Running payroll for the first time as a Texas employer can feel overwhelming. Get it wrong and you face penalties from the IRS. Get it right and your employees are paid accurately and on time, your taxes are current, and your business stays compliant. Here is a practical guide to get you started.
Step 1: Get a Federal Employer Identification Number (EIN)
Before you pay a single employee, you need an EIN from the IRS. Apply free at IRS.gov. The EIN is used on every payroll tax deposit and year-end filing.
Step 2: Collect a W-4 from Every Employee
Each new hire must complete IRS Form W-4 before their first paycheck. The W-4 tells you how much federal income tax to withhold. Keep the original on file — you do not submit W-4s to the IRS.
Step 3: Decide on a Pay Schedule
Texas law requires employers to pay employees at least twice a month. Common schedules:
- Weekly — 52 payrolls per year; common in construction and service industries
- Bi-weekly — 26 payrolls per year; easy for hourly employees with variable hours
- Semi-monthly — 24 payrolls per year (e.g., 1st and 15th); common for salaried staff
Step 4: Calculate Gross Pay
For hourly employees, multiply hours worked × hourly rate. For overtime (over 40 hours/week), the rate is 1.5× the regular rate under the Fair Labor Standards Act. Salaried employees receive the same amount each pay period regardless of hours.
Step 5: Withhold the Correct Taxes
For each employee, withhold:
- Federal income tax (based on W-4 and IRS withholding tables)
- Social Security: 6.2% of wages up to $168,600 (2024 wage base)
- Medicare: 1.45% of all wages
As the employer, you also pay a matching 6.2% Social Security and 1.45% Medicare contribution — this is separate from what you withhold from your employees.
Texas has no state income tax, so there is no state withholding for most employees.
Step 6: Deposit Payroll Taxes on Time
Federal payroll taxes must be deposited either monthly or semi-weekly depending on your lookback period. Most new employers start as monthly depositors. Missing deadlines triggers penalties that start at 2% and climb to 15%. Use EFTPS (Electronic Federal Tax Payment System) to make deposits.
Step 7: File Quarterly and Annual Reports
- Form 941 — filed quarterly; reports wages paid and taxes withheld
- Form 940 — filed annually; reports federal unemployment (FUTA) tax
- W-2s — issued to all employees by January 31 and filed with the SSA
Step 8: Keep Records for at Least 4 Years
Maintain payroll records including time sheets, pay stubs, W-4s, and tax deposit confirmations for at least four years in case of an IRS audit.
Common Payroll Mistakes to Avoid
- Misclassifying employees as independent contractors
- Forgetting to pay overtime to non-exempt employees
- Missing federal tax deposit deadlines
- Failing to update W-4 changes mid-year
Want a simpler way to track payroll and generate pay stubs? Register your organization and use our payroll tools — or contact Tina Agency of Texas for hands-on payroll support in the Greater Houston area.