How to Hire Your First Employee in Texas: A Founder's Checklist

Hiring your first employee is a milestone, and in Texas it comes with a short list of legal steps that are easy to miss. Miss one and the penalties are small but real — and the fix is always more expensive than doing it right the first time.

Texas is employer-friendly: no state income tax to withhold, no state minimum above the federal $7.25 per hour. But federal rules still apply, and Texas has a few of its own. Work through this checklist in order.

1. Get an EIN and register with the state

First, get a federal Employer Identification Number (EIN) from the IRS — free, minutes online. You will need it for payroll taxes, the I-9, and every state filing.

Next, register with the Texas Workforce Commission (TWC). You become liable once you pay $1,500+ in wages in a quarter, or employ someone part of a day in 20+ weeks of the year — then register within 10 days.

TWC also sets your unemployment insurance rate: for 2026, a new employer pays 2.70% on the first $9,000 of each employee's wages, and files quarterly wage reports (Form C-3).

2. Complete the new-hire paperwork

• Form I-9. Verifies identity and work authorization. The employee completes Section 1 by day one; you complete Section 2 within 3 business days.
• Form W-4. The federal withholding certificate. Texas has no state income tax, so there is no state withholding form.
• Payday notice. Under the Texas Payday Law, give the employee written notice of your scheduled paydays.
• Workers' comp notice. Texas is the only state where workers' compensation is optional for most private employers — but you must notify employees in writing whether or not you carry coverage.

3. Report the new hire within 20 days

Report every new hire and rehire to the Texas Attorney General's Office within 20 calendar days of the hire date. This is separate from your TWC wage reports — filing one does not satisfy the other. The penalty is $25 for each employee you knowingly fail to report.

Report online through the Texas Employer New Hire Reporting portal, or by fax or mail. You will need the employee's name, address, Social Security number, and hire date, plus your company name, address, and EIN.

4. Set up payroll taxes

Budget for the employer side of payroll taxes from the first paycheck. FICA is 7.65% of wages (6.2% Social Security plus 1.45% Medicare), paid by both you and the employee. FUTA, the federal unemployment tax, is 6.0% on the first $7,000 of each employee's wages — but employers who pay state unemployment tax on time receive a credit of up to 5.4%, bringing the effective FUTA rate to 0.6%, or at most $42 per employee per year.

File Form 941 quarterly for federal withholding and FICA, and Form 940 annually for FUTA. Most founders use a payroll provider — far cheaper than a missed filing.

5. Know the rules that follow the hire

Texas is an at-will employment state: either side can end the relationship at any time for any lawful reason. On discharge, final pay is due within 6 days; on resignation, on the next payday.

Overtime follows federal law: time and a half after 40 hours a week, with no daily overtime rule. Once your team grows, see when to hire a branding agency: a funding-stage timeline.

If you have not yet formed the company itself, start with how to start a business in Texas, and read how to price your services as a new founder before you set the salary budget the hire has to fit into.

This article is general information, not legal or tax advice. Rules and rates change — confirm current requirements with the Texas Workforce Commission, the IRS, or a Texas employment attorney before you hire.

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