Hiring Your First Employee in Texas: The Paperwork and Payroll Setup Checklist

Hiring Your First Employee in Texas: The Paperwork and Payroll Setup Checklist

The offer is accepted, the start date is set, and somewhere between the handshake and the first payday sits a stack of government paperwork nobody handed you. Hiring employee number one turns your business into an employer, and that status comes with one-time setup steps at the federal level plus several that are specific to Texas. None of them are hard on their own. The trouble is that they live at four different agencies, and some have deadlines measured in days, not months. This guide walks through the sequence so you know what belongs where. It is general education, not tax or legal advice, so confirm the current requirements for your situation with a CPA or an employment attorney before the first day of work.

Before the Offer: Classification and an EIN

The checklist actually starts before you hire anyone, with the question of whether this person is an employee at all. The difference between an employee and an independent contractor is decided by the facts of the working relationship, not by what either side prefers to call it, and everything below applies only to employees. If the arrangement is genuinely contract work, you are on the 1099 path instead, which has its own reporting but none of the payroll setup.

Once you know you are hiring an employee, you need an Employer Identification Number. Many sole proprietors run for years on a Social Security number alone, but employment tax filings require an EIN. The IRS issues them free through its website, usually within minutes, and its hiring employees page gathers the federal requirements in one place, which makes it a good bookmark for everything in the next two sections.

First-Day Paperwork: Form W-4 and Form I-9

Two federal forms belong in your new hire’s first-day packet. The W-4 tells you how much federal income tax to withhold from each paycheck, based on the elections the employee makes on the form. Texas has no state income tax, so there is no state withholding certificate to collect, one of the few places where being a Texas employer is genuinely simpler than elsewhere.

The second form, Form I-9 from USCIS, verifies that the employee is eligible to work in the United States, and its timing rules are tight. The employee generally completes their section no later than the first day of work for pay, and you generally complete the employer section, after reviewing the employee’s documents in person or through an approved remote procedure, within three business days of the start date. You do not send the I-9 anywhere. You keep it on file and produce it if a federal agency ever asks for it.

The Two Texas Registrations: New Hire Reporting and TWC

Texas adds two steps that catch many first-time employers off guard. The first is new hire reporting. Federal and state law require employers to report each new hire, generally within 20 calendar days of the start of work, through the Employer New Hire Reporting program run by the Texas Attorney General’s child support division. The report takes a few minutes online, and the rule of thumb the state itself uses is simple: if the worker fills out a W-4, report them.

The second is state unemployment tax. The Texas Workforce Commission collects unemployment tax from liable employers, and liability generally begins once you pay $1,500 or more in gross wages in a calendar quarter, or employ at least one person in 20 different weeks of a calendar year. A regular employee at nearly any wage crosses that line quickly. TWC asks employers to register generally within ten days of becoming liable, and registration starts the rhythm of quarterly wage reports and tax payments that continues for as long as you have staff. The liability rules and timing have nuances, so confirm the current requirements with TWC or your CPA rather than assuming.

The Workers Comp Decision

Texas is unusual here. Most private employers in the state are not required to carry workers compensation insurance, a choice almost no other state offers. That does not make the decision casual. An employer that goes without coverage, called a non-subscriber, must notify its employees and file notices with the Texas Department of Insurance, Division of Workers’ Compensation, and gives up important legal defenses if an employee is injured on the job and sues. TDI lays out the obligations on its employer resources pages.

Opting out is not the absence of a decision. It is a legal position with real consequences, and the right call depends on your industry, your risk, and your appetite for exposure. Talk it through with an insurance agent and an attorney before the start date rather than discovering the tradeoffs after an injury.

Payroll Records Start on Day One

With the registrations done, the ongoing work begins. Each pay period you withhold federal income tax per the W-4, withhold the employee’s share of Social Security and Medicare, and accrue your matching employer share, then deposit those taxes on the IRS schedule that applies to you and file the required quarterly payroll returns. The IRS expects employment tax records to be kept for at least four years, so the W-4, the I-9, pay records, and filings all need a permanent home starting with the first payday.

Payroll also changes your bookkeeping. Every pay run creates wage, withholding, and employer tax entries that have to land in the right accounts, which is a different exercise from paying yourself through draws or salary. Plenty of owners run one employee themselves with payroll software, and plenty decide the deposit deadlines and filings are exactly what they want off their plate. Our payroll bookkeeping service exists for the second group, keeping the records, the filings, and the book entries in sync so your first hire stays the milestone it should be instead of becoming a compliance headache.