Texas HR Compliance Guide for Small Businesses (2026): The Owner's Playbook
For Texas owners with under 50 employees, growth shouldn't hinge on guesswork. This playbook replaces legal risk with repeatable HR systems for hiring, payroll, and terminations.
What's Inside Your Free Download
Texas Employment Law Quick Reference
Texas At-Will Employment & TWC Compliance
Texas is an "at-will" employment state, but this is one of the most dangerously misunderstood concepts in business. True compliance begins with knowing the limits of at-will, how state and federal laws interact, and the critical role of the Texas Workforce Commission (TWC ).
What Does 'At-Will Employment' Really Mean in Texas?
Most Texas business owners have heard the phrase "at-will employment." Too many interpret it as a golden ticket: "I can fire anyone, anytime, for any reason." This is a dangerous myth that can lead directly to a courtroom.
While at-will employment does mean that either you or the employee can end the relationship at any time, for any reason, that reason cannot be illegal. You cannot terminate an employee for discriminatory reasons (based on race, religion, sex, age, disability, etc. ) or in retaliation for a protected activity (like filing a harassment complaint ).
Common At-Will Traps for Texas Businesses
- Terminating an employee shortly after they announce a pregnancy.
- Letting go of a staff member who recently filed a workers' compensation claim.
- Firing an older, higher-paid employee and replacing them with a younger, lower-paid one.
I tell every client that documentation is your best shield. At-will provides flexibility, but a clear paper trail demonstrating legitimate, non-discriminatory business reasons for a termination is what protects your company from a lawsuit. Without it, you're exposed.
State vs. Federal Law: A Quick-Reference Guide
Think of compliance as a two-level system. Federal laws create the floor, and Texas law adds its own specific rules on top. Your business must comply with both.
Key Federal Laws (The Floor)
- FLSA (wages )
- Title VII (discrimination )
- ADA & ADEA (disability/age )
- FMLA (leave )
- IRCA (I-9 verification )
Key Texas Laws (The State Rules)
- Texas Payday Law
- Texas Unemployment Compensation Act
- State-specific leave (jury, voting, military )
Case Example: The High Cost of Misclassification
Real Case: A small manufacturing firm in Houston misclassified a dozen employees as "exempt" supervisors to avoid paying overtime. Following an employee complaint, the TWC investigated and sided with the workers, resulting in $48,000 in back wages and penalties.
The Takeaway: The cost of a simple classification audit is a tiny fraction of the cost of getting it wrong. Proactive compliance is always cheaper than reactive fines.
Do This Now
Educational guide — not legal advice.
Texas Hiring & Onboarding Compliance
Your compliance risk begins the moment you post a job opening. Many Texas businesses inadvertently create legal exposure with seemingly innocent interview questions or messy paperwork processes. Here's how to build a compliant system from the very start.
Legal Interview Questions & Job Postings in Texas
Every question you ask a candidate should be designed to evaluate one thing: their ability to perform the essential functions of the job. The most common mistakes involve questions that touch on protected classes (age, family status, health, national origin ), even accidentally.
The "Essential Function" Framework
Best Practice: Create a structured interview guide with pre-approved, job-related questions for every role to ensure consistency and fairness.
Texas Background Check Laws & FCRA Compliance
If you use a third-party service for background checks, you must comply with the federal Fair Credit Reporting Act (FCRA ). This requires getting separate written consent from the applicant and following the "adverse action" notice process if you decide not to hire them based on the report.
Many small businesses skip the FCRA compliance steps because they seem bureaucratic. This is a costly mistake. The FTC actively enforces FCRA violations, and penalties can reach $3,500 per violation. A simple consent form and adverse action letter template will protect you.
Required Texas New Hire Paperwork Checklist
Texas employers must collect specific documents from every new hire. Missing even one can trigger penalties during an audit.
| Required Form | Deadline | Penalty for Missing |
|---|---|---|
| Form I-9 (Employment Eligibility Verification ) | Within 3 business days of start date | $272 - $2,701 per form (2024 ) |
| Form W-4 (Federal Tax Withholding ) | Before first paycheck | Backup withholding at 24% |
| Texas New Hire Report | Within 20 days of hire | $25 per employee |
| Employee Handbook Acknowledgment | First day (best practice ) | Weakened legal defenses |
Do This Now
Texas HR Onboarding Checklist for Small Business
Beyond the initial paperwork, a smooth and compliant onboarding process involves several critical steps. A structured HR checklist protects your business and gives new employees a professional first impression. Use this checklist to cover all your bases from Day One.
- Collect Required Forms: Ensure the I-9, W-4, and Texas New Hire Report are completed accurately and on time.
- Provide Employee Handbook: Review key policies and secure a signed acknowledgment form to protect your business.
- Verify Employee Classification: Correctly identify the employee as exempt or non-exempt to avoid future wage and hour violations.
- Set Up Systems Access: Process payroll and benefits enrollment, and provide access to necessary company systems.
- Schedule Compliance Training: Conduct mandatory orientation on anti-harassment, safety, and other key workplace policies.
Incorporate this checklist into your standard onboarding packet. Consistent execution is the key to reducing compliance risk and building a strong foundation with new employees.
Texas Payroll Laws & FLSA Guide
Wage and hour violations are among the most expensive HR mistakes a small business can make. The Department of Labor recovered over $273 million in back wages in 2024 alone. Understanding the FLSA, proper classification, and Texas-specific wage laws isn't optional—it's essential for survival.
FLSA Employee Classification: Exempt vs. Non-Exempt
The most dangerous assumption in payroll is thinking that paying someone a salary automatically makes them "exempt" from overtime. This is wrong and expensive.
Exempt Employees
- Salary of at least $684/week ($35,568/year )
- Primary duties are executive, administrative, or professional
- Exercise discretion and independent judgment
- No overtime pay required
Non-Exempt Employees
- Can be paid hourly or salary
- Must track all hours worked
- Entitled to overtime pay (1.5x ) after 40 hours
- Most employees fall into this category
Common Misclassification Red Flags
- Calling someone a "manager" but they don't actually supervise anyone
- Paying a salary to avoid overtime without meeting the duties test
- Administrative assistants classified as exempt
- Team leads who spend most of their time doing the same work as their team
Texas Final Pay Law: The 6-Day Rule
Texas has specific rules about when you must pay a departing employee their final paycheck. Get this wrong, and you could owe penalties. The Texas Payday Law governs these timelines.
| Separation Type | Payment Deadline | Penalty for Late Payment |
|---|---|---|
| Termination (involuntary ) | Within 6 calendar days | Employee's daily wage for each late day |
| Resignation (voluntary) | Next regular payday | Employee's daily wage for each late day |
| Resignation with notice | Next regular payday | Employee's daily wage for each late day |
I recommend all my clients process final paychecks within 3 business days, regardless of the reason for separation. This buffer protects you from accidentally missing the deadline due to holidays, weekends, or processing delays. The cost of being early is zero; the cost of being late can be significant.
Do This Now
Educational guide — not legal advice.
Texas Employee Handbook Requirements & Policies
An employee handbook isn't just a nice-to-have document—it's your legal shield. A well-written handbook can protect you from wrongful termination claims, unemployment disputes, and discrimination lawsuits. But a poorly written one can actually make things worse.
Why Your Texas Business Needs an Employee Handbook
Some business owners think handbooks are only for large companies. This is a costly misconception. Even with a small team, a handbook serves three critical functions:
Legal Protection
Establishes clear policies that can defend against wrongful termination and discrimination claims.
Clear Communication
Ensures all employees understand expectations, reducing conflicts and misunderstandings.
Consistent Application
Provides a framework for fair and consistent treatment of all employees.
8 Essential Policies for a Texas Employee Handbook
While you can customize your handbook to fit your culture, certain policies are non-negotiable for legal compliance:
Required Handbook Policies
Handbook Mistakes That Create Legal Risk
- Using language that sounds like a contract ("We will never terminate without cause" )
- Copying policies from other states without Texas-specific modifications
- Failing to update policies when laws change
- Not requiring signed acknowledgment forms
The biggest handbook mistake I see is treating it as a "set it and forget it" document. Laws change, your business evolves, and your handbook should too. I recommend reviewing and updating your handbook annually, and immediately after any significant legal changes or business developments.
Do This Now
Educational guide — not legal advice.
Texas Employee Leave Laws: FMLA, Jury Duty & More
Employee leave is where federal and state laws create a complex web of requirements. FMLA, jury duty, voting leave, military service—each has specific rules and penalties for non-compliance. The key is knowing which laws apply to your business and when.
FMLA Eligibility for Texas Employers
The Family and Medical Leave Act (FMLA ) only applies to employers with 50 or more employees within a 75-mile radius. If you're under this threshold, you're not required to provide FMLA leave—but you may still want to offer some form of family leave as a competitive benefit.
FMLA Applies If:
- 50+ employees within 75 miles
- Employee worked 1,250+ hours in past 12 months
- Employee has been employed for 12+ months
- Qualifying reason (birth, adoption, serious health condition, military )
If FMLA Doesn't Apply:
- You're not required to hold jobs open
- You're not required to continue health benefits
- Consider offering voluntary leave policies
- Still must comply with ADA accommodation requirements
Required Leave Policies Under Texas Law
Even if FMLA doesn't apply to your business, Texas law requires certain types of leave that you must provide:
| Type of Leave | Who's Eligible | Time Allowed | Paid/Unpaid |
|---|---|---|---|
| Jury Duty | All employees | As long as service requires | Unpaid (unless company policy ) |
| Voting | All employees | Sufficient time to vote | Paid |
| Military Leave | All employees | Up to 15 days for training | Unpaid (unless company policy ) |
| Volunteer Firefighter/EMS | Certified volunteers | Reasonable time for emergencies | Unpaid |
Leave Administration Best Practices
- Create a simple leave request form for all types of leave
- Require advance notice when possible (except emergencies )
- Document all leave requests and approvals
- Train managers on proper leave administration
- Never retaliate against employees for taking legally protected leave
Even if you're not required to provide FMLA leave, I recommend creating a basic family leave policy. It's a valuable recruitment and retention tool, and it shows you care about your employees' well-being. Just make sure your policy is clear about eligibility and doesn't accidentally create obligations you can't meet.
Do This Now
Educational guide — not legal advice.
Texas Employee Termination & Discipline Guide
Terminating an employee is never easy, but doing it wrong can be catastrophic. The key to legally sound terminations is documentation, consistency, and following a clear process. This chapter shows you how to protect your business while treating employees fairly.
Using Progressive Discipline in Texas
Progressive discipline isn't legally required in Texas, but it's your best defense against wrongful termination claims. It shows you gave the employee opportunities to improve and that termination was a last resort.
Step 1: Verbal Warning
Address the issue immediately. Document the conversation with date, time, and what was discussed.
Step 2: Written Warning
Formal documentation of the problem and expectations for improvement. Employee signs acknowledgment.
Step 3: Suspension
Unpaid suspension (for non-exempt employees) with clear expectations for return.
Step 4: Termination
Final step when other measures have failed or for serious misconduct.
When You Can Skip Progressive Discipline
Some situations warrant immediate termination:
- Theft or embezzlement
- Violence or threats of violence
- Harassment or discrimination
- Falsifying records or applications
- Intoxication at work
How to Legally Conduct a Termination Meeting
The termination meeting should be brief, professional, and focused. Here's the framework I recommend to all my clients:
Termination Meeting Script
The most compassionate thing you can do in a termination meeting is to be clear and decisive. Ambiguity creates false hope and can lead to arguments. A scripted, professional, and brief meeting is not only safer for the business but also more respectful to the departing employee.
How to Effectively Respond to a TWC Unemployment Claim
Your response to a TWC claim is critical. Be timely, be factual, and provide proof. This is where your paper trail pays off. When you respond to a TWC claim, attach copies of signed written warnings, the handbook acknowledgment form, and any other relevant documentation.
Do This Now
Educational guide — not legal advice.
Frequently Asked Questions
This section addresses the most common questions Texas business owners ask about HR compliance. Each answer is designed to give you practical guidance you can implement immediately.
How much does HR compliance cost for Texas small businesses?
Most Texas firms under 50 employees spend $0–$3.5k one-time on setup (handbook + basic audit) and $60–$300+/mo ongoing (payroll/timekeeping plus occasional consulting).
- Handbook: DIY $0–$500; custom $1.5k–$6k
- Compliance audit (lite): $750–$3.5k
- Payroll + timekeeping software: often a base fee + per-employee; many small teams land around $60–$200/mo total
- On-call consulting: $150–$250/hr or $1k–$3k/mo retainer
- Training: $500–$2k per session
Prioritize a current handbook, a quick risk audit, and reliable timekeeping. Those three reduce >80% of avoidable exposure for small employers.
What HR policies are required in Texas?
Texas doesn’t mandate a handbook, but you must comply with federal and state laws. The safest approach is to put these policies in writing and get acknowledgments:
- At-will, EEO, anti-harassment with a clear complaint path and no-retaliation
- Wage & hour / timekeeping (overtime eligibility, approvals, rounding, breaks approach)
- Attendance and progressive discipline
- Leave policies: jury duty, paid voting time, military (plus FMLA if 50+ employees)
- Technology, confidentiality & data protection
- PTO payout at separation (state whether you pay it)
- Workers’ comp status (subscriber vs. non-subscriber notices)
You must also display required state/federal workplace posters and keep records for the required retention periods.
Do I have to provide meal or rest breaks in Texas?
No. Texas state law does not require employers to provide meal or rest breaks. However, if you choose to offer breaks shorter than 20 minutes, federal law requires they must be paid.
When do I have to pay a terminated employee in Texas?
Under the Texas Payday Law, you must issue a final paycheck to a terminated employee within six calendar days of their last day of work.
Do I have to pay out unused PTO when an employee leaves?
Only if your written company policy states that you will. If you have no policy, or your policy explicitly states PTO is not paid out, then you are not required to. This is why having a clear, written policy is crucial.
Can I require employees to speak English at work?
Yes, but only in limited circumstances where it is a clear business necessity for the role (e.g., for safety or communication with customers). A blanket "English-only" rule applied at all times can be a major discrimination risk.
What is a Texas HR audit?
An HR audit reviews your policies, payroll, and practices against Texas and federal law. A typical audit checks:
- Handbook policies vs. legal requirements
- Payroll compliance (wages, overtime, deductions)
- Hiring/onboarding documentation (I-9s, new hire reports)
- Required workplace posters and notices
- Record retention practices
Audits can be internal checklists or formal third-party reviews. Many small businesses do both yearly.
Is there a Texas HR compliance checklist?
Yes. A Texas HR checklist should include:
- ✔️ Hiring: I-9s, new hire report within 20 days, required posters
- ✔️ Payroll: timekeeping, overtime, pay stubs, final paycheck deadlines
- ✔️ Policies: at-will, anti-harassment, PTO, leave policies, workers’ comp notice
- ✔️ Record retention: personnel files (4+ years), payroll records (3+ years)
- ✔️ Safety: OSHA compliance if applicable
Is workers' compensation insurance mandatory for Texas small businesses?
No. Texas is the only state where workers' compensation insurance is optional for most private employers. However, if you become a "non-subscriber," you must formally notify your employees and the state, and you lose certain legal protections against lawsuits from injured employees.
What is the penalty for non-compliance with Texas payroll law?
Under the Texas Payday Law, you can be ordered to pay all wages due plus administrative penalties. For late final pay, Texas recognizes penalties up to the employee’s daily wage for each late day. If federal rules (FLSA) are also violated (e.g., unpaid overtime), exposure can include back wages + equal liquidated damages and, for willful violations, civil penalties. Interest and attorney’s fees may also apply.
- Final paycheck deadlines: termination = within 6 calendar days; resignation = next regular payday
- Common triggers: misclassification, off-the-clock work, illegal deductions, late payment
Process final pay within 3 business days, review classifications, and run a quarterly timekeeping spot-audit.
What is the absolute minimum time I need to keep payroll records?
You must keep payroll and timekeeping records for at least four years to be compliant with Texas state recordkeeping requirements. The federal FLSA requires three years, so following the Texas rule keeps you compliant with both.
Do I need to post any required notices in my workplace?
Yes, both federal and Texas law require certain workplace postings. The specific notices depend on your number of employees and industry, but common ones include FLSA minimum wage, OSHA safety, and equal employment opportunity notices. You can find them on the TWC's Required Workplace Posters page.
What should I do if an employee files a discrimination complaint?
Take it seriously immediately. Document everything, avoid retaliation, and consider consulting with an employment attorney. Many complaints can be resolved internally if handled properly and promptly.
Your Next Step: From Information to Action
Navigating HR compliance in Texas isn't about memorizing every statute. It's about building simple, repeatable systems that protect your business from predictable risks. You've read the playbook. Now it's time to take action.
Don't let uncertainty stall your growth. Choose the next step that's right for you and turn this information into peace of mind.
Success Story
A small retail employer in Dallas avoided a $15,000 overtime audit by proactively correcting their employee classifications using the framework in this guide. The owner said: "The cost of the audit was nothing compared to what we could have faced. Now I sleep better knowing we're compliant."