Payroll binders and a hard hat on an office shelf, Texas Minimum Wage and Employment Laws

Texas Minimum Wage and Employment Laws: What Small Employers Must Follow

Texas Minimum Wage and Employment Laws: What Small Employers Must Follow

If you are about to hire your first employee in Texas, the state's rules are lighter than most states in some areas and stricter in others. Texas sets no minimum wage above the federal floor, has no state overtime statute for private employers, and has no paid sick leave mandate. The rules that do apply, including the Texas Payday Law and the limits on noncompete agreements, catch small employers off guard more often than the headline rules do. This guide covers the core Texas labor laws for private employers, what each one requires, and where to confirm current details.

This article is informational content, not legal or tax advice. Employment law depends heavily on the facts of each situation. Bring specific questions about a termination, a pay practice or an existing agreement to a Texas employment attorney, and talk to a CPA about how payroll taxes apply to your business.

Texas minimum wage 2026: $7.25 per hour

The Texas minimum wage is $7.25 per hour under the Texas Minimum Wage Act. That is the federal minimum wage, so the texas minimum wage 2026 figure is the same rate that applied in 2025. Confirm the current rate on the Texas Workforce Commission website before you set pay for a new hire.

Cities and counties cannot set a higher minimum wage for private employers. Labor Code 62.0515 bars local governments from doing so, which means a business in Houston pays the same statewide floor as a business in a small rural county. Local governments can still set pay for their own employees, but that does not change what your private business must pay.

Two areas need extra care. Tipped employees are governed by separate federal rules on the cash wage and the tip credit, so confirm the tipped rate with the U.S. Department of Labor before you set it. Also, the minimum wage is only the floor. Your pay practices still have to meet the overtime and payday rules described below.

Texas overtime: federal rules control

Texas has no separate state overtime statute for private employers. Overtime falls under the federal Fair Labor Standards Act (FLSA). Under the FLSA, a nonexempt employee earns overtime at one and one-half times the regular rate for hours worked over 40 in a workweek. Check current thresholds and rules with the U.S. Department of Labor Wage and Hour Division at https://www.dol.gov/agencies/whd.

Exempt versus nonexempt is the classification decision that causes the most trouble. A salary alone does not make an employee exempt. Under the FLSA, both the job duties and the salary level matter, and a job title such as assistant manager does not settle the question. Misclassification is one of the most common claims small employers face, and getting it wrong can leave you owing back overtime. Document how you classified each role and why, and review the decision with a Texas employment attorney when you create a new position.

Texas Payday Law: deadlines you must meet

The Texas Payday Law, enforced by the Texas Workforce Commission (TWC) Wage and Hour program, controls when you pay wages and how quickly you must pay final wages. These are the deadlines small employers miss most often.

Situation Deadline
Regular pay Pay wages on your regular paydays
Employee is discharged (fired) Final pay within 6 calendar days after the discharge
Employee resigns Final pay by the next regular payday
Employee files a wage claim with TWC Claim must be filed within 180 days

Build your final pay process before you need it. Use a checklist that gets the final check calculated and issued inside the 6-day window after a discharge, and set a payday calendar so the next-payday rule for resignations is easy to meet.

A wage claim has a clock too. Employees have 180 days to file a claim with TWC, so keep payroll and timekeeping records long enough to answer one. Confirm your record retention period with TWC before you set a purge schedule.

Texas paid sick leave: no state mandate, and local rules are blocked

Texas does not require private employers to provide paid sick leave. Some cities tried to adopt their own paid sick leave ordinances. Austin's ordinance was struck down, and the courts held that state law preempts local leave rules. In 2023, the Legislature passed HB 2127, the Texas Regulatory Consistency Act, which further bars cities from adopting these local requirements.

A challenge to HB 2127 was dismissed by the Third Court of Appeals in July 2025 on standing grounds. That means the court did not rule on whether the law is valid. Because the dismissal rested on standing and not the merits, confirm the current status with a Texas employment attorney before you build long-term plans around it.

You can still offer paid sick leave voluntarily. If you do, put the terms in writing, apply them the same way to every employee, and decide now how unused time is handled when someone leaves. A voluntary policy that is applied inconsistently creates the same disputes as a mandatory one.

Texas noncompete law: two tests, both required

Texas noncompete law is set by Business and Commerce Code 15.50. A noncompete is enforceable only if it meets two requirements. First, it must be ancillary to an otherwise enforceable agreement, meaning it supports a legitimate underlying arrangement such as giving the employee access to confidential information, specialized training or the employer's goodwill. Second, the restriction must be reasonable in time, geography and scope of activity.

A court can refuse to enforce a restriction that is broader than the business needs, so do not draft one expecting a judge to narrow it for you. A nationwide ban for a local role, or a multi-year restriction on an employee who has no customer relationships, is the kind of term that gets challenged. Tie each restriction to the actual role, keep a signed copy in the employee file, and have an attorney review the language before you use it.

Other Texas rules that affect your first hire

  • At-will employment: Texas is an at-will state by default. Either side can end the relationship for any lawful reason, subject to exceptions such as discrimination, retaliation and written contracts. Say so plainly in offer letters and your handbook.
  • No state income tax: Texas has no state income tax, so you do not withhold state income tax from paychecks. Federal withholding and employer payroll taxes still apply.
  • Payroll registrations: Before your first payroll, confirm which state and federal payroll accounts you need, including TWC unemployment tax registration, and confirm each step on the agency's website.
  • Federal anti-discrimination law: Federal laws apply on top of Texas rules, and their coverage depends on how many employees you have. Confirm the thresholds with the U.S. Equal Employment Opportunity Commission.

Employee handbook: what Texas small businesses should include

Texas does not require an employee handbook. A written one is still the most practical way to tell employees the rules and to show that you applied them consistently. For a small employer, a useful handbook covers:

  • An at-will statement and how the handbook can be changed
  • Your pay schedule, timekeeping rules and overtime approval process
  • Your final pay process, matching the Payday Law deadlines above
  • Paid time off and any sick leave you offer, stated plainly and noted as voluntary where it is
  • Confidentiality rules, with any noncompete kept in a separate signed agreement
  • A harassment reporting channel and a complaint process

Two cautions apply. A handbook is not a substitute for a signed agreement when you need one, such as a noncompete. And disclaimers only help if the language is clear and the written policies match what you actually do. Have an attorney review the draft before you distribute it, and collect a signed acknowledgment from each employee.

Compliance checklist before your first payroll

  1. Confirm your pay rate is at least $7.25 per hour, and check the tipped rules if they apply.
  2. Classify each position as exempt or nonexempt under the FLSA, and document the reason.
  3. Set a regular payday schedule and a written final pay process with the 6-day and next-payday deadlines.
  4. Keep accurate timekeeping and payroll records.
  5. Decide whether to offer paid sick leave, and if you do, write the policy.
  6. Limit any noncompete to the business interest it protects, and have an attorney review it.
  7. Draft a handbook with an at-will statement, then get an attorney review and signed acknowledgments.
  8. Register for the state and federal payroll accounts you need before you pay anyone.

Official Texas and federal resources

Rates, thresholds and deadlines change, so confirm current figures with the agencies named above before you act on them. An employment attorney should review any noncompete, handbook or classification decision before you rely on it, and a CPA should confirm your payroll tax setup. This article is informational only and is not legal or tax advice.

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