Texas HR Compliance: Complete Guide for Employers

When I started hiring employees in Texas, I assumed that because there is no state income tax, the regulatory environment must be minimal. That is mostly true. Texas is genuinely one of the most employer-friendly states in the country. But "mostly" is doing a lot of work in that sentence. There are a handful of Texas-specific requirements that are easy to miss and expensive to get wrong, and one of them (SB 45 on sexual harassment) applies to literally every employer regardless of size.

This guide covers what Texas employers actually need to know: where Texas simply follows federal law, where it adds its own unique requirements, and where it deliberately opts out of requirements that other states impose. The goal is to help you run a compliant Texas business without hiring a lawyer to read every statute. FirstHR was built for exactly this kind of employer: a small business that needs to get compliance right without a dedicated HR department.

Why Texas Is Called an Employer-Friendly State, and What That Actually Means

Texas operates under strict at-will employment doctrine. Either party can end the employment relationship at any time, for any reason or no reason, without notice. Unlike California (which recognizes four exceptions to at-will) or most other states (which recognize at least public policy exceptions), Texas courts recognize only one judge-made exception: the Sabine Pilot doctrine, established in Sabine Pilot Service, Inc. v. Hauck (Tex. 1985), which prohibits firing an employee for refusing to perform an illegal act. That is essentially it for common law exceptions in Texas.

Texas also does not recognize the implied covenant of good faith and fair dealing as an employment doctrine, and the implied contract exception (where handbook language creates enforceable promises) is interpreted extremely narrowly. This is why the at-will statement in your handbook matters so much: progressive discipline language that says the company "will" follow certain steps can create an implied contract. Use permissive language throughout your handbook. For guidance on handbook structure, see the employee handbook guide.

Texas is also a right-to-work state, which means employees cannot be required to join a union or pay union dues as a condition of employment (Texas Labor Code §§ 101.052-053). The practical effect for most small businesses is minimal since union density in Texas private sector employment is low.

No Texas WARN Act

Texas does not have its own version of the federal WARN Act. Only the federal law applies, which requires 60 days' advance written notice before a plant closing or mass layoff for employers with 100 or more full-time employees. The TWC maintains a registry of WARN notices filed by Texas employers. If you have under 100 employees, no WARN notice is required at all. This is a significant difference from New York (50 employees, 90 days) or California (75 employees, 60 days). For context on how Texas compares to other states on employee protections, see the New York HR compliance guide.

Worker Classification: The TWC 20-Factor Test

The Texas Workforce Commission uses a 20-factor direction-and-control test to determine whether a worker is an employee or independent contractor, based on Texas Unemployment Compensation Act §201.041. The TWC presumes employment status, putting the burden of proof on the employer to establish independent contractor status. The TWC is not bound by IRS safe harbor rules, so a worker classified as a contractor for federal tax purposes may still be considered an employee under Texas unemployment law. Since 2019, Texas also regulates "marketplace contractors" (gig workers for app-based platforms) under 40 T.A.C. §815.134(b), which creates a separate classification framework for those workers. For contracts, W-9s, and 1099-NEC requirements when you do engage true independent contractors, see the contractor onboarding guide.

Hiring and Onboarding: Required Documents and Reports

Texas requires fewer documents at hire than most states. There is no state income tax withholding form (because there is no state income tax), and Texas does not mandate pay transparency in job postings. The required documents are straightforward, but the workers' comp notice requirement catches many employers from other states by surprise. For a complete onboarding checklist, see the onboarding checklist guide.

New Hire Reporting: 20 Days to the OAG

All Texas employers, regardless of size, must report newly hired and rehired employees to the Office of the Attorney General (OAG) child support division within 20 calendar days of the hire date. If you report electronically, you must report at least twice per month with no more than 16 days between reports. Required information includes the employee's name, Social Security number, address, date of hire, and the employer's FEIN. The penalty is $25 per unreported employee and $500 if the failure resulted from a conspiracy between employer and employee (Texas Family Code §§ 234.101-234.105). Report online at the TWC's new hire reporting portal. For state-by-state new hire reporting requirements, see the new hire reporting guide and the Texas new hire reporting guide.

E-Verify

E-Verify is not required for most private Texas employers. It is mandatory for state agencies, state contractors, and sexually oriented businesses under Texas Government Code §2264.101. A 2025 Senate bill (SB 324) that would have extended the requirement to private employers passed the Senate but did not advance through the House, so E-Verify remains voluntary for most businesses.

Background Checks: New Statewide Ban-the-Box (HB 2466)

Effective September 1, 2025, HB 2466 prohibits employers with 15 or more employees from asking about criminal history on an initial job application. Criminal history questions are only permitted after: the employer has determined the applicant meets the minimum qualifications, has invited the applicant to an interview, or has made a conditional offer of employment. Exceptions apply to positions where background checks are legally required (law enforcement, healthcare, finance, childcare). The federal Fair Credit Reporting Act (FCRA) applies in full when you run a background check: written disclosure and authorization before the check, and a multi-step adverse action process (pre-adverse action notice, waiting period, final adverse action notice) before taking action based on the results. The federal Fair Credit Reporting Act requirements (written consent, adverse action procedures) apply in full when you do run a background check.

Drug Testing: No Restrictions

Texas does not regulate drug testing for private employers. You may conduct pre-employment, random, post-accident, and reasonable-suspicion testing without restriction. Best practice is a written drug-free workplace policy distributed to employees before testing, informed consent, and a certified laboratory. Unlike California and New York, Texas has no cannabis protection law for employees, so you may test for cannabis and take adverse action based on results.

Wages, Overtime, and the Texas Payday Law

Minimum Wage

The Texas minimum wage is $7.25 per hour, set by the Texas Minimum Wage Act (Texas Labor Code Chapter 62) to match the federal floor. This rate has not changed since July 24, 2009. Tipped employees may be paid $2.13 per hour as a cash wage provided tips bring their total hourly compensation to at least $7.25. Workers under 20 years old may be paid $4.25 per hour during their first 90 consecutive days of employment (the federal youth minimum wage). Texas cities cannot set their own higher minimum wages under HB 2127. Check twc.texas.gov for current wage information.

Overtime

Texas follows federal FLSA overtime rules: 1.5x the regular rate for hours worked beyond 40 in a workweek. There is no daily overtime (unlike California, which requires overtime after 8 hours per day). There is no mandatory premium for weekend or holiday work. The exempt salary threshold is $684 per week ($35,568 per year) after a federal court in the Northern District of Texas vacated the DOL's 2024 rule that would have raised it to $1,128 per week. That November 2024 ruling returned the threshold to the pre-2024 level.

Meal and Rest Breaks

Texas law does not require meal breaks or rest breaks for adult employees in the private sector. The only exception is retail employees working 30 or more hours per week, who are entitled to one 24-hour period of rest in every seven days (Texas Labor Code §52.001). Under federal FLSA, if you voluntarily provide breaks of 20 minutes or less, they must be paid. Breaks of 30 minutes or more can be unpaid if the employee is completely relieved of duties. Nursing employees are entitled under FLSA to reasonable break time and a private space (not a restroom) for expressing breast milk for up to one year after birth, for employers with 50 or more employees.

Texas Payday Law

The Texas Payday Law (Labor Code Chapter 61) is the state's primary wage enforcement mechanism, administered by the TWC. It differs from FLSA in important ways that catch multi-state employers off guard. Full details at twc.texas.gov/programs/wage-and-hour/texas-payday-law.

Leave Laws: Texas Provides Very Few

Texas has one of the thinnest leave requirement frameworks of any state. Most leave protections for Texas employees come from federal law, not the state. For a detailed onboarding process that includes communicating leave policies to new hires, see the employee onboarding process guide.

On jury duty: the protection runs to "permanent employees," which Texas courts have interpreted to exclude very short-tenure workers. You cannot discharge, threaten, or coerce an employee because of jury service. Violation is a Class B misdemeanor with potential damages of one to five years of the employee's salary plus attorney's fees (Texas Labor Code §122.001).

On voting leave: since the passage of SB 1 in 2021, the paid voting leave obligation now covers both Election Day and the early voting period. The requirement applies if the employee does not have two consecutive hours outside of working hours when polls are open. You must allow the employee to take the time off, and the time must be paid. Violation is a Class C misdemeanor.

Anti-Discrimination and Harassment: SB 45 Changes Everything

Texas's anti-discrimination framework is the Texas Commission on Human Rights Act (TCHRA), codified in Texas Labor Code Chapter 21. TCHRA is generally aligned with federal law, but one 2021 change makes Texas significantly different from the federal baseline for harassment claims.

Protected Classes Under TCHRA

TCHRA prohibits discrimination based on race, color, disability, religion, sex (including pregnancy), national origin, age (40+), and genetic information. For general discrimination claims, the threshold is 15 or more employees. For age discrimination claims, Texas requires only 15 employees (versus the federal ADEA's 20-employee threshold). Complaints go to the TWC Civil Rights Division or EEOC (dual-filing under worksharing agreement) within 180 days of the discriminatory act, except for sexual harassment claims which now have 300 days (HB 21). After receiving a Right to Sue letter, you have 60 days to file a lawsuit. Details at twc.texas.gov/programs/civil-rights.

The CROWN Act (effective September 1, 2023) added hair texture and protective hairstyles (braids, locs, twists) to the definition of race under TCHRA. This brings Texas in line with other states that have adopted similar protections.

SB 45: The Law That Applies to Every Texas Employer

The practical implications of SB 45 are significant for small employers. A one-person company is now subject to Texas sexual harassment law. A manager who personally engages in harassment can be sued individually, not just the employer. And when a complaint comes in, the standard is "immediate and appropriate corrective action," not "reasonable" or "prompt" action. A documented anti-harassment policy and training program are not legally required for private employers, but operating without them makes a successful defense dramatically harder. If you use a probationary period as part of your onboarding process, the 90-day probation guide explains how to structure it without undermining your at-will doctrine. State agencies must train employees within 30 days of hire and every two years thereafter (Texas Labor Code §21.010). Private employers should treat this as a strong practical requirement even though it is not a legal mandate.

Equal Pay and Salary History

Texas does not have a state Equal Pay Act for private employers (only for state employees under Texas Gov't Code §659.001). Federal law applies: the federal Equal Pay Act and Title VII both prohibit pay discrimination. Texas has no salary history ban, so you may ask candidates about their prior compensation. You may also decline to disclose salary ranges in job postings. This is a deliberate contrast with California, New York, and Colorado.

Workers' Compensation: The Texas Exception

This is the most distinctive feature of Texas employment law. Texas is the only state in the US where workers' compensation insurance is optional for private employers. Roughly 75% of Texas employers maintain coverage. The other 25% are "non-subscribers." Understanding what you gain and lose with each choice is essential. Details at tdi.texas.gov/wc/nonsubscriber.html.

The three legal defenses that non-subscribers lose under Texas Labor Code §406.033(a) are: contributory negligence (you cannot argue the employee was partly or fully at fault), assumption of risk (you cannot argue the employee knowingly accepted a dangerous condition), and the fellow-servant doctrine (you cannot blame a coworker for causing the injury). Without these defenses, even a workplace accident where the employee was substantially responsible can result in full liability for the employer.

Non-Subscriber Obligations

If you choose not to carry workers' comp coverage, you must: file DWC Form-005 with the Texas Department of Insurance annually between February 1 and April 30; provide written notice to each employee that you do not carry coverage; post a non-subscriber notice in the workplace in English and Spanish; and if you have five or more non-exempt employees, file DWC Form-007 to report on-the-job injuries. Failure to file these forms does not make you a subscriber. It just adds regulatory violations on top of your non-subscriber exposure.

Workplace Safety: Federal OSHA Applies Directly

Texas does not have an approved state OSHA plan for private sector workers, unlike California or Washington. Federal OSHA covers all private Texas employers directly, which means federal OSHA inspectors and federal OSHA standards apply. For non-subscribers with five or more non-exempt employees, Texas Labor Code Chapter 411 (Subchapter H) adds safety requirements beyond federal OSHA. The TDI offers a free, confidential OSHCON consultation program where safety experts visit your workplace to identify hazards without enforcement action. A useful resource for small employers.

Required Workplace Postings

Texas requires fewer postings than most states, but the August 2024 addition of the workplace violence reporting poster added a new requirement for all employers. Free Texas posters are available at twc.texas.gov/programs/unemployment-tax/posters-workplace. For remote employees, distribute posters electronically with annual confirmation of receipt.

Termination, Final Pay, and Separation

Final Paycheck: The 6-Day Rule

The 6-calendar-day rule for involuntary terminations is the most commonly violated Texas Payday Law provision. Employers accustomed to waiting until the next regular payday (which is the rule in many other states) frequently miss this deadline. You cannot hold the final paycheck because the employee has not returned a company laptop or badge. If you want to deduct for unreturned property, you need prior written authorization from the employee, and even then the deduction cannot reduce pay below minimum wage. Unused PTO and vacation are only payable if your written policy says they are.

For the complete offboarding process including documentation checklists and IT access revocation, see the offboarding best practices guide and the employee exit process guide.

Non-Compete Agreements in Texas

Non-competes are enforceable in Texas under Texas Business and Commerce Code §15.50, but only if three conditions are met: the agreement must be ancillary to an otherwise enforceable agreement (confidentiality agreement, specialized training, stock option grant); the restrictions must be reasonable as to time (typically one to two years), geographic area, and scope of activity; and the agreement must not be more restrictive than necessary to protect the legitimate business interest. Texas courts can reform (blue-pencil) an overly broad non-compete rather than voiding it entirely under §15.51.

The FTC's proposed nationwide non-compete ban is permanently off the table. A Northern District of Texas court blocked the rule in August 2024, and the FTC withdrew its appeal on September 5, 2025. Non-competes in Texas are governed by state law and remain enforceable when properly structured. For healthcare practitioners, SB 1318 (effective September 1, 2025) added specific restrictions on non-competes.

Reference Checks: Texas Employer Immunity

Texas Labor Code Chapter 103 provides qualified immunity to employers who provide honest job references. Under §103.004, an employer is immune from civil liability for disclosing information about a former employee's job performance if the information was based on credible evidence, was provided in good faith, and was not knowingly false or malicious. This protection is unusually strong compared to most states. Employers in Texas are not obligated to provide references, but if they choose to, the immunity provision significantly reduces legal risk.

COBRA and Texas Mini-COBRA

Federal COBRA applies to employers with 20 or more employees, providing up to 18 months of continuation coverage. Texas Insurance Code §1251.251 creates a "mini-COBRA" for employers with 2 to 50 fully-insured employees, requiring up to 9 months of continuation coverage. After federal COBRA is exhausted, employees of larger employers may access up to 6 additional months under Texas mini-COBRA. Employers must notify employees within 30 days of a qualifying event.

Payroll and Taxes

Texas's payroll tax picture is straightforward because there is no state income tax. The constitutional prohibition (Texas Constitution Art. VIII, §24-a, approved by 74.71% of voters in November 2019) means no state withholding form, no state income tax returns, and no state income tax withholding tables. For new hires in Texas, you withhold federal income tax only. See the tax forms for new employees guide for a complete list of required federal forms.

Register for Texas UI (SUTA) with the TWC at your first payroll. The taxable wage base of $9,000 has not changed since 1997, making it one of the lowest in the country. New employer rate of 2.7% applies for the first three years before experience rating kicks in. All quarterly wage reports must be filed electronically.

Employee Handbook: What Texas Actually Requires

Texas does not require employers to maintain a written handbook. But TWC consistently requests documentation of policies when investigating wage claims, discrimination complaints, and unemployment disputes. A handbook is the practical solution. For a downloadable starting point, see the sample employee handbook.

5 Things That Make Texas Employment Law Unique

After working through the full compliance picture, five features stand out as genuinely distinctive to Texas:

1. Workers' comp is optional. Texas is the only state where private employers can legally forgo workers' compensation insurance. About 25% do. The economics are tempting (no premiums), but the exposure is unlimited. Every non-subscriber employer should model the worst-case scenario of a serious workplace injury before deciding.

2. The TWC is a super-agency. Unemployment insurance, wage claims, civil rights and discrimination enforcement, child labor, and workforce development all run through one agency: the Texas Workforce Commission. Most states split these across three or four agencies. For Texas employers, the TWC is the primary compliance touchpoint for nearly every employment topic.

3. HB 2127 (the Death Star Law) froze local labor regulation. Since September 1, 2023, no Texas city or county can pass labor ordinances that exceed state or federal requirements. The Austin paid sick leave ordinance (2018), San Antonio paid sick leave ordinance (2018), and Dallas paid sick leave ordinance (2019) were already blocked by courts. HB 2127 made the preemption permanent and universal. Texas employers in major cities face one uniform regulatory environment statewide.

4. SB 45 is a hidden compliance trap. Texas markets itself as employer-friendly, and on most issues it is. But SB 45 makes sexual harassment the one area where Texas is actually stricter than most states. Every employer, including sole proprietors with a single employee, is covered. Individual managers face personal liability. The response standard is immediate and appropriate, not merely reasonable. Many employers discover this only when they receive a complaint.

5. The Texas Payday Law is its own system. The Texas Payday Law operates alongside (and sometimes differently from) the federal FLSA. The 6-day final paycheck rule, the 180-day wage claim window through TWC, the 60-day notice for direct deposit transitions, and the written-authorization-only rule for deductions are all Texas-specific. Employers moving operations to Texas from other states frequently violate the Payday Law in the first months simply because they apply their home-state rules.

Texas vs. Federal Law vs. California

The table below illustrates why Texas is considered one of the most employer-friendly states by showing where it aligns with (or falls below) the federal floor and how sharply it differs from California.

The pattern is clear: Texas primarily adopts the federal standard and skips state-level additions. The exceptions are the voluntary workers' comp system (unique to Texas), the 6-day final paycheck rule (stricter than federal), and SB 45 (applies at a lower threshold than most states). For the California side of this comparison in detail, see the California HR compliance guide.

Key Legislative Changes 2021-2025

The two most consequential recent changes for small employers are SB 45 (which fundamentally changed Texas harassment liability in 2021) and HB 2466 (which created the first statewide ban-the-box rule in 2025). The permanent death of the FTC non-compete ban means Texas non-compete law continues to govern, and properly drafted agreements remain enforceable. For a structured approach to onboarding compliance across all these requirements, see the onboarding compliance guide.

Frequently Asked Questions