As the 10th largest economy in the world with a GDP exceeding $2 trillion, Texas is an exciting place to start a new business or expand operations. While the Lone Star State is often considered more business-friendly than states like California and New York, companies still must comply with Texas HR regulations. Here’s what you need to know about Texas payroll & HR compliance and how to avoid common legal pitfalls.
Key Provisions of Texas Payroll and HR Regulations
At-Will Employment
Texas is an at-will employment state, meaning that most employers can terminate an employee without providing advance notice or just cause. A few exceptions exist, such as an employee’s refusal to help an employer commit a crime. In Texas, employment laws give more leeway to employers than workers. For example, personnel policies, schedules, job descriptions, and pay can be changed at any time. Texas is also a right-to-work state, meaning that a worker’s union membership or lack thereof cannot be used against them in obtaining or retaining employment.
Minimum Wage in Texas
Texas follows the federal minimum wage rate of $7.25 per hour as of 2024. Some cities, like Austin, have set their own higher minimum wage rates, such as $20.80 per hour, effective since October 2023. Houston has committed to raising the minimum wage to $15 per hour by 2025, in line with the Raise the Wage Act of 2021. However, there are state-level exemptions from minimum wage laws:
- Tipped Employees: They have a federal base minimum wage of $2.13 per hour, with employers eligible for a $5.12 per hour tip credit to ensure they earn at least $7.25 per hour.
- Small Businesses: Employers with fewer than 25 employees can pay less than the federal minimum wage if they are not retail businesses with over $2 million in sales.
- Agricultural Employees: Those working on farms or in processing plants are exempt from Texas minimum wage laws.
- Domestic Service Workers: Nannies, housekeepers, and other household employees are exempt.
- Students and Trainees: Students enrolled in specific programs and trainees in official programs are exempt.
- Disabled Workers and Workers Under 16: They can also be paid below minimum wage under certain conditions.
Overtime Regulations
Overtime pay isn’t explicitly defined in Texas payroll compliance rules beyond the federal Fair Labor Standards Act (FLSA), which states that non-exempt employees must be paid 1.5 times their normal wage if they work more than 40 hours per week.
Worker Classification
The Texas Workforce Commission uses a 20-factor test similar to the IRS to classify workers. Employers must contribute to the Texas unemployment fund for employees but not for independent contractors. Misclassifying workers can result in fines of $200 per misclassified worker, especially if you have government contracts.
Common Compliance Challenges
Business Registration
Failing to properly register your business or import existing entity paperwork from other states is an oft-forgotten compliance issue when doing business in Texas. Not having your business registered can cause operations to halt and result in heavy fines.
Employees Owed Back Pay
While Texas is known for being business-friendly, with several carve-outs for minimum wage laws and fewer employee protection regulations compared to other large states, employees still have the right to sue employers for wrongfully applying for a sub-minimum wage exemption. Misclassified workers and workers subject to overtime rules under FLSA can take employers to court over violating these rules, and receive back pay owed plus applicable damages.
Safety Regulations
In Texas, there is a thriving and diverse economy with a wide range of sectors. While federal regulations under OSHA play a crucial role in ensuring worker safety standards, the state’s vast size and diverse environment can sometimes pose challenges for employers in maintaining consistent safety and environmental standards for their workers.
Actionable Compliance Strategies
- Conduct Regular Audits: Ensure your business complies with all applicable laws to minimize the risk of fines and legal action. Have safety checks performed by experts and ensure compliance with relevant environmental regulations for your region of Texas.
- Stay Up-to-Date with Legislative Changes: Legal changes often come with advance notice, but staying informed helps you prepare for compliance changes and mitigate associated costs and risks.
- Implement Robust Payroll Systems: Proper classification and accurate payment of employees are essential. Texas allows employers to change job duties, pay, and other aspects without notice, but accurate records must be maintained for tax purposes.
Expert Guidance and Solutions
Affiliated HR and Payroll can help you stay on top of Texas payroll compliance, whether you’re starting a new venture or expanding. Our software and consulting services ensure your business remains compliant with Texas payroll and HR regulations. Contact Affiliated HR and Payroll today for expert guidance and solutions.
Client Service Representative at Affiliated HR & Payroll Services