Texas does not collect personal income taxes, so when calculating payroll taxes for your employees, you do not need to withhold any money for income taxes.

Of course, you will still need to withhold federal income tax for the Internal Revenue Service (IRS). So all employers need to use Form W-4 for employees to complete.

Need a payroll calculator? Try out this paycheck calculator to simplify the process, determine any applicable withholdings, and calculate take-home pay. All you have to do is enter some key details including but not limited to your state, your employee’s hourly wage, and your employee’s federal tax filing and withholding status you can get from a W-4 form, and the calculator will do the rest, showing you how your employee’s gross pay gets reduced to take-home pay after applicable taxes along with any pre-tax and post-tax deductions are removed.

Texas benefits

Under Texas state law, employers are not legally obligated to offer benefits such as workers’ compensation or health insurance to their employees. However, if a private employer has a contract with a government entity, the employees on that project must be provided with workers’ comp. In addition, the federal Patient Protection and Affordable Care Act (ACA) supersedes Texas state law and requires that employers with 50 or more full-time (or equivalent) employees offer health insurance to at least 95% of their workers.

Employers don’t legally have to provide sick leave either, but if they do, any written policy or agreement regarding it is enforceable with the Texas Payday Law. Despite the lack of Texas benefits laws, Texan employers are required to provide at least two hours of paid time off for employers who are voting. Employers in Texas also can’t penalize employees for taking time off for jury duty, though they do not need to pay employees for this time off.

Why is Gusto a great payroll provider in Texas?

Finding a payroll solution that suits your business needs comes with several considerations. You need to also evaluate if you want to handle it in-house or if outsourcing is for you, which could require using a Professional Employer Organization (PEO).

Gusto, which isn’t a PEO, offers online payroll solutions, other business solutions like workforce management, human resource solutions and tools, and employee benefits administration like health insurance and workers comp, all rolled into one easy-to-use platform. Our payroll software works in all 50 states, so whether you have a single office in Dallas, El Paso, or Houston, or manage locations in several states from your Austin headquarters, our software can help you meet your obligations with ease.

[Gusto] makes it much easier to add benefits for our company without having to sift through providers and manage it in another web portal.

Albert Swantner, CEO of Bohemian Innovation

1. Unlimited payroll

Some payroll service providers limit the number of times you can run payroll, but not Gusto—we let you run payroll as many times as you need. Through Gusto’s platform, you can set up direct deposit, multiple pay rates, and schedules to keep your contractors, full-time employees, hourly employees, and salaried staff happy.

2. Simple free structure

Choose from our pricing plans, each designed to support your business where it is right now. Our fee structure is straightforward, too.

3. Hassle-free tax filing and payment

At Gusto, our payroll company experts help ensure that you’re processing payroll while following local, state, and federal regulations. The payroll tax requirements a Texas business must pay can be completed from within our user-friendly dashboard. Federal, state, and local taxes are withheld automatically, and we send those payments on your behalf to the proper authorities. Many tax forms can be e-signed and e-filed within the platform, simplifying and streamlining the payroll process from A to Z.

4. Onboarding new employees with Gusto

Gusto’s HR services and HR solutions lets you e-sign and e-file many forms, letters, and information. From issuing hiring letters to requesting bank account information, new hires can be onboarded, reported, and managed quickly and easily.

5. Forms and reports

Gusto auto generates W-2s, 1099s, quarterly tax forms, year-end tax forms, and customized payroll reports—all without extra fees. We send copies of W-2 and 1099 forms to your team, and thanks to e-file, e-sign, and e-fax technologies, you can avoid the hassle of scanning, signing, and chasing down stragglers when you need to file with the Internal Revenue Service (IRS).

The user-friendly functionality of Gusto’s advanced payroll features, lets small business owners like you easily generate and download reports right from the platform. Bookkeeping with Gusto is simple since you can search for and compile reports for many segments, at no additional cost, including:

  • Payroll history
  • Contractor payments
  • Bank transactions
  • Paid time off
  • Tip credits
  • And more

6. Offer benefits for your team

Give your team benefits through Gusto. Offer health insurance from more than 3,500 options, 401(k) programs, and flexible spending accounts—all through Gusto.

Frequently asked questions about payroll in Texas

How often do Texas employees get paid?

Under Texas law, the pay frequency for the vast majority of employees is at least twice per month. A small group of employees can be paid once per month. With Gusto, you can customize your payment schedule to differ by employee and comply with laws in the Lone Star State.

Do employees in Texas pay state taxes?

In Texas, employees don’t pay income taxes, but contribute a portion of their earnings for Social Security taxes and Medicare taxes in compliance with the Federal Insurance Contributions Act, aka FICA taxes.

How much does an employer pay in payroll taxes in Texas?

In Texas, businesses are responsible for paying the state’s unemployment tax. State unemployment taxes are based on the first $9,000 of an employee’s earnings, which is the taxable wage limit. The unemployment insurance tax rate charged varies; employers will pay between 0.23% and 6.23% of unemployment taxes on an employee’s first $9,000 earned. New employers pay at a rate of 2.7% on those wages. This is the only payroll tax specified under state law. Additionally, under the Federal Unemployment Tax Act (FUTA), most employers only pay 0.6% in federal unemployment taxes, a rate applied to the first $7,000 of an employee’s income.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
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