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. The I-9 must be completed within 3 business days. 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 with 5 to 50 employees 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 that turns a compliance checklist into a structured first 90 days.

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.

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. The general hiring guide covers the federal process. This guide focuses on what is different in Texas.

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." You become liable when you pay $1,500 or more in total wages in a calendar quarter, or when you have at least one employee for 20 or more different weeks in a calendar year.

Registration is done online. You will receive a TWC tax account number and your initial unemployment insurance tax rate. New employers in Texas receive an entry rate of 2.70% on the first $9,000 of each employee's wages. This rate adjusts annually based on your claims experience.

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. The new hire orientation guide covers what happens after registration.

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.

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. The employee records retention guide covers the full schedule.

E-Verify in Texas

E-Verify is voluntary for private employers in Texas as of 2026. State agencies and state contractors are required to use E-Verify. Senate Bill 324, which would have expanded the requirement, did not pass in the 2025 legislative session. 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 does not submit a W-4 before their first paycheck, you must withhold at the highest rate (Single with no adjustments). This makes the W-4 a Day 1 priority. The tax forms guide covers every tax document required at hiring.

Step 5: File Your New Hire Report Within 20 Days

Texas law requires you to report every new hire to the Texas Office of the Attorney General (OAG) within 20 calendar days of the hire date. The report requires 7 data elements: your business name, address, and FEIN, plus the employee's name, address, Social Security number, and date of hire.

Since 2017, Texas also requires reporting of independent contractors. The penalty for late reporting is $25 per report. The Texas new hire reporting guide has the complete walkthrough with the OAG portal.

Step 6: Decide on Workers' Compensation Coverage

Texas is the only state in the US where workers' compensation insurance is voluntary for most private employers. This makes the workers' comp decision a Texas-specific step that does not exist in any other state's hiring guide.

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)

You must file DWC Form-005 (Notice of Non-Coverage) with the Texas Department of Insurance, Division of Workers' Compensation. You must post the notice in the workplace and provide a copy to every new hire on or before their first day. Non-subscribers lose three common-law defenses in employee injury lawsuits: contributory negligence, assumption of risk, and the fellow employee doctrine. The compliance onboarding guide covers how to document this decision.

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. The HR rules and regulations guide covers the full set of federal requirements by company size.

Step 8: Onboard for Day 1 Through Day 90

Compliance gets the employee legally on your payroll. Onboarding makes them productive. Research from the Work Institute shows that 20% of employee turnover happens within the first 45 days, which means the onboarding phase is where your hiring investment either pays off or gets wasted. Every step above should be completed before or on Day 1 so the first day focuses on the work, not the paperwork.

The employee onboarding checklist provides the full 50+ task list. The 30-60-90 day plan guide covers the milestone framework.

I built the AI onboarding wizard in 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 generates a 30-60-90 day plan from the job description. All for $98/month flat, no per-employee fees.

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.

The Texas HR compliance guide in our compliance hub covers these rules in full detail. The HR laws guide covers federal employment laws that apply in every state.

City-Specific Requirements: Austin, Dallas, Houston

Texas preempts most local employment ordinances, but a few city-level requirements exist or are in legal flux.

The practical advice: follow federal and Texas state law for all locations. For Austin and Dallas, check the city government websites annually for updates on contested ordinances. The new hire paperwork guide covers every form required at the federal level.

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 employee vs contractor guide covers the full classification framework. The contractor onboarding guide covers the W-9, independent contractor agreement, and 1099 process for legitimate contractors.

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. The onboarding documents guide covers every form and deadline in one checklist.

Frequently Asked Questions