Texas payroll laws 2025: Updates, rules, resources, and employer tips

Payroll laws guide how businesses compensate their employees, and in Texas, that process is streamlined by relatively simple regulations. While the state doesn't impose income tax and avoids many complex mandates, employers must still follow clear rules around final paychecks, wage deductions, overtime classification, and recordkeeping. This matters especially in a state where small businesses dominate. Texas is home to more than 3.5 million small businesses, which account for 99.8 % of all businesses statewide.

This 2025 guide outlines key Texas payroll laws, where they differ from federal requirements, and the taxes and employer obligations you need to know. It also highlights tips, tools, and payroll services to help you stay compliant.

What are payroll laws?

Payroll laws are regulations that govern how employers compensate employees. They include rules about wages, tax withholdings, overtime pay, recordkeeping, and employee classification at both the federal and state levels.

Why are payroll laws important?

Payroll laws help protect workers' rights and ensure businesses meet their legal responsibilities. Following these laws reduces the risk of fines, lawsuits, and payroll errors that can affect employee trust and company operations.

What do payroll laws cover?

Payroll laws outline how employees must be paid, how taxes are withheld and reported, and what rights and responsibilities both parties have. In Texas, this includes:

• Ensuring employees are paid accurately and on time for all hours worked.
• Following federal rules for overtime, wages, and allowable deductions.
• Maintaining detailed payroll records to meet legal requirements and resolve disputes.
• Fulfilling federal tax obligations and adhering to Texas-specific payroll reporting rules.

When businesses follow these laws, they avoid penalties and build a stronger, more compliant workplace.

Who must follow Texas payroll laws?

Whether you're launching a new business, running a small shop, or hiring a nanny at home, Texas payroll laws apply as soon as you meet minimum wage or employment thresholds. These rules apply to all employers, regardless of size, structure, or industry.

Here's who's required to comply:

• Any business that owes taxes under FUTA and pays wages to Texas employees.
• Any business that pays $1,500 or more in wages during any calendar quarter.
• Any business with at least one employee working part of the day in 20 different weeks during the year (weeks don't have to be consecutive or use the same employee).
• Any business that takes over all or part of another business that was already liable for payroll taxes.
• Any nonprofit under 501(c)(3) with four or more employees working during 20 different weeks in a year (employees can vary week to week).
• Any business that chooses to become liable, even if they don't meet the standard requirements.
• Any city, county, school district, or other government unit in Texas.
• Any household employer who pays $1,000 or more in cash wages in a quarter for domestic work like cleaning or caregiving.
• Any farm or ranch that either:
• Has three or more workers for 20 or more weeks in a year, or
• Pays at least $6,250 in wages in a quarter.

(Workers can be different people, and weeks don't have to be in a row.)

• Hires seasonal or migrant farmworkers on truck farms, orchards, vineyards, or through a labor agent.

In short, if you employ anyone in Texas, you're responsible for following all payroll rules. This includes paying wages correctly, handling taxes, and submitting required reports to state and federal agencies.

New payroll laws to know in 2025

The following are some of the key 2025 updates to Texas payroll laws:

• Minimum wage remains unchanged: The rate in Texas continues to be the same as the federal rate of $7.25/hour.
• Remote worker reporting rules: Employers must report remote employees working from Texas accurately for unemployment tax purposes, per updated Texas Workforce Commission guidance.
• New hire reporting requirement: All new or rehired employees must be reported to the Texas New Hire Registry within 20 days of their start date.
• Stronger wage theft enforcement: Local and state agencies have increased efforts to investigate and penalize employers for unpaid or underpaid wages.
• Unemployment tax liability thresholds: Employers must register with the state if they pay $1,500 or more in a calendar quarter or employ someone for at least 20 weeks in a year.

Federal payroll laws every employer should know

While payroll laws vary by state, federal payroll laws set the baseline that all employers across the U.S. — including those in Texas — must follow. These laws regulate how wages are paid, how taxes are withheld, and what benefits employers must offer in certain situations. Here's a look at the key federal regulations that impact payroll:

Fair Labor Standards Act (FLSA)

The FLSA establishes federal standards for minimum wage, overtime pay, recordkeeping, and child labor. It applies to most full-time and part-time workers in the private sector and in federal, state, and local governments. These are some of the payroll laws that fall under the FLSA.

• Federal minimum wage: As of 2025, the federal minimum wage is $7.25 per hour.
• Employers can pay tipped employees less than the full minimum wage, as long as the employee earns at least $30 per month in tips and their total pay (wages plus tips) adds up to at least the federal minimum wage of $7.25 per hour.
• Overtime pay: Nonexempt employees must be paid 1.5 times their regular rate for hours worked over 40 in a week.
• Recordkeeping: The FLSA requires employers to keep accurate, accessible records for all nonexempt employees. This includes basic information like name, address, Social Security number, occupation, hours worked, wages paid, and pay rates. Employers using the tip credit must also maintain weekly records of reported tips and the amount of credit claimed.
• Keep for at least 3 years: Payroll records, collective bargaining agreements, and sales or purchase records.
• Keep for at least 2 years: Timecards, wage rate tables, schedules, and records of wage changes.

Internal Revenue Service (IRS) Regulations

Employers are required to comply with IRS rules pertaining to payroll taxes. Taxes must be calculated, withheld, and submitted accurately and on time. Employers need to:

• Withhold federal income tax from employee wages based on Form W-4 information and current IRS federal withholding tax tables.
• Withhold and match Social Security and Medicare taxes (FICA) from employee wages. For 2025:
• Social Security tax: 6.2% each for employer and employee, up to a wage base limit of $176,100.
• Medicare tax: 1.45% each for employer and employee, with no wage base limit.
• Pay Federal Unemployment Tax Act (FUTA) taxes:
• Employers must pay a federal unemployment tax of 6.0% on the first $7,000 of each employee's annual wages.
• If all state unemployment taxes are paid on time, and the employer's state is not designated as a credit reduction state, the FUTA tax may be reduced by a credit of up to 5.4%, resulting in an effective rate of 0.6%.
• Only employers pay FUTA; it is not withheld from employee wages.
• FUTA taxes are reported annually using IRS Form 940.

Affordable Care Act (ACA)

The Affordable Care Act (ACA) requires employers with 50+ full-time employees to offer affordable health insurance and report coverage to the IRS.

• They must offer affordable, minimum-value coverage to at least 95% of full-time employees and dependents.
• "Affordable" means the employee's share of self-only coverage doesn't exceed a set income-based percentage.
• Employers must file Forms 1094-C and 1095-C with the IRS annually to report coverage details.
• Visit the IRS website to see if the ACA applies to your business.

Smaller businesses with fewer than 50 full-time employees may still be subject to certain ACA requirements depending on their specific circumstances. Check the IRS website for additional information on ACA tax provisions for small employers.

Key Texas payroll laws

While federal payroll laws provide the baseline, Texas has its own requirements that employers must follow. If you have employees working in Texas, it's important to understand how these state-level rules align with or differ from federal regulations.

Minimum wage in Texas for 2025

As of January 1, 2025, Texas continues to follow the federal minimum wage of $7.25 per hour for most employees. Unlike some other states, Texas does not have separate minimum wage rates for specific industries like fast food or healthcare.

Texas overtime rules

Employers in Texas must follow federal overtime laws under the Fair Labor Standards Act (FLSA). These rules apply to most nonexempt employees.

• Standard overtime pay: Employees must be paid 1.5 times their regular rate of pay for:
• Hours worked over 40 in a single workweek.
• No daily overtime or double-time:
• Texas does not require overtime pay based on hours worked per day.
• There is no double-time requirement under Texas or federal law.

Pay frequency

The Texas Payday Law (Texas Labor Code, Chapter 61) regulates how often employees must be paid. These laws ensure timely wage payments based on employment type and pay schedule.

• Nonexempt employees must be paid at least twice per month (typically via semi-monthly pay schedules).
• Exempt employees must be paid at least once per month.
• Employers must provide written notice of paydays upon hire and post the pay schedule in visible areas.
• If no pay schedule is formally designated, the default payday schedule is assumed to be the 1st and 15th of each month.
• Employers must issue final wages within six calendar days after involuntary termination or on the next regular payday after voluntary resignation.

Semi-monthly pay periods

• Wages earned between the 1st and 15th must be paid no later than the 26th.
• Wages earned between the 16th and the end of the month must be paid by the 10th of the following month.

Other pay periods (weekly, biweekly, etc.)

• Wages must be paid no later than the seventh day after the end of the pay period.

Overtime pay

• Must be paid on the regular payday for the period in which the overtime was earned.
• If a correction is needed, it must appear on the next regularly scheduled payday with details on what time period it covers.

Exception for exempt employees

Executive, administrative, and professional employees under FLSA rules may be paid monthly as long as their full salary is paid in a timely manner, typically by the 1st of the following month.

Final paycheck laws in Texas

Texas law outlines clear rules for when final wages must be paid, depending on how the employment relationship ends:

• Termination (fired or laid off): The employer must issue the final paycheck within 6 calendar days after the termination date.
• Voluntary resignation: Final pay depends on the pay schedule.
• With 72+ hours' notice: Final wages are due on the next regularly scheduled payday.
• Without notice: Final wages are due on the next regularly scheduled payday.
• Accrued vacation (PTO payout): Employers must include unused vacation or PTO in the final paycheck only if their policy or employment agreement promises payment.
• Waiting time penalty: Texas does not impose automatic penalties for late payment, but employees can file a wage claim through the Texas Workforce Commission.
• Additional considerations:
• Sick leave: Employers are not required to pay out unused sick leave unless their written policy says otherwise.
• Severance pay: This is not required under Texas law but may be offered as part of a contract or company policy.
• Deductions: Employers may not deduct for unreturned property or other costs unless authorized by law or written agreement with the employee.

For more detailed information, refer to the Texas Workforce Commission's resources on final wages and employee rights.

State-specific recordkeeping requirements

Texas employers must keep payroll and employment records for a minimum of three years. Records must include employee names, addresses, occupations, dates of employment, hours worked, wages paid, and deductions made. These records must be made available for inspection by the Texas Workforce Commission upon request.

Tip credit rules

Texas follows the federal Fair Labor Standards Act (FLSA) regarding tip credits. Employers may pay tipped employees as little as $2.13 per hour if the employee earns enough in tips to bring their total hourly wage to at least $7.25. Employers must inform employees in advance about the use of a tip credit and must allow employees to retain all tips, except when participating in a valid tip pool.

Texas payroll taxes

In Texas, employers must meet federal tax requirements but have fewer state-level payroll tax obligations. Texas does not levy a state income tax or a state disability insurance tax, but employers are responsible for the following key state payroll programs:

Unemployment Tax (SUTA)

Texas unemployment tax provides temporary financial assistance to eligible workers who lose their jobs through no fault of their own. The program is administered by the Texas Workforce Commission (TWC).

Texas Workforce Commission (TWC) Reporting

Employers must file quarterly wage reports with the TWC and pay unemployment taxes on the first $9,000 of each employee's annual earnings. Accurate and timely reporting is required to avoid penalties.

Texas payroll compliance requirements

Texas employers must adhere to specific payroll requirements to remain compliant with state law. Understanding these responsibilities helps ensure timely payments, accurate reporting, and proper tax filings. Here's what you need to know to keep your business on track in Texas.

Register with the Texas Workforce Commission (TWC)

Before hiring employees, you must register your business with the TWC to report wages and pay unemployment taxes. This can be done online through the TWC's Unemployment Tax Registration portal.

Obtain a Federal Employer Identification Number (EIN)

All Texas employers must have an EIN from the IRS for tax reporting purposes. You can apply for an EIN online, and you'll need this number for filing payroll taxes.

Set up a payroll system

Implement a payroll system or provider that can calculate wages, withhold federal taxes, and generate pay stubs. Your system should also track hours worked, overtime, and deductions to ensure accurate recordkeeping.

Withhold and report federal taxes

Even though Texas has no state income tax, you must still withhold federal income tax, Social Security, and Medicare. File these withholdings with the IRS on a regular schedule using the appropriate forms, such as 941 or 944.

File quarterly wage reports with the TWC

Employers are required to submit wage reports to the Texas Workforce Commission each quarter. These reports include employee wages and unemployment tax contributions and must be filed on time to avoid penalties.

Can an employer withhold a paycheck for any reason?

No. Employers cannot withhold a paycheck for any reason not allowed by law. They are legally required to pay all earned wages on time. Deductions are only permitted if:

• Required by law (e.g., taxes, wage garnishments)
• Authorized in writing by the employee (e.g., benefits)
• Covered under a collective bargaining agreement

Employers may not withhold wages as punishment or for issues like property damage. Unlawful withholding can lead to legal action by the employee.

Consequences of non-compliance

In addition to the specific regulatory actions outlined above, failing to follow Texas's payroll rules can lead to broader consequences for your business:

Financial penalties

The Texas Workforce Commission may impose late fees, interest, or fines for missing wage reports or failing to pay unemployment taxes. Repeated violations can lead to escalating penalties that strain your business finances.

Employee claims and lawsuits

Employees may file wage claims with the TWC if they believe they were underpaid or not paid on time. Unresolved claims can escalate to civil lawsuits, leading to legal fees and potential back pay awards.

Audits and investigations

The TWC may audit your business if payroll irregularities are suspected or if a wage claim is filed. Audits can uncover additional violations and trigger further investigation or enforcement actions.

Reputation damage

Failing to meet payroll obligations can harm your business's reputation with both current employees and the public. Negative publicity or online reviews may deter potential hires and customers.

Operational setbacks

Non-compliance can cause distractions that pull resources away from daily operations. You may need to spend time and money correcting errors, responding to claims, or responding to investigators.

Common payroll mistakes (and how to avoid them)

Payroll mistakes can cost businesses more than just money — they can lead to fines, compliance violations, and damaged employee trust. Below are some of the most frequent errors companies make, along with ways to prevent them.

Misclassifying employees

Misclassifying a worker in Texas — such as labeling an employee as an independent contractor — can lead to serious consequences. The Texas Workforce Commission or IRS may investigate if you file both a W-2 and a 1099 for the same person, which often signals a potential classification error.

How to avoid this:

• Use the IRS and Texas Workforce Commission (TWC) criteria to distinguish contractors from employees
• Use QuickBooks payroll features to categorize workers and file the correct forms.
• Audit classifications regularly to stay compliant.

Underpaying employees

Not paying employees properly can result in major financial fallout. In 2024, the U.S. Department of Labor's Wage and Hour Division recovered over $273 million in unpaid wages and damages for nearly 152,000 workers across the country.

How to avoid this:

• Stay current on wage and hour laws.
• Run regular payroll audits.
• Use automated payroll and time-tracking tools, like a time card calculator.
• Train staff on compliance basics.
• Keep accurate, organized records.

Miscalculating overtime

Overtime mistakes are a top source of wage claims. Errors like not separating regular from overtime hours or applying the wrong rate can add up fast.

How to avoid this:

• Make sure your payroll system automatically correctly tracks and calculates overtime.
• Review exempt vs. nonexempt classifications.
• Train staff on both federal and Texas overtime rules.
• Use timesheet templates to help employees accurately track their hours and overtime.

Late wage payments

Paying employees late damages trust and can lead to penalties.

How to avoid this:

• Automate payroll with scheduled direct deposits.
• Monitor cash flow regularly.
• Use payroll calendar templates, alerts, and reminders to track due dates and meet deadlines.

Poor recordkeeping

Incomplete or inaccurate records can derail compliance, lead to fines, and make it hard to defend against claims.

How to avoid this:

• Keep detailed records of hours, wages, classifications, and deductions.
• Use secure, digital payroll software to track and store information.
• Back up your data regularly.

Timesheet errors

According to QuickBooks research, U.S. employers report needing to fix errors on 80% of employee-submitted timesheets. One of the main causes? Employees forget to clock in or out and later struggle to recall their actual hours worked.

How to avoid this:

• Employ digital time-tracking software and tools with real-time clock-in/clock-out features.
• Enable automated reminders or mobile alerts to prompt employees throughout the day.
• Train staff on proper timekeeping procedures and the importance of accurate reporting.
• Review timesheets regularly before processing payroll to catch discrepancies early.

Incorrect tax withholding

Failing to withhold the correct amount of federal, state, or local taxes can result in penalties.

How to avoid it:

• Use payroll software that automatically calculates and withholds the correct taxes for each jurisdiction.
• Stay up to date with IRS and state tax rate changes each year.
• Review employee W-4 forms regularly and update them as needed.
• Reconcile payroll tax filings with payment records to catch discrepancies early.
• Work with a payroll provider that offers tax filing and accuracy guarantees.
• Accurately estimate taxes and net pay by using a Texas paycheck calculator before processing payroll.
• Consult a tax professional in Texas who understands the state's payroll landscape to ensure you're meeting all local obligations and staying compliant.

Payroll resources for Texas employers

Employers in Texas must comply with both state and federal requirements, which involves coordination with several government agencies. Here's a summary of the most relevant ones:

• Texas Workforce Commission (TWC): Manages Texas unemployment taxes and employer wage reporting. Employers must register with the TWC to report wages, pay unemployment tax, and maintain compliance with state regulations.
• Texas Comptroller of Public Accounts: Oversees business-related taxes such as the franchise tax and sales tax, though it does not manage payroll or income taxes. Businesses may still need to register with the Comptroller depending on their structure and services.
• Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC): Regulates workers' compensation for employers who choose to provide it. It sets rules for coverage, reporting, and claims handling for workplace injuries.
• Internal Revenue Service (IRS): Handles federal payroll tax responsibilities, including federal income tax withholding, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) compliance.
• U.S. Department of Labor (DOL): Enforces federal labor laws under the Fair Labor Standards Act (FLSA), including minimum wage, overtime, and recordkeeping rules.

Simplify payroll law compliance for your Texas business

Staying compliant with Texas payroll laws can feel overwhelming, especially as your business grows and regulations change. QuickBooks Payroll helps you stay accurate and compliant by automatically calculating, filing, and paying your federal and state payroll taxes—backed by a 100% accuracy guarantee and tax penalty protection.** On-the-go time tracking with QuickBooks Time keeps employee hours organized and synced. Plus, as your business grows, QuickBooks scales with you, offering the right tools to support faster, more seamless payroll.

Disclaimer: *

Accuracy Guaranteed: Available with QuickBooks Online Payroll Core, Premium, and Elite. We assume responsibility for federal and state payroll filings and payments directly from your account(s) based on the data you supply. As long as the information you provide us is correct and on time, and you have sufficient funds in your account, we'll file your tax forms and payments accurately and on time or we'll pay the resulting payroll tax penalties. Guarantee terms and conditions are subject to change at any time without notice.

Tax penalty protection: If you receive a tax notice and send it to us within 15 days of the tax notice we will cover the payroll tax penalty, up to $25,000. Additional conditions and restrictions apply. Only QuickBooks Online Payroll Elite users are eligible to receive tax penalty protection.

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