How to Hire Employees in Texas: The Complete Guide for Small Businesses

Hiring your first employee in Texas is simpler than most states, but "simpler" does not mean "simple." There are 8 compliance steps with hard deadlines, and missing any of them creates fines that cost more than your new hire's first paycheck. Form I-9 Section 2 must be completed by the end of the third business day. The new hire report must be filed within 20 calendar days. The TWC registration must happen within 10 days. These are not guidelines. They are deadlines with dollar amounts attached.

Every guide about hiring in Texas is written by a payroll company trying to sell you payroll software or an employer-of-record service that wants you to outsource the entire process. This guide is written for small business owners who are doing this themselves, without an HR department, and who need to know exactly what to do, when to do it, and what happens if they miss a deadline.

I built FirstHR because these compliance deadlines should not require a payroll degree to understand or a $500/month software subscription to track. The steps below are the same steps our platform automates for Texas employers: e-signature for I-9 and W-4, task reminders for the 20-day new hire report, separate I-9 document storage, and an AI-generated onboarding plan, built from the new hire's position, that runs from pre-boarding through the first month and beyond.

Texas Hiring at a Glance: Every Deadline in One Place

Before diving into each step, here is the complete compliance timeline. Every deadline below is legally enforceable with a specific penalty for non-compliance.

Knowing the deadlines is not the part that fails. Recording who owns each one and the date it was actually done is. The first tab below is the setup you do once as an employer; the second is a row per new hire, with a column for where the completed form or confirmation number ended up.

The rest of this guide walks through each step in detail with links to the official government sources, the exact forms you need, and the specific Texas rules that differ from other states.

Step 1: Get Your Federal Employer Identification Number (EIN)

Before you can hire anyone, you need a Federal Employer Identification Number. This is the IRS's way of identifying your business for tax purposes. You use it on every tax form, payroll report, and state registration. Apply online at IRS.gov. The application takes 10 minutes and you receive the EIN immediately.

If you already have an EIN from when you formed your business, you do not need a new one. If you have been operating as a sole proprietor without employees and using your SSN for taxes, you need an EIN now. You cannot use your SSN for payroll tax reporting.

Step 2: Register with the Texas Workforce Commission (TWC)

The Texas Workforce Commission (TWC) administers unemployment insurance in Texas. You must register within 10 days of becoming a "liable employer." According to the Department of Labor's Significant Provisions of State Unemployment Insurance Laws (January 2026), the Texas trigger is $1,500 in wages in any calendar quarter, or one employee for 20 weeks in a calendar year.

Registration is done online. You will receive a TWC tax account number and your initial unemployment insurance tax rate. The same DOL table puts the Texas taxable wage base at $9,000 per employee, the new employer rate at 2.70%, and the experience-rated range at 0.32% to 6.32%. Your rate then adjusts annually on your claims history.

Who Is a "Liable Employer" in Texas?

Most small businesses become liable employers as soon as they hire their first employee, because even a part-time employee working 20 weeks in a year triggers the threshold. If you are unsure, register proactively. It is better to register early than to register late and face penalties.

Step 3: Verify Employment Eligibility (Form I-9)

Every employee in the United States must complete Form I-9 to verify their identity and authorization to work. The form has two parts with different deadlines.

Section 1 is completed by the employee on or before their first day of work. The employee provides their name, address, date of birth, Social Security number, and attests to their citizenship or work authorization status.

Section 2 is completed by the employer by the end of the employee's 3rd business day. You examine original documents from the employee that prove identity and work authorization. You record the document information on the form. You cannot specify which documents the employee must present.

A paperwork violation is priced per person, not per audit. Under 8 CFR 274a.10 the civil penalty runs from $288 to $2,861 for each individual the violation involves, so a sloppy stack of ten I-9s is ten separate exposures.

I-9 Retention

Retain I-9 forms for 3 years from the date of hire OR 1 year after the date of termination, whichever is later.

E-Verify in Texas

E-Verify is voluntary for private employers in Texas as of 2026. Senate Bill 374 (2015) added Government Code Chapter 673, which makes each state agency register and use E-Verify for its own new employees. Nothing extends that duty to private business.

The 2025 session came closest. Senate Bill 324 would have reached state contractors, political subdivisions, and private employers; it passed the Senate, was referred to House State Affairs on May 2, 2025, and died there. Even without E-Verify, you must still complete the I-9 for every hire.

Step 4: Collect Form W-4 Before the First Paycheck

Every employee must complete IRS Form W-4 before receiving their first paycheck. The W-4 tells you how much federal income tax to withhold from each paycheck. Because Texas has no state income tax, there is no state withholding form. This is one of the advantages of hiring in Texas: payroll setup is simpler because you are dealing with one fewer layer of tax withholding.

If an employee hands you no completed W-4, there is no penalty rate to fall back on. According to IRS Tax Topic 753, you withhold as if the employee is single or married filing separately with no other entries on steps 2, 3, or 4. That usually withholds more than they wanted, which makes the W-4 a Day 1 priority.

Step 5: File Your New Hire Report Within 20 Days

According to the Texas Office of the Attorney General, federal and state law require employers to report new hires and rehires within 20 calendar days of the date the employee starts earning wages. The report carries the employee's name, address, and Social Security number plus your business name, address, and FEIN.

The Child Support Division is the designated agency, and it gives a usable rule of thumb: if the worker has to fill out a Form W-4, report them. Under 42 U.S.C. 653a a state may charge up to $25 for each unreported new hire, and up to $500 where the employer and the employee agreed between them not to report.

Step 6: Decide on Workers' Compensation Coverage

Texas is one of very few states where workers' compensation insurance is voluntary for most private employers. Most states make coverage mandatory once a business reaches a set headcount, so this decision is a step most other state hiring guides never need.

If You Carry Workers' Comp (Subscriber)

Purchase a policy from a licensed insurance carrier or through the Texas Mutual Insurance Company. Workers' comp covers medical costs and lost wages for employees injured on the job, and protects you from most employee injury lawsuits.

If You Do Not Carry Workers' Comp (Non-Subscriber)

The Texas Department of Insurance, Division of Workers' Compensation sets out three standing duties for a non-subscriber. File the notice of no coverage with DWC after you hire your first employee, after you cancel a policy, and then annually between February 1 and April 30.

Posting is the second duty. Put notices of no coverage where employees regularly see them, in English, Spanish, and any other language your workforce needs. The third duty is personal: give each new employee written notice that the business carries no coverage.

A fourth duty arrives after an incident. A non-subscriber with at least five employees files a Non-covered Employer's Report of Occupational Injury or Illness (DWC Form-007) for any work-related injury costing more than one day away, and for occupational illnesses and deaths, by the seventh day of the following month.

The trade is what you give up in court. Non-subscribers lose three common-law defenses in employee injury lawsuits: contributory negligence, assumption of risk, and the fellow employee doctrine.

Step 7: Post Required Federal and Texas Labor Law Posters

Federal and Texas law require you to display specific labor law posters in a common area where all employees can see them. The posters must be physically displayed for on-site employees.

Download federal posters from DOL.gov. Texas-specific posters are available at twc.texas.gov (search "posters for the workplace"). Both provide free downloadable versions. Do not pay a vendor for posters you can download for free.

Posting is cheap and not posting is not. OSHA prices a posting requirement violation at up to $16,550, the same maximum as a serious violation, for violations assessed after January 15, 2026. The EEOC charges up to $680 for failing to display the Know Your Rights poster.

Step 8: Onboard for Day 1 Through Day 90

Compliance gets the employee legally on your payroll. Onboarding makes them productive. According to SHRM, up to 20% of employee turnover happens within the first 45 days, which is where your hiring investment either pays off or gets wasted.

Paperwork left for the first morning therefore lands on the wrong side of that window. Every step above should be finished before or on Day 1, so the first day is about the work and the people rather than forms.

I built FirstHR to handle this entire workflow for Texas employers. The offer letter goes out with e-signature. The I-9, W-4, and direct deposit forms are collected digitally before Day 1. The system reminds you of the 3-day I-9 deadline and the 20-day OAG report. The AI onboarding wizard builds a role-specific onboarding plan from the position you are hiring for, which you can extend into a 30-60-90 day plan, all on flat, predictable pricing.

Texas-Specific Employment Rules Every Employer Should Know

Texas employment law differs from most other states in several important ways. These differences affect how you write your employee handbook, handle terminations, and what compliance obligations you have from Day 1.

Two of those rows come straight off federal tables you can check yourself. The Department of Labor's state minimum wage page records that Texas adopts the federal rate by reference, and its state payday requirements table carries the Texas split: once a month for anyone exempt from FLSA overtime, twice a month for everyone else.

City-Specific Requirements: Austin, Dallas, Houston

Texas preempts local employment ordinances by statute, so the city layer is far thinner here than in most states. The rule to know is House Bill 2127, the Texas Regulatory Consistency Act, effective September 1, 2023.

It added Labor Code Section 1.005, which says that unless another statute expressly authorizes it, a municipality or county may not adopt, enforce, or maintain an ordinance regulating conduct in a field the Labor Code occupies. An ordinance that does is "void, unenforceable, and inconsistent with this code."

The act has teeth beyond that sentence. It gives a business injured by such an ordinance standing to sue the municipality or county, and a claimant who wins recovers declaratory relief, injunctive relief, costs, and reasonable attorney fees.

Paid sick leave is exactly such a field, because leave and wages are Labor Code territory, which is what makes the local ordinances of the past decade a dead letter. The one live local rule a Texas small business still has to plan around is in Austin.

The practical advice: build your process on federal and Texas state law, then add the Austin fair chance step if you hire there. The city publishes the ordinance, the rules, and an employer fact sheet on its Fair Chance Hiring page.

Employee vs Independent Contractor: Do Not Get This Wrong in Texas

Misclassifying an employee as an independent contractor is one of the most expensive hiring mistakes a Texas small business can make. The TWC actively investigates misclassification complaints, and the penalties include back unemployment taxes plus penalties and interest on every misclassified worker.

Texas uses the TWC 20-factor test, which is similar to the IRS common-law test. The core question: do you control how the work is done, or only what result is delivered?

When in doubt, classify as W-2. The cost of properly employing someone is always less than the cost of a misclassification finding.

The 5 Mistakes That Cost Texas Small Businesses the Most

These are the compliance errors I see most frequently at Texas small businesses. Each one is preventable with a simple process or reminder. Each one is expensive when missed.

The common thread: every mistake is a timing error, not a knowledge error. The employer knows they need to complete the I-9. They just did not do it by Day 3. Compliance fails when the founder gets busy, not when they do not know the rules. That is why automated reminders and task workflows matter more than compliance knowledge at SMB scale.

Frequently Asked Questions