Payroll Basics: Staying Compliant with Texas Employment Laws

Texas follows the federal minimum wage of $7.25 per hour as of 2024, which applies to most workers in the state. This baseline seems straightforward until you dig into the exceptions and overtime calculations that catch many business owners off guard.

Texas adheres to the federal Fair Labor Standards Act (FLSA) for overtime provisions, requiring employees to receive overtime pay of one and a half times their regular rate for hours worked beyond 40 in a workweek. The key word here is "workweek"-not pay period, not calendar week.

Non-exempt employees earning less than $684 per week are entitled to time-and-a-half their regular pay rate for over 40 hours worked in a week. Getting this wrong doesn't just upset employees-it can trigger costly back pay requirements and federal investigations.

Certain positions are exempt from overtime rules, typically applying to executive, administrative, professional, outside sales, and some computer employees, provided they meet specific salary and duties tests with a minimum salary of $684 per week ($35,568 annually).

The temptation to classify employees as exempt to avoid overtime costs has landed many businesses in hot water. Failing to follow FLSA rules could require back pay of employee wages, turning what seemed like savings into expensive mistakes.

You can't simply call someone a manager and avoid overtime. The employee must actually perform exempt duties-supervising at least two full-time employees, having genuine authority over hiring and firing, and exercising independent judgment on significant matters. According to the DOL, an employee is exempt from overtime if they are paid on a salary basis, make at least $35,568 per year, and perform exempt job duties such as supervising two or more people.

The classification test isn't just about job titles or salaries-it's about actual job functions. A "manager" who spends most of their time doing the same work as hourly employees probably isn't exempt, regardless of their title. When in doubt, classify as non-exempt. The overtime costs are usually less painful than the penalties for misclassification.

Certain positions are exempt from overtime rules, typically applying to executive, administrative, professional, outside sales, and some computer employees, provided they meet specific salary and duties tests with a minimum salary of $684 per week ($35,568 annually).

The temptation to classify employees as exempt to avoid overtime costs has landed many businesses in hot water. Failing to follow FLSA rules could require back pay of employee wages, turning what seemed like savings into expensive mistakes.

You can't simply call someone a manager and avoid overtime. The employee must actually perform exempt duties-supervising at least two full-time employees, having genuine authority over hiring and firing, and exercising independent judgment on significant matters. According to the DOL, an employee is exempt from overtime if they are paid on a salary basis, make at least $35,568 per year, and perform exempt job duties such as supervising two or more people.

The classification test isn't just about job titles or salaries-it's about actual job functions. A "manager" who spends most of their time doing the same work as hourly employees probably isn't exempt, regardless of their title. When in doubt, classify as non-exempt. The overtime costs are usually less painful than the penalties for misclassification.

When managing payroll tax in Texas, employers must adhere to quarterly deadlines for reporting wages and paying unemployment insurance taxes to the Texas Workforce Commission (TWC). The quarterly filing deadlines are April 30, July 31, October 31, and January 31 every year.

These dates are critical under Texas payroll tax regulations to avoid penalties and interest for late submissions, with most businesses encouraged to use the TWC's Unemployment Tax Services for electronic filing and payments. The system isn't optional-Texas requires UI taxes to be filed and paid electronically, and failing to do so may result in penalties.

Federal payroll tax deadlines add another layer of complexity. There are deadlines for filing payroll taxes in Texas, with specific deadlines varying based on the type of tax and your reporting schedule, making it essential to stay informed about these deadlines and file payroll tax reports on time to avoid penalties and interest.

State unemployment insurance (UI) taxes are paid by employers in Texas to provide unemployment benefits to qualified workers, requiring registration with the Texas Workforce Commission (TWC) to obtain a TWC Tax Account Number, after which you can file quarterly wage reports and pay UI tax through the Unemployment Tax Services (UTS) system.

The UTS platform allows you to send payments to bank accounts for free through Automated Clearing House (ACH) debit payments, or you can pay by credit cards, though charges may be involved. The convenience comes with responsibility-miss a deadline and you'll face penalties that can add up quickly.

State unemployment rate ranges for employers span from 0.25% to 6.25%, with new employers starting at 2.7%. Your rate depends on your experience rating, which reflects your history of unemployment claims. Current rates can be as low as 0.25% or $22.50/year for experienced employers with good records.

The key is staying current with filings and payments. Once registered, you file your Employer's Quarterly Report (Form C-3) electronically through the TWC's Unemployment Tax Services (UTS) system, which allows you to file wage reports, make tax payments via ACH debit or credit card, and manage your account details.

Employers in Texas must maintain employment and payroll records including the employer's name and address, amount of wages paid to each employee for each payroll period, date wages were paid, employee hours and dates worked less than full time, with these records maintained for each employee and independent contractor for 4 years under state law.

Federal requirements add another layer: keep payroll records, certificates, agreements, and employment contracts for at least 3 years, basic employment and earning records like timecards and wage-rate tables for at least 2 years. The Fair Labor Standards Act (FLSA) mandates that records of employee earnings must be kept for at least three years, making it sensible to use payroll solutions designed to ensure accurate and compliant storage.

These aren't just bureaucratic requirements-they're your protection during audits and wage disputes. Maintaining accurate records is essential for demonstrating compliance with wage laws, helping resolve disputes, ensuring correct payments, and meeting requirements during audits. When employees file wage claims or the Department of Labor comes calling, your records are your first line of defense.

Digital record keeping has become the standard, but the format matters less than the completeness and accessibility. Keep detailed records of hours worked, wages paid, and any deductions for all employees, maintain these records for at least three years as required by law, and conduct internal audits to ensure records are complete and accurate.

Payroll management for small businesses is fraught with challenges that can take a toll on your resources and time, but actionable solutions can save you from headaches and ensure your business stays on course. The complexity doesn't have to overwhelm you when you have the right systems and expertise in place.

Our AI-powered system connects directly to your bank accounts and business tools, automatically categorizing transactions and reconciling accounts in real time, working continuously and flagging issues immediately while maintaining accurate records without human intervention. This means no more scrambling to meet deadlines or wondering if you've calculated overtime correctly.

We understand the local business landscape, from sales tax requirements to industry-specific needs that Travis County companies face, handling multi-location operations, complicated revenue streams, and the financial reporting requirements that come with growth. When you're ready to scale, your payroll compliance scales with you seamlessly.

Our combination of automation and human expertise gives you confidence without the overhead. We combine technology with professional oversight to provide better results faster, giving you the accuracy of automation with the insight of experienced bookkeepers reviewing everything behind the scenes. You get professional-grade payroll compliance without the cost of hiring full-time specialists or the limitations of traditional monthly services.