How To Do Payroll in Texas for Small Businesses in 5 Steps

Trying to calculate payroll for your small business can be confusing and time-consuming, especially when you’re new to doing business. While Texas is a large state, Texas has just a few payroll taxes to account for, but following federal and state guidelines is imperative to a successful payroll run. In this article, we explain the steps you need to go through when setting up and running payroll in the state of Texas. 

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How To Do Payroll in Texas in 5 Steps

When managing your employees’ payroll, not only must you pay your employee the agreed-upon wage, but you must also account for taxes, benefits, and other nuances. To get you well-equipped before you start dispensing paychecks, check the federal and state laws, employee documentation for proper completion, accurate calculation with respect to the laws, mandatory taxes accounted for, and a sufficient record-keeping system. 

Step 1: Check Your Local Laws

Before you begin developing your payroll system, understand your federal and state laws so that you can ensure compliance and avoid fines and repercussions. In the state of Texas, you should understand new hire reporting requirements, when to offer overtime pay, meal and break regulations, and frequency of pay.

New Hire Reporting: Federal and state law requires that business owners submit new hire information to the Employer New Hire Reporting Operations Center in the Texas Office of the Attorney General within 20 calendar days. If you are unsure whether you need to report a new employee, then know if they have completed a W-4 form, chances are you need to report their new hire information. 

If an employer delays or refrains from submitting new hire reporting, they may face penalties of $25 for every occurrence they don’t submit a report. If an employer is found conspiring with employees to falsify or insufficiently complete reports, they may face additional penalties up to $500.

Minimum Wage: The minimum wage in Texas is $7.25, however certain exemptions exist. Additionally, Texas employers should use a minimum wage of $2.13 and together with a maximum tip credit of $5.12. At the employer's discretion and under certain conditions, they may also count any lodging or meal value toward the minimum wage.

Overtime Pay: The Fair Labor Standards Act (FLSA) requires that employers in Texas pay overtime to employees working beyond a standard 40-hour workweek. Although Texas doesn’t use labor laws for the payment of overtime, Federal overtime laws do apply. set overtime at 150 percent the regular pay rate for an employee. 

Meal/Break Pay: Texas does not have labor laws pertaining to meals and breaks or severance pay either, and the federal government does not require the state to provide them. Employers in Texas who do provide breaks must still pay employees if the lunch breaks last fewer than 20 minutes, and employers who provide severance pay must adhere to terms established in either their company policy or in the applicable employment contract.

Frequency of Pay: Employees defined as executive, administrative, or professional employees are required to be paid at least once a month. Other types of employees are required to be paid twice monthly and, unless an employer stipulates otherwise, that paydays must fall on the first and 15th day of each month. Additionally, per the Texas Payday Law, employers may only use electronic transfers, checks, or cash to pay their employees, unless an employee agrees, in writing, to an alternative form of payment.

Other Laws: No state or federal law requires an employer to pay additional wages for employees working on specific days of the year such as holidays or weekends. Similarly, an employer is not required to offer fringe benefits such as vacation time, holiday pay, or hours not worked. The employer may offer these benefits at their discretion and in writing.