Texas Minimum Wage: Complete Employer Compliance Guide

Texas employers need to stay informed about minimum wage requirements to ensure compliance and avoid costly mistakes. Wage standards in Texas follow the federal baseline, but there are specific details within state laws that businesses must navigate. Understanding these regulations helps employers maintain fair compensation practices and adhere to legal obligations.

Unlike many states with higher minimum wage rates, Texas has remained aligned with the federal minimum wage for over a decade. This consistency simplifies payroll calculations but limits flexibility for businesses operating in areas with higher living expenses. Employers must also address specific wage-related policies unique to Texas.

The state's approach to minimum wage includes firm rules on exemptions, tip credits, and required documentation. Employers should familiarize themselves with these details to ensure accurate payroll processing and compliance with state law.

Texas Minimum Wage Basics

The current minimum wage in Texas is $7.25 per hour, which matches the federal rate. This has been the mandatory wage across the state since 2009 and only changes when federal law mandates an increase.

Texas law prohibits cities and counties from setting their own minimum wage rates. Even in high-cost areas like Austin or Dallas, employers must follow the statewide minimum of $7.25 per hour, with no option for local adjustments.

Employers in Texas must comply with specific provisions under the Texas Minimum Wage Act. For example, businesses must provide employees with detailed written earnings statements each pay period. Additionally, employers can count tips, meals, and lodging toward the minimum wage, but only under strict conditions outlined in the law.

Coverage Under the Texas Minimum Wage Act

The Texas Minimum Wage Act primarily applies to businesses already governed by the Fair Labor Standards Act (FLSA). Employers subject to federal wage regulations must also align with state requirements. However, the Texas Act does not impose additional wage standards beyond the federal minimum of $7.25 per hour.

Non-exempt employees are directly covered under the Act. These workers typically include hourly positions in industries like retail, hospitality, and manufacturing. Employers must ensure these employees receive at least the federal minimum wage for all hours worked. Exempt employees, such as those in executive or professional roles, fall outside of these requirements, provided they meet specific exemption criteria outlined in federal law.

Certain organizations are exempt from both the FLSA and the Texas Minimum Wage Act. Nonprofits, religious entities, and some educational institutions are examples of businesses that may not be required to follow minimum wage rules. Employers in these categories should review their classification to confirm their exemption status and avoid compliance issues.

Matching wage coverage to each specific business and employee role is important for legal compliance. Misclassifying employees or misunderstanding exempt or non-exempt statuses can lead to penalties and wage disputes. Employers should regularly review their practices and documentation to ensure adherence to state and federal wage laws.

Tipped and Sub-Minimum Wage in Texas

In Texas, tipped employees must receive at least $7.25 per hour when combining tips and wages. Employers are allowed to pay a direct cash wage of $2.13 per hour and apply a tip credit of up to $5.12 to meet the federal minimum wage. However, employers are responsible for ensuring the total hourly earnings, including tips, reach or exceed $7.25. If tips fall short, employers must cover the difference immediately.

The tip credit comes with specific obligations. Employers need to:

Inform employees in writing that tips will be used to meet minimum wage requirements.
Keep thorough records of tips earned to verify compliance with wage laws.
Monitor shifts closely to ensure tipped employees always meet the $7.25 hourly minimum.

Failing to meet these conditions can result in serious consequences, including back pay requirements and penalties.

Special Youth Wage in Texas

For workers under 20 years old, Texas allows a reduced wage of $4.25 per hour during their first 90 calendar days of employment. This temporary rate is often used for training purposes but comes with strict limitations. Employers must transition employees to the full $7.25 minimum wage after 90 days or when the worker turns 20, whichever comes first.

Employers cannot use the youth wage to replace or reduce the hours of existing workers. Violating this rule can lead to legal challenges and financial penalties. Careful documentation is essential to avoid compliance issues.

Tipped wages and youth wages require precise management and clear communication with employees. Missteps can lead to wage disputes, audits, and legal action, so understanding these guidelines is key to staying compliant.

Overtime and Salary Rules in Texas

Texas employers must pay overtime wages to non-exempt employees who work more than 40 hours in a single workweek. The overtime rate is set at 1.5 times an employee's regular hourly pay. Employers are responsible for tracking hours accurately and ensuring overtime calculations are correct to avoid underpayment or disputes.

Exempt vs. Non-Exempt Salaried Employees

Salaried workers are not automatically exempt from overtime pay. To qualify as exempt, employees must meet specific criteria under FLSA guidelines. Both the employee's salary level and job duties determine this classification.

Weekly Salary Requirement: Salaried employees must earn at least $684 per week, which equates to $35,568 annually.
Duties Alignment: Employees must perform tasks that fall under exemption categories, such as executive, administrative, or professional roles.

If a salaried employee fails to meet these requirements, they are considered non-exempt and must receive overtime pay for any hours worked beyond the 40-hour threshold in a workweek. Misclassifying employees can result in financial penalties, back pay, and legal challenges. Always review job roles and compensation carefully.

Calculating Overtime for Salaried Non-Exempt Employees

For salaried non-exempt employees, overtime pay is calculated differently. Employers must first determine the employee's regular hourly rate. Divide the weekly salary by the total number of hours worked during that week to establish the hourly rate.

To calculate overtime:

Multiply the hourly rate by 1.5 to determine the overtime rate.
Apply the overtime rate to all hours worked over 40 in the workweek.

For instance, if a salaried non-exempt employee earns $800 per week and works 50 hours, the regular hourly rate is $16 ($800 ÷ 50). The overtime rate is $24 per hour, which applies to the additional 10 hours worked.

Employers must document all hours worked, even for salaried employees, to ensure compliance with overtime rules. Errors in calculation or recordkeeping can lead to wage disputes and penalties.

Accurate classification and consistent payroll practices are key to avoiding overtime pay violations. Properly managing overtime ensures fair compensation and compliance with Texas and federal wage laws.

Recordkeeping Requirements in Texas

Employers in Texas are required to follow clear recordkeeping rules to comply with wage laws and maintain transparency. Payroll records must be detailed, accurate, and readily available for review when needed. A strong recordkeeping system isn't just a regulatory requirement—it also helps avoid wage disputes and ensures employees are paid correctly.

Written Earnings Statements

Every pay period, employers must provide employees with a written earnings statement. The statement should break down all the key details related to an employee's pay. Specifically, it must include:

Hourly pay rates: Clearly list the exact rate for each type of work completed.
Total hours worked: Provide a complete account of all hours worked, including overtime if applicable.
Gross wages: Display total earnings before any deductions are applied.
Deductions: Itemize all deductions such as taxes, benefits, and garnishments with specific amounts.
Net pay: Show the final amount paid after all deductions.
Pay period start and end dates: Clearly define the timeframe the payment covers.

The earnings statement must be detailed enough for employees to verify their pay is accurate. Missing information or unclear details can lead to confusion or disputes, so precision is key.

Payroll Record Retention

Employers are also required to retain payroll records for at least three years. These records serve as proof of compliance with wage regulations and must include all relevant details about employee compensation. Important documents to keep on file include:

Employee information: Full names, addresses, and Social Security numbers.
Work schedules: Records of regular hours, overtime, and any schedule changes.
Pay rates and gross earnings: Documentation of all pay rates and corresponding gross earnings for each pay period.
Deductions: A breakdown of all deductions made, with explanations for each.
Payment records: Dates and amounts of all wage payments issued.

Payroll records should be stored securely but must also remain accessible for audits or employee requests. Incomplete or poorly maintained records can lead to compliance issues or penalties, so it's important to ensure accuracy and organization.

Maintaining detailed payroll records not only safeguards your business but also builds trust with employees. Organized, transparent records make it easier to address any questions about pay and demonstrate compliance with wage laws.

Exemptions and Special Situations in Texas

Certain workers in Texas aren't covered by standard minimum wage rules due to exemptions tied to their job classifications, industries, or specific labor conditions. Employers need to understand the details of these exemptions to ensure compliance and avoid costly errors.

Executive, Administrative, and Professional Roles

Employees in executive, administrative, or professional roles qualify for exemptions under FLSA when specific conditions are met. These exemptions are based on job duties and compensation thresholds.

Executives: Must primarily manage the business or a recognized department, supervise at least two full-time employees, and have authority over hiring and firing decisions.
Administrative Staff: Must perform non-manual work that directly supports management or business operations and regularly make decisions on significant matters.
Professionals: Must work in fields requiring advanced knowledge, such as law, engineering, or accounting, typically gained through specialized education.

All exempt employees must earn a weekly salary that meets the federal threshold. Misclassifying roles can lead to wage violations and financial penalties.

Agricultural Piece-Rate Workers

Agricultural workers paid by the piece instead of hourly wages are another exempt group. The Commissioner of Agriculture determines piece-rate pay based on the average productivity of workers harvesting crops or performing similar tasks. Employers must ensure workers earn at least the federal minimum wage when their total output is divided by hours worked.

For example, a farmworker picking produce at a set rate per bushel must still reach $7.25 per hour when their earnings are calculated over a standard work period. Employers who use piece-rate compensation must document hours worked and wages earned carefully.

Nonprofit, Educational, and Religious Organizations

Nonprofit, educational, and religious entities can qualify for exemptions under wage laws. This applies to organizations primarily focused on charitable, educational, or spiritual missions. For example, a nonprofit running a community food bank may employ workers without adhering to minimum wage requirements. However, employers must confirm their exempt status to avoid compliance issues.

Sub-Minimum Wage for Apprentices and Workers with Disabilities

Employers can pay sub-minimum wages in specific cases, but only after securing the necessary certification from federal authorities.

Apprentices: Workers in training programs can earn less than the standard minimum wage during the training period. This pay structure supports workforce development while balancing costs.
Employees with Disabilities: Workers with disabilities affecting productivity may also qualify for sub-minimum wages. Employers must document the worker's capacity and obtain certification to follow legal requirements.

Employers offering sub-minimum wages must review and maintain accurate records of performance and compensation. Failure to meet documentation or certification requirements can result in penalties.

Understanding these exemptions helps employers apply the correct wage rules while meeting the unique needs of their workforce.

Employer Compliance Steps

Employers in Texas are responsible for ensuring their payroll processes meet minimum wage and hour laws. Clear steps can help you avoid mistakes and stay compliant. Focus on accurate wage classifications, proper payment calculations, detailed recordkeeping, and compliance with overtime rules.

Verify Employee Classifications

Start by reviewing how each employee is classified. Misclassifications can lead to unpaid wages and legal consequences.

Exempt or Non-Exempt: Confirm if employees meet the federal exemption criteria based on their salary and job duties. Non-exempt employees are eligible for overtime pay, while exempt employees are not.
Tipped or Non-Tipped: Identify employees who qualify for a tip credit. Tipped employees must be paid at least $2.13 per hour in direct wages, with tips making up the difference to $7.25 per hour. Non-tipped employees must always receive at least $7.25 per hour in wages.

Regularly review classifications, especially when roles or responsibilities change.

Confirm Payment Accuracy

Ensure all employees are paid at least the required $7.25 per hour for every hour worked. Review payment structures for hourly, salaried, and tipped employees.

Hourly Employees: Multiply the hourly rate by the number of hours worked to confirm compliance. Address any shortfalls immediately.
Salaried Employees: For non-exempt salaried workers, divide their weekly salary by the total hours worked to verify minimum wage compliance.
Tipped Employees: Check that tips and wages combined meet or exceed $7.25 per hour. If tips fall short, pay the difference directly to the employee.

Payment accuracy prevents disputes and ensures employees are compensated fairly.

Maintain Comprehensive Records

Detailed records are essential for payroll compliance. Keep organized and accurate documentation for all wage-related activities.

Record start and end times for each employee's shifts.
Retain payroll records showing gross wages, deductions, and net pay.
Maintain a log of tips received for employees who earn them.
Store copies of earnings statements provided to employees for a minimum of three years.

Well-maintained records protect your business during audits or wage claims.

Monitor Overtime Payments

Non-exempt employees who work more than 40 hours in a week must be paid overtime at 1.5 times their regular hourly rate. Accurate tracking is key to compliance.

Track weekly hours for all non-exempt employees.
Calculate overtime pay correctly and include it in regular paychecks.
Adjust schedules when necessary to manage workloads and avoid unintentional overtime.

Paying overtime correctly prevents back pay claims and regulatory penalties.

Seek Professional Guidance

Complex wage scenarios, such as exemptions or sub-minimum wages, often require additional expertise. Consult legal or HR professionals to ensure compliance in these cases.

Review exemption status for executive, administrative, or professional employees with an expert.
Seek advice before implementing sub-minimum wage programs for apprentices or employees with disabilities.
Stay informed about updates to state and federal wage laws to avoid compliance gaps.

Professional support reduces the risk of costly errors and keeps your payroll practices aligned with legal standards.

Navigating the complexities of wage compliance in Texas requires attention to detail and a commitment to fair pay practices. By understanding the state's minimum wage laws, overtime rules, and recordkeeping requirements, you can create a compliant and equitable workplace for your employees. If you're looking for a comprehensive HR and payroll solution to streamline your compliance efforts, book a demo with us today and discover how we can help you manage your workforce more effectively.