How to Do Payroll in Texas: What Every Employer Needs to Know

Payroll is the process of tracking employee income and calculating tax liabilities. It’s an important part of running a business, but it can be complicated to understand how payroll works in Texas.

In Texas, paying workers is a simpler procedure than in other states. There is no income tax, no need for companies to get workers’ compensation insurance, and employers simply have to pay state unemployment taxes. Although there are certain exceptions to overtime and minimum pay frequency, Texas follows federal company tax rules in general.

Managing Payroll in Texas

Payroll in Texas is a bit different than in other states, although it’s not usually more work.

Step 1: Register your company as an employer. Your EIN and an account in the Electronic Federal Transfer System are required at the federal level.

Step 2: Fill out an application with the Texas Workforce Commission. To obtain your TWC Account Number, you must register online within 10 days of the first check date.

You must register a third-party payroll administrator, such as Gusto or QuickBooks Payroll, as your payroll administrator. Sign up for a User ID or log in to the TWC Unemployment Tax Services website. Once you’ve logged in, give your payroll provider access, making sure to include Manage Wage Report.

Step 3: Create a payroll system. FLSA-exempt workers must be paid at least once a month, but all others must be paid at least twice a month, according to Texas law. The number of days in a semi-monthly pay period should be as near to equal as feasible. The most frequent are the first and fifteenth.

Step 4: Collect employee payroll paperwork. It’s simplest if you do it throughout the onboarding process. W-4, I-9, and Direct Deposit information are among the forms. There are no extra forms in Texas.

Step 5: Collect, evaluate, and approve timesheets. Make sure you do this a few days before payday since Texas Date Law stipulates that workers must get their paychecks by the stated payday.

Step 6: Work out your payroll and pay your workers. Payroll may be calculated using software, a calculator, or even Excel.

Step 7: File payroll taxes with the federal government and the state of Texas. For federal taxes, including unemployment, follow the IRS’s guidelines.

There is no income tax in Texas, but you must pay State Unemployment Insurance taxes every quarter. Businesses with less than 1,000 workers may submit online using an Excel or CSV report, manual input, entry based on the previous report, or a No Wages report if they did not pay wages that quarter. Follow the instructions on the Unemployment Tax Services website.

If a report or tax payment is due on a Saturday, Sunday, or a legal holiday on which TWC offices are closed, the report or payment is deemed on time if it is received on or before the next working day.

Step 8: Keep track of your payroll data. It’s critical to maintain records for all of your workers for at least three to four years, even if they’ve been fired.

Step 9: Complete your year-end payroll tax returns. W-2 (for workers) and 1099 (for non-employees) are the government forms (for contractors.) These must be obtained by employees and contractors by January 31 of the following year. Texas does not have its own forms; federal forms will suffice.

Payroll Laws, Taxes, and Regulations in Texas

Texas payroll rules, for the most part, follow federal guidelines. When it comes to payroll, it has much fewer restrictions than other states, especially when compared to places like California. Furthermore, certain of Texas’ payroll rules that vary from federal law is even less stringent—typically, when states establish payroll regulations that differ from federal regulations, they are more stringent.

Payroll Taxes in Texas

The only payroll tax that employers in Texas are liable for is state unemployment insurance. However, you must still pay federal Social Security and Medicare taxes (FICA) and withhold a corresponding amount from your workers’ paychecks. You and your workers will each pay 6.2 percent of their salary for Social Security and 1.45 percent for Medicare payments.

Unemployment Insurance Contribution

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Most states change their payroll tax rates towards the close of the year so that they’re ready to go at the start of the next. The Texas Workforce Commission, on the other hand, has decided to hold off on changing the state unemployment insurance tax (SUTA) rates until at least June 2021. For additional information, go to the Texas Workforce Commission’s (TWC) website.

Unemployment insurance (UI) taxes are levied on the first $9,000 earned by each employee in a calendar year in Texas. If you are responsible under the Federal Unemployment Tax Act, pay $1,500 or more in total gross earnings in a calendar quarter, or have an employee for more than 20 weeks in a calendar year, you must pay unemployment insurance taxes. Other liability regulations may be found on the TWC website.

The average rate for employers in their North American Industry Classification System (NAICS) code or 2.7 percent, whichever is greater, is used by new employers. The state will issue you a fresh UI tax assessment once you have paid for four quarters. Tax rates in 2020 varied from 0.31 percent to 6.31 percent. Please note that SUTA (and FUTA) must be paid from company money; the expense should not be passed on to workers.

Unemployment insurance taxes fluctuate from year to year and are divided into five categories:

The General Tax Rate (GTR), often known as the experience rate, is calculated using benefits given to previous workers and applied to your account. In its calculations, it takes three years’ worth of benefits into account.
RTR (Replacement Tax Rate): This is a flat tax paid by all employers to refill the Unemployment Compensation Trust Fund for the other half of the benefits given to qualified employees that were not charged to any particular company. Everyone’s RTR is determined by the state.
Obligation Assessment Rate (OAR): This is the rate at which money is collected to pay bond obligations. The current rate, however, is 0.0 percent.
If the amount of money in the Unemployment Compensation Trust Fund falls below the specified minimum, the DTR is applied to each experience-rated (i.e., not new) employer for the next calendar year. At the time of writing this article, the DTR for 2020 and 2021 was $0.
ETIA stands for Employment and Training Investment Assessment. This money is placed into an employment and training investment holding fund and is equal to 0.1 percent of an employer’s pay. Your replenishment tax rate, on the other hand, is lowered by the same amount, thus your unemployment taxes remain the same.

You’re also in charge of paying federal unemployment taxes. On the first $7,000 of each employee’s taxable earnings, the standard rate is 6%. The highest tax per employee is $420 ($7,000 multiplied by 6%).

Did you know? You may be eligible for a 5.4 percent reduction on your federal unemployment insurance taxes if you pay SUTA (FUTA). This may drastically decrease the amount you owe the IRS—from 6% to 0.6 percent. Furthermore, if you pay your terminated workers’ benefits, you may be eligible for a UI tax reduction. Visit the TWC Voluntary Contribution Program for more information.

Income Taxes at the State and Local Level

Texas has no state or municipal income taxes, which means you may put more money into your business—or your workers.

Texas’s Minimum Wage Laws

Texas’ minimum pay is $7.25 per hour, which is the same as the federal minimum wage. Those protected by the federal Fair Labor Standards Act (FLSA) as well as the following are exempt:

People who work for religious, educational, philanthropic, or nonprofit organizations.
Salespeople or professionals
Workers at the home
Teenagers and students
Inmates
Employees who work in amusement parks and leisure facilities
Employees who work for non-agricultural businesses are not required to pay state unemployment insurance.
Employees who work in dairying and livestock production
Those who labor in sheltered workplaces

Amounts of Commission and Bonuses

You must put up a clear written agreement setting out the specifics of the payment arrangement if you give an employee a commission or a bonus. This does not imply that the quantities must be exact, nor that a minimum quantity must be met. You cannot, however, make any changes retrospectively; only modifications for future payments are permitted.

Visit the Texas Wage Law page on the Texas Workforce Commission (TWC) website for additional information on the state’s minimum wage and associated regulations.

Texas, like every other state, strictly enforces its minimum wage regulations. Payroll deductions may also lead an employee’s compensation to fall below that amount at times. There are certain situations when the TWC will accept the deduction without punishing the employer, while there are others where it is unlawful.

Payroll deductions that you may impose, even if they lower an employee’s compensation below the Texas minimum wage are as follows:

Meals, housing, and other expenses: The amounts must be “reasonable,” and the employee must give you written permission to withdraw the funds.
Tip credits: A tipped employee’s hourly salary may be reduced by up to $5.12 per hour in tip credits; if they’re paid $7.25 per hour, their tipped minimum wage is $2.13 per hour. This is a federal statute, but it is one that should be remembered. Without an employee’s permission, you are legally permitted to collect the tip credit.
If an employee allows you to make money from their paycheck for a holiday savings fund or to repay a payday loan, you will not be held liable if their pay falls below the minimum wage. You may be held responsible for a FLSA violation if you start the deduction without their permission.
Repayment of loans and advances: You may deduct money from an employee’s paycheck to repay a loan or advance you gave them; but, you can only deduct principal—no interest or administrative expenses if it brings their pay below the minimum wage. This applies to vacation pay advances as well.
Uniforms and cleaning costs: If you, the law, or the kind of job the employee does require them to buy a uniform, you cannot remove money from their paychecks if doing so would bring the total below minimum wage. If it doesn’t, and the sum is acceptable, uniform and cleaning expenses may be deferred. You are not responsible if the employee allows you to deduct money for such expenses even though their paychecks would fall below minimum wage.
Union dues: You may deduct union dues from an employee’s paycheck even if it lowers their salary below the minimum wage; the trick is to obtain their written permission beforehand.
Garnishments: Any court-ordered payments you’re required to take from an employee’s salary may bring their compensation below the minimum wage. This includes garnishments for bankruptcy, child and spousal support, and so forth. You may deduct a $10 administrative charge for processing child support payments, IRS tax levies, and student loan salary withholdings, unlike how loans and advances are handled.
Cash shortages: If you employ cashiers or anybody else who deals with money, it’s quite probable that they’ll run out at the conclusion of their shift. By law, you may recover the money you lost via payroll deductions, but only if you can show that the employee was personally and directly responsible for the misappropriation. You can’t get money back if it was lost due to carelessness or a problem with the equipment.

Overtime Regulations in Texas

To determine who is eligible for overtime pay in Texas, the state follows the federal FLSA. Employees who work more than 40 hours in a workweek are eligible for overtime pay under Texas law. They may be compensated with either 1.5 times their normal salary or 1.5 hours of compensatory time off for each hour of overtime worked. Employees who want to take time off are limited to a total of 240 hours (or for public safety, emergency response, or seasonal employees, 480 hours.)

How to pay employees

There are no specific regulations in Texas that limit the methods you may use to pay workers. You may pay workers using cash, cheque, direct deposit, or even a payroll card. You’ll need to create a formal agreement for both you and the employee to sign with the specifics of the payment arrangement before distributing if you’re paying the employee in a form other than one of the kinds previously mentioned, such as products.

Pay Stub Regulations

You are not required to give a pay stub to FLSA-covered workers, but it is a good practice. If you pay an employee in cash, you should have them sign a receipt acknowledging receipt, date, and amount. This will safeguard you if the employee claims they never got the funds.

Employer Minimum Pay Frequency in Texas

Employees have a legal right to be paid on time. Nonexempt employees (typically hourly workers) must be paid at least twice a month; exempt employees must be paid at least once a month. If you’re paying semimonthly, or twice a month, you’ll want to choose payment dates that have as close to an equal number of days between them as feasible, such as the 15th and the 30th.

Texas’s Final Paycheck Laws

When an employee leaves or is fired, it’s critical to deliver their last payment as soon as possible. If you terminate their job, you have six days to complete it legally. The next regularly scheduled pay date is the deadline if the employee leaves on their own. So, whether it’s in two days or two weeks, you’ll need to be prepared with a paycheck that includes all of the money you owe them.

Please keep in mind that you are not permitted to withhold an employee’s last payment in retribution if they owe you money for a uniform they should have paid for or if they have a laptop they haven’t returned.

You must respect the written agreement if the departing employee is a commissioned employee or thinks they are owed a bonus. If it says you’ll pay a bonus for work done in the first quarter but they leave in the second, you have to pay it.

A system of severance pay

Only if you signed a formal agreement indicating that you would pay severance if specific circumstances were met, such as a mass layoff, would Texas law compel you to do so. When it comes to deductions, you must withhold money for taxes as well as child support. It’s critical to calculate how much you’ll need to withhold and payout if you’ve got an earnings withholdings order for someone you’ll be paying severance to (use the period of time that the garnishment covers to compute how much the employee is responsible for).

Paid-Time-Off Payouts

If you don’t want to, you don’t have to pay out any unused paid time off (PTO). Employers are left to their own devices under both Texas and federal law. The catch here is that you must follow through on any promises you made regarding paying accumulated PTO when an employee leaves the business. Employers must simply follow the rules and agreements they established at the start of the working relationship, according to the law.

HR Laws in Texas That Affect Payroll

There are many HR regulations in Texas, however many of them are similar to federal HR laws. You’ll need to pay careful attention to the frequency with which you may pay workers (it varies by kind) and the rules for employing minors.

Reporting on New Hires in Texas

New hires and rehired workers must be reported within 20 calendar days after hire, or at least twice a month if reporting electronically, with reports 12 to 16 calendar days apart (strive to have it done before their second paycheck). A punishment of $525 per unreported employee is imposed for failure to disclose new hiring.

Please note that if you’re utilizing HR payroll software, it’s likely that you’re already covered. You don’t have to submit new hire reports since most companies do them online.

Paid Leave, Meals, and Breaks

There are no regulations in Texas regarding breaks or leave. Businesses with 50 or more workers stationed within 75 miles of the employee taking unpaid job-protected leave are required to offer up to 12 weeks of unpaid job-protected leave under the federal Family and Medical Leave Act (FMLA). To be eligible for the leave, the employee must also satisfy the different eligibility requirements.

Naturally, offering paid time off makes you more appealing to potential employees. The Texas Payday Law protects any PTO or breaks provided in a documented policy or employment agreement. You’ll need to set up a system to correctly record your workers’ work hours using a timesheet or time clock to protect yourself from responsibility and guarantee they’re appropriately paid.

Laws Concerning Child Labor

If you want to hire anybody under the age of 18, you’ll need to follow Texas’ child labor laws. They are somewhat different from federal law. When school is in session, for example, federal law prohibits minors from working more than 18 hours per week, but Texas law permits up to 48 hours per week at any time. It also provides for hardship exemptions if the kid is helping to support their family. When scheduling and paying workers, you’ll need to keep this in mind. If you’re ever audited, you’ll have to give over payroll records that indicate how many hours they worked and when they worked them.

Forms for Payroll

The Report on Unemployment Insurance in Texas is the only state-specific payroll form you’ll need as an employer in Texas. If not, you’ll have to rely on federal payroll documents.

Form W-4 in Texas

There is no state W-4 form in Texas since the state does not levy income taxes. Simply fill out the federal form found in the federal payroll forms section below.

Texas Unemployment Tax Report

You’ll have to submit a salary report every quarter and pay unemployment taxes. This may be done by downloading a spreadsheet or manually entering the information into the TWC system. According to the TWC website, you’ll need:

The number of full-time and part-time workers employed during the months covered by the wage report.
The county in Texas where the majority of your workers worked
The number of workers who worked outside of the county that you mentioned before is correct.
Each employee’s Social Security number is unique to that quarter’s pay report.
The surname name and first initial of each employee (the middle initial is optional)
If appropriate, the earnings given to each employee.

Forms for Federal Payroll

W-4 Form: Used by businesses to figure out how much tax to withhold from employees’ paychecks.
W-2 Form: This form is used to record total yearly earnings (one per employee)
W-3 Form: This form is used to report total pay and taxes to the IRS for all workers (summary of information on all employee W2 forms)
Form 940 is used to submit and compute unpaid unemployment taxes to the Internal Revenue Service (IRS).
To submit quarterly income and FICA taxes deducted from paychecks, use Form 941.
To report yearly income and FICA taxes taken from paychecks, use Form 944.
1099 Forms: Used to report non-employee compensation and assist the IRS in collecting taxes on contract employment.

Resources/Sources

Businesses & Employers Site of the Texas Workforce Commission:

This section of the TWC website is where you may pay unemployment taxes, learn about recent changes in employment regulations, and find tools to help you recruit and manage workers as well as develop your company. It has an automated chat feature that may assist you in getting answers to particular queries.

Find connections to COVID-19 materials, employer information and resources, and enrollment for Lunchtime Live 90-minute video seminars on employment law on the Office of the Commissioner’s page.

The Employer’s Guide to Paying Business Taxes on Nolo.com explains state regulations for income and unemployment taxes, as well as tax legislation.

Also, look into resources and state-specific features in your payroll software.

Conclusion

Texas is one of the most straightforward states in which to handle payroll and pay payroll taxes. Its few rules and good website make it simple to get information. You’ll still have to meet deadlines for reporting new hiring, filing taxes, and paying workers on time.

Frequently Asked Questions

What employee information is needed for payroll?

The information needed for payroll is the same as that of any other company. You will need to provide your name, address, social security number, and birth date.

What do I need to know to do payroll?

To do payroll, you’ll need to know the following information about your employees: -Their name -Their address -The number of hours they work each week -The number of hours they work each day -How many times per week they work.