As a small business owner, processing payroll is just one item on your to-do list, but ever-changing regulations and tax code updates can make it the most time-consuming task in a given week. These tax updates occur at the federal, state, and local levels, and depending on where your business is based and where your employees live, some small businesses have it tougher than others. We’ve started this monthly series to focus on state-specific tax considerations, to help you keep up with what’s changing around you.
We’ve previously covered Washington, New York, Pennsylvania, Oregon, and Florida. This month, our spotlight turns to Texas (TX). While this is by no means a comprehensive list of Texas tax and payroll regulations, we are highlighting a couple of key things to know.
There are seven states in the U.S. that do not have state-level income taxes. We’ve previously covered Washington and Florida, and Texas also makes that list. In fact, the Texas state constitution explicitly forbids personal income taxes.
It’s important to note that while you will save on income taxes in Texas, they make up for it in other ways:
- Sales and use taxes as high as 8.25% in some jurisdictions
- Higher than average property tax rates, with the average rate being 1.86%, the sixth highest of any state
Texas Payday Law applies to all Texas business entities, regardless of size, with the exception of public employers such as the federal government and the state. Any individual who performs a service for compensation is considered an employee, excepting close relatives and independent contractors.
Texas Payday Law covers several kinds of payments, including:
- Compensation for all services rendered, regardless of how they are calculated
- Commissions and bonuses as agreed upon between parties
- Specific fringe benefits outlined in a written agreement with or policy of the employer
Texas Payday Law also includes provisions for when employees must be paid:
Any employee exempt from the overtime provisions of the federal Fair Labor Standards Act (FLSA) is required to be paid at least once a month; all others must be paid at least twice monthly. If you are using a semi-monthly pay schedule, each pay period must contain as equal a number of days as possible. Within those requirements, an employer may designate any paydays he or she chooses.
Additionally, employers are required to post notices of paydays in conspicuous locations in the workplace. If an employer does not specify paydays, the employer's paydays default to the first and 15th of each month.
You can read the full provisions of the Texas payday law here.
A Note on Final Paydays
If an employee voluntarily separates from the business, they must be paid in full on the next regular payday. Terminated employees are required to be paid in full within six days of termination.
As you can see from our coverage of Texas, every state differs when it comes to payroll and taxes. So whether your business is in the Lone Star State, the Sunshine State, or any state in between, you want to be sure that you are keeping up with tax and regulatory changes at the federal, state, and local levels. This can be hard to do on your own, but there are resources to help.
If you’re considering outsourcing payroll to help cut down on administrative tasks and mitigate tax risk, here are some things to consider in selecting a provider:
- Do they have your back when it comes to payroll taxes?
- How long is their payroll processing time?
- Do they offer extended support hours on evenings and weekends?
We’ll be back November 28th with a spotlight on California taxes.
This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.