Employment and Labor Laws in Texas: 2025 Guide

Texas is among the top destinations for business expansion in the United States. The diverse workforce, top-ranked universities, and favorable business climate make it more favorable. 

However, common expansion challenges persist even in the business-friendly state of Texas. 

Thankfully, a comprehensive guide like this will help employers, business owners, and HR leaders understand compliance requirements under Texas labor laws. 

This is a Texas guidebook for employers that covers hiring, payroll, benefits, workplace rights, and termination practices in Texas. 

Overview of Employment Laws in Texas

As a business owner in Texas, you will benefit from the state's business-friendly environment, with low taxes and minimal regulations.

Moreover, Texas is an at-will employment state, allowing you to manage employees, including work hours, leave benefits, and termination at your discretion. 

But remember, while state regulations are fewer, federal laws like the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA) still apply.

Moreover, key areas of Texas employment laws, even for remote workers, include minimum wage and overtime pay, payroll benefits, anti-discrimination provisions, and workplace safety and health.

Quick Texas Facts:

• Population: Approximately 30 million   
• Major Industries: Advanced Manufacturing, Aerospace, Aviation & Defence, Biotechnology & Life Sciences, Corporate Service, Energy, and Information Technology
• Major Cities: Houston, Dallas, San Antonio, Austin

Key Employment Laws for Texas Employers

Here’s a detailed breakdown of key employment laws in Texas: 

Is Texas an At-will employment state?

Yes, Texas at-will employment doctrine automatically applies to most employment relationships in the state unless there is an explicit agreement or legal exception that overrides it. 

Texas at-will employment allows you to hire and fire employees without legal consequences. At the same time, employees can terminate employment without notice period obligations or otherwise. 

The at-will Texas labor laws also cover workplace management, where you must give advance notice before changing working hours or otherwise.  

However, realize before acting under the at-will doctrine that you are not violating specific laws or contractual agreements.  

Standard working hours

• Texas labor laws for hourly employees prescribe 40 working hours in a seven-day week (This is full time hours Texas). 
• Under the at-will employment doctrine, you can ask your employees to work beyond 40 hours a week but with additional overtime pay. 

Minimum wage and overtime requirements

• Texas work laws follow the federal mandate of a minimum wage of $7.25 per hour.
• You must pay non-exempt employees overtime pay at 1.5 times the regular hourly rate.

Moreover, Texas state labor laws exempt you from paying overtime to the following categories of employees: 

• Employees who exercise independent judgment and have the authority to hire and fire.
• Employees who perform office or non-manual work directly related to the management or general business operations of the employer or its customers.  
• Work employees require advanced knowledge, specialized training, or a professional degree.  
• Employees who primarily perform computer-related work.  
• Employees who primarily engage in outside sales.

Employee Classification and Contracts

You can avoid penalties for the misclassification of workers by following the Texas Workforce Commission guidelines (Workforce Laws in Texas):

• Determination test: Texas uses a "common law" test, often similar to the IRS's 20-factor test, to assess worker classification. Key indicators include the level of control over how tasks are performed and whether the worker is economically dependent on the employer.
• Presumption of employment: The law presumes a worker is an employee unless you can prove otherwise. 
• Marketplace Contractor Test: Texas has specific rules for "marketplace contractors," such as gig economy workers. You must allow them to control and set their work hours and deliverables. 

Texas at-will employment doctrine allows you to hire employees without an employment contract. Moreover, the same doctrine allows you to place restrictions on your employees via contractual clauses like: 

• Drug testing programs
• Confidentiality agreements
• Covenants not to compete or non-competition clauses
• Non-solicitation clauses

Moreover, you must ensure that you do not employ individuals below the legal age to work in Texas. The minimum age to work in Texas is 14 years, per Texas child labor laws.

Payroll and Employer Tax Obligations in Texas

Texas employment laws have specific payroll and tax obligations. Here’s how you can comply:

What you need to process payroll in Texas state is an Employer-of-Record (EOR) solution that can manage payroll for benefits administration and Texas employment law compliance. 

Employer contribution summary table

Here’s a quick summary of tax rates for unemployment insurance, Social Security, Medicare, and FUTA contributions:

Moreover, you may receive a credit of up to 5.4% for state unemployment taxes paid, reducing your federal unemployment tax liability.

Benefits and Insurance Requirements

Texas labor law for salaried employees mandates the following benefits and insurance requirements: 

• Health insurance: If you employ between 2 and 50 employees, you must offer health insurance to employees who work at least 30 hours per week and their dependents. 

You must also provide a 31-day open enrollment period each year for employees to join, change, or drop their coverage. 

• Retirement plans: You may enroll employees in a Texa$aver 401(k) and contribute 1% of each paycheck. 
• Fringe benefits: Texas Payday Law mandates fulfilling a written policy or agreement regarding vacation pay, sick leave pay, parental leave pay, holiday pay, and severance pay. 

Workers’ compensation and liability

Texas offers a unique approach to workers' compensation insurance, allowing you to choose whether or not to participate in the state's workers' compensation system.

Moreover, if you work with government entities, you must be insured for worker compensation to protect you from lawsuits by injured employees. 

Non-Subscriber Option

In most cases, you would opt out of the Texas workers' compensation system to become a non-subscriber. 

You may be non-subscribers due to potential cost savings on insurance premiums. However, this decision comes with significant risks:  

• Increased Liability: Non-subscribers can be sued directly by injured employees, potentially facing substantial damages.  
• Loss of Defenses: Non-subscribers lose certain legal defenses, such as contributory negligence and assumption of risk, making it easier for injured employees to win lawsuits.  

Moreover, you must report workplace injuries and illnesses to the Texas Department of Insurance (TDI) through specific forms like DWC-5 and DWC-7. 

Additionally, Texas workplace laws mandate that you provide new employees with written notice of workers' compensation insurance coverage. 

Workplace Breaks and Rest Periods

There are no specific breaks-at-work laws in Texas, nor Fair Labor Standards Act Texas mandates any. However, there may be city-specific ordinances on breaks. 

For instance, Austin mandates at least one ten-minute break per four-hour shift for construction workers. 

Moreover, you may voluntarily consider short rest periods (typically 5-20 minutes) for all employee categories under compensable work time.

Breastfeeding accommodations

Further, you must follow the federal mandate to provide more breaks to improve employee morale, productivity, and well-being in the absence of Texas labor laws for breaks. Say, you must provide reasonable break time for nursing mothers: 

• For up to one year after the child's birth  
• Along with access to a private, non-bathroom space at the workplace

Anti-Discrimination and Equal Opportunity Laws

Labor laws in Texas prohibit discrimination in employment based on several protected characteristics: race, color, religion, sex, national origin, disability, and pregnancy. Moreover, discrimination against working age in Texas, individuals aged 40 or older is also prohibited.

Municipal ordinances on gender and sexual orientation

Texas is among the 28 states that offer no statewide legal protections for individuals based on their sexual orientation or gender identity. However, city-specific employment laws in Texas seek some degree of protection against discrimination. 

Moreover, cities like Dallas, Austin, and Fort Worth have had partial policies and partial laws offering LGBT members some degree of protection against discrimination in employment and housing. Other Texas cities like Houston, San Antonio, and Plano recently joined that list.

Leave Policies in Texas

No Texas law mandates private companies to offer paid time off. Moreover, Texas employment laws allow you to decide if you want to offer vacation days, sick days, or any other kind of leave. 

The Texas sick leave law generally awards full-time employees eight hours of sick leave per month, while it varies for part-time employees. 

Moreover, unless mentioned in contractual agreements, you are not obliged to pay out accrued unused leaves. 

Family and Medical Leave Act (FMLA Laws in Texas) requirements

However, some federal laws, like the Family and Medical Leave Act (FMLA), might mandate 12 days of unpaid leave in a year in certain situations, such as family, sick, or parental leave. 

Moreover, you must allow eligible employees to take 12 months of leave under maternity leave laws in Texas through FMLA. 

However, this only applies to larger companies and under specific circumstances.

Parental and bereavement leave

You can allow your discretion following common practices for parental and bereavement leave in Texas: 

• Emergency bereavement leave of 24-40 hours following the death of a close family member or 8 hours of leave for extended family.
• Eligible fathers get about 12 weeks of parental leave to bond with the new child. 

 Employee Termination and Severance Policies

While you are encouraged to follow the at-will employment doctrine in Texas, you should ensure that terminations are conducted fairly and legally. Here are some best practices:

• Maintain clear and accurate documentation of performance issues, disciplinary actions, and reasons for termination.
• Follow a progressive discipline process.
• Ensure that termination decisions are not based on protected characteristics such as race, color, religion, sex, etc. 

WARN act compliance

A federal mandate regarding employment termination exists for larger companies employing more than 100 employees. The Worker Adjustment and Retraining Notification (WARN) Act provides 60 days' advance notice of plant closings and mass layoffs. 

While Texas does not have a specific WARN Act, you should still be aware of the federal law and comply with its requirements.  

Severance pay practices

Texas labor laws do not mandate severance pay. However, you are encouraged to offer generous severance packages as a gesture of goodwill or to avoid potential legal claims. When offering severance pay, consider the following:

• A written severance agreement can outline the payment terms, including any conditions or restrictions, such as confidentiality agreements or non-compete clauses.
• If the employee was enrolled in employer-sponsored health insurance, they may be eligible to continue coverage under COBRA.

Moreover, the Texas Workforce Commission considers severance pay part of an employee's regular earnings. Thus, Texas unemployment severance pay can affect unemployment benefits. 

You can help employees declare all employment-related compensation, such as total work hours, vacation pay, compensation, etc. Failure to comply may put employees vulnerable to payback received unemployment pay at a high interest rate.

Workplace Safety and Health Obligations

You must comply with specific workplace laws in Texas, like the Texas Occupational Safety Act and the Hazard Communication Act, to protect workers from workplace hazards. Here are some key requirements: 

• You must implement a written hazard communication program to inform employees about chemical hazards in the workplace.
• You must provide appropriate PPE to protect employees from workplace hazards.
• You must develop and implement emergency action plans to address fires, natural disasters, and chemical spills.
• You must have a fire protection plan, including fire prevention plans, systems, and employee training.
• You must ensure that machinery is properly guarded to prevent injuries.
• You must maintain accurate records of workplace injuries and illnesses and report serious injuries and illnesses to TWC.

How to Simplify Texas Employment Compliance

Texas is among the largest states, with more than 1,200 incorporated cities. There could be local ordinances regarding labor law compliance that go unnoticed when planning to expand in Texas. Here is why you need an Employer-of-Record (EOR) solution. 

An EOR, like Skuad, can significantly simplify your compliance with Texas labor laws. By acting as the legal employer of your employees, Skuad handles:

• Payroll and Taxes: Ensures accurate and timely payroll processing, including federal, state, and local taxes.
• Benefits Administration: Offers a range of benefits, such as health insurance, retirement plans, and paid time off, tailored to Texas labor laws.
• HR Support: Provides HR support services, including onboarding, offboarding, performance management, and employee relations.  

Benefits of using Skuad for Texas employment

• Skuad specializes in managing global teams in 160+ countries, including the US.
• Our EOR platform integrates seamlessly with your existing HR and payroll systems, streamlining your processes.
• Our dedicated support team can answer your questions and assist you with any issues.
• Moreover, our team of HR experts ensures that your business adheres to all local, state, and federal labor laws.

Let Skuad handle the complexities of Texas employment so you can focus on what matters most: growing your business.

Hire, Pay, and Manage Employees with Skuad

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Ready to experience Skuad difference in your HR management? 

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FAQs

1) How many hours straight can you legally work in Texas without a break?

Texas has no statewide law prescribing maximum work hours without a break. However, you can take reference from city-specific ordinances or industry-specific practices. For example, laws in Austin mandate at least a ten-minute break every four hours of a shift in the construction industry. Generally, any work above 40 hours in a seven-day work week must be accounted for overtime pay. 

2) What are labor laws in Texas?

Texas is an at-will employment state. It doesn't have specific laws mandating paid time off or meal/rest breaks. Federal laws like the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA) apply for most labor law compliance. However, there could be city-specific ordinances for certain labor law provisions. 

3) What is illegal for employers to do in Texas?

It is illegal for employers to employ minors under 14 in Texas. Moreover, Texas laws mandate that employers must fulfill anything written and agreed upon in employment contracts, be it fringe benefits pay or otherwise. 

4) What is the shortest shift allowed in Texas?

Texas labor laws do not mandate minimum shift time, so it is difficult to determine the short shift allowed in the state. However, you can follow best practices from Austin’s ordinance of a minimum ten-break in a four-hour work shift. 

5) What is unfair treatment in the workplace in Texas?

Unfair treatment in the workplace can be discrimination, harassment, retaliation, or wrongful termination. Since the at-will employment doctrine is prevalent in Texas, unfair treatment in the workplace in Texas is discrimination based on protected characteristics.