What are my obligations as an employer in Texas?
A successful workplace is built on a foundation of legal compliance. As an employer, navigating the complex landscape of federal and state labor and employment laws is critical for protecting your business and ensuring fair practices.
This article outlines key obligations and considerations for employers in Texas to help you maintain a compliant, equitable, and productive environment while avoiding costly regulatory penalties and litigation.
Setting Up Shop: Initial Employer Requirements
Before you hire your first employee, there are fundamental steps to establish your business legally as an employer.
Entity Formation: File formation documents with the Texas Secretary of State (SOS). For a more in-depth discussion on the choice of legal entity, please see our article, How do I form a legal entity for my business? .
Obtain an EIN: Apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This is essential for opening a business bank account, reporting taxes, and all federal tax-related transactions, including payroll.
Register as an Employer: Register online with the Texas Workforce Commission (TWC) via their Unemployment Tax Registration (UTR) service to receive a TWC tax account number. Your TWC account number will be used to register new employees, file wage reports, and submit unemployment taxes. Registration is generally required for all liable employers in Texas (i.e., any employer who has paid $1,500 in wages in a single calendar quarter or who has employed someone for 20 weeks in a year).
The Hiring Process: Pre-Employment Procedures
The hiring stage is governed by a patchwork of anti-discrimination laws, procedural requirements, and contractual considerations.
Anti-Discrimination: Federal and state laws (like the Texas Commission on Human Rights Act (TCHRA)) prohibit discrimination in all employment decisions, including recruiting and hiring. While Texas does not have specific state-level posting requirements for private employers, any job postings must be non-discriminatory.
Right-to-Work: Texas is a Right-to-Work state. This means employees cannot be required to join a union or pay union dues or fees as a condition of employment, even if the workplace is unionized.
Background Checks: If you use a third-party consumer reporting agency to conduct background checks, you must comply with the Fair Credit Reporting Act (FCRA). This includes providing the applicant with a written disclosure, obtaining their written authorization before running the check, and providing the applicant with notice and a copy of the report if they are denied the job based on the background check.
Employment Agreements: Texas is an “at-will” employment state, meaning that either an employer or employee can terminate the employment at any time and for any legal reason. However, employers often use written agreements to define specific terms, such as establishing a set duration for employment, requiring good cause for termination, or providing severance benefits. An employment agreement should set forth the rights and obligations of both the employer and employee.
Confidentiality/Non-Disclosure Agreements (NDA): Used to protect the company’s proprietary information, trade secrets, and customer data.
Non-Competition Agreements (Non-Compete): Used to prevent a former employee from using their knowledge, skills, trade secrets, or customer lists to unfairly compete with the former employer.
These are enforceable in Texas only if they are part of an otherwise enforceable agreement and contain reasonable limitations regarding the scope of activity, geographical area, and time. Non-Competes are strictly scrutinized by Texas courts.
For a more in-depth discussion on key provisions in an employment agreement, please see our article, What documents should I prepare when starting my business? .
Form I-9 Verification: Employers must verify the identity and employment authorization of every new employee by properly completing Form I-9, Employment Eligibility Verification. Employees must complete the applicable portions and provide the required documents on the first day of their employment. Employers must review and complete their applicable portions within three business days of the employee’s start date.
New Hire Reporting: Texas employers must report all new hires and rehires to the Office of the Attorney General’s New Hire Reporting Program within 20 calendar days of their start date.
Day-to-Day: Obligations During Employment
Compliance doesn’t end with a signed offer letter. Continuous attention and ongoing review of workplace policies are required to meet your obligations throughout the employment relationship.
Compensation & Classification
Minimum Wage and Overtime: Texas follows the federal Fair Labor Standards Act (FLSA) for wage and hour standards. The minimum wage is $7.25 per hour, and non-exempt employees must be paid time-and-a-half (1.5 times their regular rate of pay) for all hours worked over 40 in a workweek.
Payment and Withholding: The Texas Payday Law requires employers to pay employees at least twice each month on scheduled paydays. Texas has no state income tax, but employers must withhold federal income tax and Social Security and Medicare (FICA) taxes from employee wages.
Texas employers must also pay the employer portion of FICA taxes, as well as federal and state unemployment taxes. These taxes are paid solely by the employer and are not withheld from employee wages.
Employee Benefits: Texas law does not generally require private employers to offer benefits like health insurance or retirement plans. However, if offered, these programs trigger compliance requirements, such as the Affordable Care Act (ACA) for large employers (i.e., employers with 50 or more full-time employees) and the Employee Retirement Income Security Act (ERISA) for retirement and health plans.
Employee vs. Independent Contractor: Employers must classify each service provider as employees or independent contractors to determine the legal obligations to and rights of such provider. Misclassification is a serious legal risk under both state and federal laws and can lead to significant penalties, back taxes, and liability for unpaid wages or benefits. The IRS and TWC use a multi-factor test to make this determination, focusing primarily on the employer’s right to control the worker.
Workplace Safety and Labor Laws
Workplace Safety (OSHA): All Texas employers must comply with the federal Occupational Safety and Health Act (OSHA), which requires providing a safe work environment, safety training, and necessary protective equipment and prohibits retaliation against employees who report safety concerns or injuries.
Required Posters: Federal and state laws mandate that certain posters outlining employee rights (e.g., minimum wage, workplace discrimination, FMLA, Texas Payday Law) must be displayed in a conspicuous, accessible location.
Workers’ Compensation: Workers’ compensation insurance is not mandatory for private employers in Texas. However, non-subscribing employers lose certain legal protections in the event of an employee injury lawsuit.
Industry-Specific Requirements (Licensing & Occupational)
Beyond general labor laws, employers operating in regulated industries must ensure compliance with specific professional licensing and occupational requirements.
Professional Licensing: Employers must verify that employees working in regulated professions—such as medicine, law, engineering, accounting, and certain security and real estate fields—maintain valid, current licenses issued by the relevant Texas state board.
Occupational Requirements: The employer may be responsible for ensuring the business itself meets facility, insurance, or other requirements specific to its trade or occupation. Failure to adhere to these rules can result in fines and penalties.
The Value of a Comprehensive Employee Handbook
While Texas law does not strictly mandate an employee handbook, it is an essential legal and operational tool. A well-drafted handbook protects your business by clearly setting expectations and documenting your compliance with federal and state laws. Key policies that should be included are:
Anti-Discrimination and Anti-Harassment: Explicit policies that define and prohibit such behavior, along with providing clear reporting procedures.
Americans with Disabilities Act (ADA) and Accommodations: Outlines the process for employees with disabilities to request reasonable accommodations.
Leave Policies: Details all available leave, including jury duty and military leave, and any voluntary benefits like Paid Time Off (PTO) or sick leave.
Family and Medical Leave Act (FMLA): If your business has 50 or more employees, you must detail employee eligibility for job-protected leave.
Pregnancy Accommodations: The Pregnant Workers Fairness Act (PWFA) requires covered employers to provide reasonable accommodations for known limitations related to pregnancy, childbirth, or related medical conditions, unless doing so creates an undue hardship. The handbook should detail the process for requesting such accommodations. Texas employers are also required to provide lactation accommodations.
Workplace Violence Reporting: Clear policies for reporting threats or incidents of workplace violence.
Technology, Data Security, and Confidentiality: Given the prevalence of digital workplaces, address the proper use of company technology (e.g., computers, email, social media), set expectations for data security (e.g., password protection, phishing awareness), establish the company’s right to monitor its equipment and systems, and reiterate employees’ obligation to maintain the confidentiality of proprietary business and client information.
The End of Employment: Termination
Texas is an “at-will” employment state, meaning an employer or employee can end the relationship at any time, with or without cause, and without notice. However, this flexibility is not absolute. For example, an employer cannot terminate an employee for an unlawful reason, which include but are not limited to: discriminatory reasons, retaliation for engaging in a legally protected activity, or termination for refusing to commit an illegal act. Additionally, employment agreements may contain provisions limiting termination to acts of misconduct (“for cause”), such as intentional wrongdoing, violation of company policies, or gross negligence.
In Texas, there is no requirement for either the employer or the employee to give notice before terminating the employment relationship. Even after an employee is terminated, the employer has the following obligations:
Final Paycheck: Under the Texas Payday Law, involuntarily terminated employees must receive their final paycheck within six calendar days of termination.
Continuation of Healthcare: Ensure compliance with the Consolidated Omnibus Budget Reconciliation Act (COBRA) for continuation of health insurance coverage after termination of employment.
Documentation is Key: In all termination scenarios, meticulous documentation of any performance issues, disciplinary actions, and legitimate, non-discriminatory reasons for termination is your best defense against a potential wrongful termination claim.
The rules governing Texas employers are numerous and continually evolving. Staying compliant requires a proactive approach and a clear understanding of both federal and state requirements.
Ready to start? Click here to schedule a consultation with Kalaria Law today and ensure you are meeting your legal obligations as an employer in Texas.
Disclaimer: This article is for general informational purposes only and does not constitute formal legal advice.