How to Hire Employees in Texas: A Small Business Guide

Here is the good news if you are making your first hire in Texas: it is genuinely simpler here than in most of the country. No state income tax means no state withholding form. Workers' compensation is optional, the only state where that is true. The minimum wage just tracks the federal rate. Compared with California or New York, the Texas hiring checklist is short.

But short does not mean obvious. There are two separate Texas agencies you have to deal with, on two different deadlines, and most guides blur them together. There is a workers' comp decision with real trade-offs. And there is a line between the paperwork the government requires and the paperwork that actually protects your business, a line most small employers never see.

This guide walks the whole process for a small business without an HR department: every step, in order, with the Texas-specific rules called out. I build FirstHR, which handles the onboarding, document management, and task tracking that turn this checklist into a repeatable routine, and it pairs with a payroll provider for the payroll step. One note: Texas hiring rules can change with legislation, so the details here are current as of writing but worth confirming against the state agencies, and this is general information, not legal advice.

Why Texas Is Simpler Than Most States

Before the steps, it helps to know what Texas does not require, because that is where much of the simplicity comes from and it shapes the whole process.

Three things stand out. Texas has no state income tax, so there is no state withholding form to collect, just the federal W-4. Workers' compensation is optional for most private employers, the only state where that is the case. And the state minimum wage simply matches the federal $7.25 per hour rather than setting a higher figure. Texas is also an at-will and right-to-work state, which keeps the employment relationship legally straightforward.

So the mental model is: a short list, but every item on it still matters. The rest of this guide is that list, in the order you should work through it, with the Texas-specific traps flagged. It sits alongside the general basics of running HR at a small business.

The Steps to Hire an Employee in Texas

Here is the full sequence at a glance. The rest of the guide takes each step in turn.

Notice that classification comes first. That is deliberate: whether the person is an employee or a contractor determines whether most of the rest of this list even applies, which is why it is worth getting right before anything else.

Step 1: Classify the Worker

Before any paperwork, decide whether you are hiring an employee or engaging an independent contractor, because the answer changes almost everything that follows.

The distinction turns on control and independence, not on what you call the person. An employee works under your direction, with you controlling how, when, and where the work happens; you owe employment taxes and the full hiring checklist for them. A genuine contractor runs their own business, sets their own methods, and usually serves multiple clients; you do not owe employment taxes for them, though Texas still requires you to report contractors for new-hire purposes.

This guide covers hiring an employee. If you conclude the person is genuinely a contractor, most of the steps below do not apply, though the new-hire report does. The full distinction is in employee versus contractor.

Step 2: Get a Federal EIN

An Employer Identification Number is your business's federal tax ID, and you need one to hire, run payroll, and file employment taxes.

You apply for an EIN through the IRS online, at no cost, and it is typically issued immediately. Even a single-owner business generally needs one once it has employees, because the EIN is how the IRS and the state agencies identify you as an employer. Get this early, because the TWC registration, new-hire reporting, and payroll setup that follow all reference your EIN.

This is a purely federal step, identical whether you hire in Texas or anywhere else. It is the foundation the rest of your payroll setup is built on.

Step 3: Register With the Texas Workforce Commission

This is the first genuinely Texas-specific step, and the first of two separate state agencies you will deal with. The Texas Workforce Commission handles your state unemployment tax.

The important thing to hold onto is that this TWC registration is your unemployment tax obligation, and it is completely separate from the new-hire report you will file in Step 5 with a different agency. Do not assume registering with TWC covers your reporting duty; it does not. State unemployment tax is a recurring obligation, part of your ongoing payroll tax responsibilities.

Step 4: Complete Form I-9 and Collect Form W-4

These are the two core federal new-hire forms, and here Texas actually removes a form rather than adding one.

Form I-9 verifies the employee's eligibility to work in the United States; you must complete the employer section within the required window after the employee starts. Form W-4 tells you how much federal income tax to withhold. And that is it for withholding forms, because Texas has no state income tax, there is no state W-4 to collect, which is one form fewer than employees in most states deal with.

Note that Form I-9 is the required eligibility check for all employers. E-Verify, the electronic federal system, is a separate step that most Texas private employers are not required to use as of writing, though that could change with future legislation. The full set of documents a new hire signs is covered in new hire paperwork.

Step 5: Report the New Hire to the Attorney General

This is the step most often missed, because it goes to a different agency than the tax registration and sounds bureaucratic. It is not optional.

Per the Texas Attorney General, you must report each new hire to the OAG's Child Support Division within 20 calendar days of the hire date, through the employer portal. The requirement exists to help locate parents who owe child support, and it applies to essentially every new employee, and in Texas to independent contractors as well. There is a per-employee penalty for failing to report, so it belongs in your standard hiring routine.

Because this trips up so many small employers, it is worth a dedicated walkthrough, which is exactly what our Texas new hire reporting guide provides, including the portal, the required data elements, and the contractor rules.

Step 6: Address Workers' Compensation

Here is the most genuinely Texas-specific decision in the whole process, and one with real trade-offs: whether to carry workers' compensation at all.

Texas is the only state where workers' compensation is optional for most private employers. You can carry coverage, or you can go without it as a non-subscriber. But going without is not a do-nothing option; it comes with its own obligations.

The practical point is that workers' comp in Texas is a genuine decision, not an automatic requirement, but neither choice is a non-event. Carrying coverage costs money; skipping it means filing obligations and legal exposure. For a small business, it is worth understanding both sides before defaulting to whichever seems cheaper, and it connects to your broader obligations under employment law.

Step 7: Post Notices and Set Up Payroll

The final steps get you operating: display the required notices, and set up the payroll that actually pays your new employee.

On payroll specifically, a candid note: FirstHR is not a payroll processor. It handles onboarding, document management, compliance tracking, and task workflows, and it pairs with a dedicated payroll provider for the actual pay runs. Whichever payroll tool you use, the mechanics of running payroll and staying on top of payroll compliance are where this final step lives.

Beyond the Legal Minimum: Documents That Protect You

Here is the part almost every competing guide skips, and it is where small businesses without HR get exposed. The government-required forms are only half of a good hiring process.

Most owners complete the I-9 and W-4, handle the state filings, and stop, with nothing in writing about the actual terms of employment. That leaves a gap. A short written offer letter that states the position, the pay, and that the employment is at-will documents the arrangement and reduces the risk of a later dispute over what was agreed. An employee handbook with clear policies does the same at scale, giving you a consistent, written basis for how you handle things.

The takeaway is to treat hiring as two layers: the government-required forms that keep you compliant, and the written terms that keep you protected. A good onboarding process captures both automatically, which is a core part of a solid employee onboarding flow and the wage-law backdrop set by the Fair Labor Standards Act.

A final quick check before you consider a Texas hire complete.

Work through those and your Texas hire is both compliant and defensible. The list is short by design, Texas makes it so, but each item earns its place, and building them into a repeatable onboarding routine is what keeps hiring smooth as you grow.

Frequently Asked Questions