Paying Employees in Texas — Minimum Wage, Overtime & What You Need to Know

Texas employment law governs the minimum standards for paying your employees, and while Texas follows federal law in most respects — which keeps things relatively straightforward — there are still rules that SETX business owners need to understand and comply with to avoid Department of Labor investigations, back pay liability, and the employment law claims that are among the most expensive and disruptive things a small business can face. The good news is that Texas does not impose additional wage and hour requirements beyond federal standards in most areas — unlike states like California or New York, which have significantly more complex state-specific rules. The bad news is that "relatively straightforward" still has enough complexity to trip up employers who don't understand the basics.

Texas Minimum Wage

Texas follows the federal minimum wage: $7.25 per hour as of this writing, for most non-exempt employees. Note: there is no Texas state minimum wage law that is higher than federal — Texas has not enacted a higher state minimum. Several Texas cities attempted to set higher local minimum wages, but state preemption limits this. For tipped employees (those who regularly receive more than $30/month in tips), the federal minimum cash wage is $2.13/hour — the employer can take a "tip credit" of up to $5.12/hour, but if the employee's tips don't bring their effective hourly rate up to $7.25, the employer must make up the difference. In Southeast Texas's restaurant and hospitality sector, tip credit rules are a compliance area where violations are common and DOL enforcement is active.

Overtime Rules — FLSA Requirements

The Fair Labor Standards Act (FLSA) requires that non-exempt employees be paid at least 1.5x their regular rate for all hours worked over 40 in a workweek. Texas follows federal FLSA overtime standards. Key clarifications: (1) The overtime threshold is 40 hours per workweek, not per day. (2) The workweek is a fixed 7-day period defined by the employer — it doesn't have to be Monday–Sunday. (3) "Regular rate" includes not just base wages but also certain non-discretionary bonuses and shift differentials. Misclassifying employees as exempt (and therefore not paying overtime) is a major source of DOL wage and hour violations among SETX small businesses. To be exempt from overtime under the FLSA, employees must meet both a salary basis test (currently $684/week or $35,568/year) and one of several duties tests (executive, administrative, or professional exemption).

Pay Frequency Requirements in Texas

Texas law requires employers to pay employees at least twice per month (semi-monthly), except for exempt employees who may be paid monthly. Many SETX employers pay weekly or biweekly, which is both compliant and generally preferred by employees. Employers must notify employees in writing of their designated pay period and payday. Wages must be paid in U.S. currency, by check, direct deposit, or paycard — payroll debit cards are permitted in Texas under specific conditions. Final paychecks: when an employee is terminated (fired), they must receive their final paycheck by the next regularly scheduled payday. When an employee resigns, their final paycheck is due by the next regular payday or within six days, whichever is later. Failure to pay final wages promptly is a Texas Payday Law violation that can result in back wages plus penalties.

Independent Contractor vs. Employee — Getting It Right

Worker misclassification — treating employees as independent contractors to avoid payroll taxes, benefits costs, and labor law protections — is one of the most commonly cited compliance violations in the SETX business community, particularly in construction, trucking, and food service. The IRS and the Department of Labor both have standards for distinguishing employees from contractors, and they don't always align. The core questions: Does the employer control how the work is done (not just the result)? Does the business relationship resemble employment or independent business? Can the worker profit or lose based on their own business decisions? Incorrectly classifying a worker as an independent contractor when they're actually an employee results in back payroll taxes, penalties, interest, and potentially a DOL investigation. When in doubt, consult an employment attorney or payroll professional.

Record-Keeping Requirements

Federal law requires employers to retain payroll records for at least three years and records supporting the calculation of wages (time records, piece rate records) for at least two years. Texas follows federal record-keeping requirements. Required records include: employee name and Social Security number, address, birth date (for workers under 19), sex and occupation, hours worked each day and week, total earnings, deductions, and total net pay. Payroll software maintains these records automatically when configured correctly — another reason to use professional payroll software rather than spreadsheets from day one. The Southeast Texas Business Directory can help you find local payroll and HR professionals under accounting and tax services who can help establish compliant systems.