New Texas employers have responsibilities regarding their employees. Below is helpful information for new employers and employers new to Texas.
The Texas Unemployment Compensation Act (TUCA) defines who is a liable employer. Liable employers report wages they pay and pay taxes on those wages.
Liable employers report employee wages and pay the unemployment tax based on TUCA. Several different criteria determine an employer's liability. Once wages are paid, employers should register with the Texas Workforce Commission (TWC). Find more information at Determine Whether You Need to Establish an Unemployment Tax Account webpage.
The law defines employment as a service performed by an individual for wages under an express or implied contract for hire, unless it is shown to the satisfaction of the Commission that the individual’s performance of the service has been and will continue to be free from control or direction under the contract.
The definition of employment includes three elements:
- Service
- Wages
- Direction and control
The law does not require an employer to exercise direction and control. Direction and control would still exist even if you do not exercise it. You only need to have the right to do so.
If your worker meets this definition, they are your employee.
Find more information at Classifying Employees & Independent Contractors.
Employers newly liable for state unemployment tax begin with either:
- A predetermined tax rate
- A computed tax rate if they acquired compensation experience from a previously liable employer
A predetermined tax rate is set by the Texas Unemployment Compensation Act (TUCA). Texas law sets an employer’s tax rate at their NAICS industry average or 2.7 percent, whichever is higher. The North American Industry Classification System (NAICS) assigns an average tax rate for each industry. See Unemployment Insurance Tax Rates webpage.
Liable employers report employee wages and pay the unemployment tax based on the TUCA. Wages are reported when they are paid rather than when they are earned or accrued. Employers report employee gross wages each quarter and pay taxes on the first $9,000 per employee, per year. Find more information at Reporting & Determining Taxable Wages.
TWC requires all employers to file reports electronically. TWC offers several electronic methods to file quarterly reports. Find more information at Employer’s Quarterly Wage Report Filing Options.
TWC requires all employers to pay their taxes electronically. TWC offers several electronic methods to file quarterly reports. Find more information at Payment Options for Unemployment Tax.
Reporting new hires and rehires is required in Texas. Reporting saves you money by reducing fraudulent claims for public assistance, worker’s compensation, and unemployment benefits. It also allows early detection of benefit overpayments. This results in substantial savings to the Unemployment Insurance Trust Fund. The Office of the Attorney General manages the New Hire Reporting program. Find more information at New Hire Reporting.
Employers are required to display compliance posters at their business. You can print them free of charge from links on this page or by following links to the U.S. Department of Labor. Find more information at Posters for the Workplace.
TWC's Office of the Commissioner Representing Employers produces a handy reference book entitled Texas Guidebook for Employers - Especially for Texas Employers. It provides information on important workplace issues, including:
- Hiring
- Pay and policy
- Work separation
- Post-employment problems
- Employment law-related websites
- Texas Guidebook for Employers (online version)
- Texas Guidebook for Employers