A guide to PEO in Texas

A Guide to PEO in Texas

Looking for a PEO in Texas? See how the right partner can provide your business with state-specific benefits, payroll, and HR support.

Shannon Hodgen
Written by Shannon Hodgen
April 1, 2024
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Key takeaways

  1. Engaging a PEO provider in Texas enables companies to hire in compliance with the state’s unique laws and regulations.
  2. A PEO provides Texas employers with competitive yet affordable employee benefits options, making them a more attractive option in a demanding job market.
  3. Organizations can gain access to advanced payroll and HR solutions through a PEO provider, allowing them to streamline operations and dedicate more time to core business functions and growth.

Correctly hiring, paying, and managing a workforce in Texas demands an in-depth understanding of both state and federal laws. By partnering with a professional employment organization (PEO), companies can delegate compliance and HR tasks to a trusted provider—and as a result, hire with more confidence, compliance, and speed.

Read on to explore the benefits and process of using a PEO in the state of Texas.

The role of PEOs in Texas

PEOs allow Texas businesses to outsource a number of employee and HR management functions including payroll and benefits administration. When you partner with a PEO provider, they can also help you maintain continuous compliance with all relevant state and federal laws.

Engaging a PEO means entering into a co-employment relationship with the service provider, meaning you share certain responsibilities and liabilities with the PEO while maintaining control of your workforce’s daily operations.

Texas regulates all PEO providers that operate within its jurisdiction. According to state law, providers must obtain a license and meet the strict requirements of the Texas Department of Licensing and Regulation (TDLR). 

Many employee benefits are not required under state or federal law. However, if the PEO does offer benefits such as health insurance, retirement plans, or worker’s compensation, they must comply with applicable regulations.

Benefits of Texas PEO services

Working with a PEO helps Texas companies simplify their HR operations, offer comprehensive benefits to employees, and stay updated with state-specific employment laws. 

Increased efficiency 

HR outsourcing can lead to more streamlined operations by reducing the amount of time and resources dedicated to tasks. This approach frees up CFOs and finance teams to focus on strategic initiatives with the knowledge that the company’s core operations are in good hands.

PEOs also come with sophisticated HR software that can automate US payroll and benefits, track expenses, and provide insights through real-time analytics. Having these tools allows companies to create more efficient and scalable processes that drive growth.

Access to expertise

PEOs grant access to a bank of expertise and regulatory knowledge that’s often beyond the scope of startups or small businesses. The service tends to be more cost-effective than hiring in-house specialists as it has lower, more predictable costs.

It also enables HR teams, CFOs, and Finance departments to make well-informed decisions based on expert insights regarding payroll, HR, and regulatory compliance, ensuring they make strategic choices supported by specialized knowledge.

Cost-effective employee benefit plans

A significant advantage of partnering with a PEO is the opportunity to offer a more attractive and affordable benefits package to employees. 

Employee health insurance and other benefits come at a steep price for small businesses and startups. Since PEOs employ a larger workforce, they’re able to provide small businesses with more purchasing power, enabling them to access affordable and comprehensive benefits plans including health, dental, and vision coverage, retirement plans, and more.

While Texas doesn’t require you to provide benefits, it currently has one of the hottest job markets in the US. Offering a comprehensive selection of plans is crucial for recruitment and retention, and a PEO allows smaller businesses to compete with larger corporations for top talent.

Enhanced compliance

Non-compliance has high stakes as violating state laws can lead to fines, legal cases, and reputational harm. PEOs help companies navigate and stay updated with state and federal laws to prevent issues.

Given that Texas can impose harsh penalties, robust compliance management is vital. For instance, the city of Austin recently introduced a Wage Theft Program. Officials may list business owners on a public database if they find them guilty of offenses like incorrectly paying overtime or misclassifying workers.

Delegating compliance management to a PEO also allows for more effective resource management. Businesses can focus on overhead strategy rather than appointing team members to research and interpret complex regulations.


Payroll, labor, and employment laws in Texas

The regulations in Texas are comprehensive and known for being employer-friendly. Here are the most important state-specific laws to be aware of:

Payroll and benefits laws

  • Minimum wage: Texas aligns its minimum wage with the federal standard which is currently $7.25 USD per hour. If the US Congress increases the rate, the state will adjust the amount accordingly
  • Wages: Organizations must pay their employees in US dollars using reasonable means such as post or direct deposit. They can pursue alternative methods if specific team members agree in writing
    • Final paychecks: Laid-off or terminated employees must receive their final paycheck within six calendar days. If workers resign, businesses can pay them on the following payday
  • Paid sick leave: Texas doesn’t require companies to provide sick leave unless it’s a reasonable accommodation for disability or pregnancy. Individual employers may determine their own policies
  • Paid vacation: Similarly, Texas doesn’t mandate paid vacation but employers must follow any policies they make in writing
  • Unused benefits: When workers leave, employers must include all unused benefits such as vacation pay or parental leave in the final paycheck
  • Deductions: Organizations must obtain written authorization from the employee, the government, or a court before making payroll deductions
  • Pay transparency laws: According to a recent bill, Texas employers can’t discriminate against candidates who ask about pay. However, the state hasn’t passed a law requiring companies to post salary bands in job descriptions

Labor laws

  • Meal and rest breaks: The Texas Payday Law doesn’t require employers to offer paid breaks unless they’re 20 minutes or under 
  • Paid time: Workers must receive full pay for any time worked, including mandatory training or meetings
  • Overtime: State law says employees who work more than 40 hours during a week are entitled to overtime. The employer can either pay them or give them the equivalent time off at a rate of 1.5 hours for every hour worked. Workers aren’t allowed to accumulate more than 240 hours of overtime
  • Whistleblower protections: Texas’ Whistleblower Protection Act protects workers from adverse employment-related actions from their employers when they report a law violation to an appropriate law enforcement authority in good faith

Employment laws

  • Worker classification: Texas defines an employee as someone that a business directs and controls. Misclassification can lead to tax penalties and fines
  • Right to work: Businesses can’t discriminate against candidates based on their membership in unions and similar groups. However, some federal departments are exempt from the Right to Work law
  • Discrimination: According to the Texas Workforce Commission, the Equal Employment Opportunity prohibits discrimination in employment because of race, color, national origin, religion, sex, age, or disability
  • Terminations: Texas is an “at-will employment” state, which means employees can be terminated for any reason, at any time, if they don’t have a written contract (so long as it isn’t discriminatory)

Additional requirements and enforcement

The above information covers just some of the labor, payroll, and employment laws in Texas. Companies must also comply with federal labor, employment, and payroll laws, such as the FMLA and COBRA. In Texas, all employers must register for an unemployment tax program. The program collects wage information to determine what benefits workers should receive. It also expects employers to make quarterly tax payments to fund unemployment benefits assistance for eligible claimants. 

When there’s an overlap between different US laws, businesses are required to follow the policies that grant workers the most rights and protections.

See also: Your ultimate guide to US payroll in Texas

How to choose the right PEO in Texas

The state of Texas has unique laws and requirements that require a thoughtful approach to selecting a PEO. Consider the following strategy to help you find a provider that matches your organization’s HR needs and goals.

1. Define your business needs

Review your current HR operations to see where you might be facing inefficiencies or overspending. Go beyond your immediate needs to consider long-term goals.

Key areas of focus include your payroll processing, benefits administration, and risk management. Consider your organization’s growth projections as you’ll need your PEO to scale alongside your operations.

2. Research PEOs with Texas expertise

Narrow down your options by focusing on PEOs with a significant presence in Texas and a proven track record. The best providers will have case studies, high ratings, and reviews that demonstrate their expertise. 

3. Evaluate the range of services and quality of benefits

Consider the range of services provided by potential PEOs to see whether they cover your business needs in Texas. Do they have robust administrative support, tax filing, HR services, and employee onboarding?

Balance the range and quality of the PEO’s benefits packages against the pricing. Their plans should accommodate your workforce’s shifting needs while fitting into your budget.

4. Assess compliance and risk management capabilities

Learn more about the PEO’s specific approach to maintaining compliance with Texas laws and regulations. Understanding what proactive measures they take will show you how they can reduce errors and mitigate risks. 

Also, explore how they notify companies about upcoming regulatory changes. For example, Deel has a Compliance Hub with all the latest updates about any state, federal, or international policies that could impact your business.

5. Check customer service and support

Since you’re partnering with the provider, effective customer support is essential for seamless collaboration and communication. Research the PEO’s support in terms of response rate, availability, and contact options. Also, consider the quality of the tools they can access to resolve issues. For example, data security and protection are often a top concern. 

6. Review and negotiate the contract

Ensure you understand every detail of the PEO contract including terms, fees, and the termination process, seeking legal counsel if necessary. Aim to negotiate conditions that align with your business objectives and interests, ensuring the responsibilities of both parties are clear. 

7. Plan for implementation and transition

Inform your team about the upcoming changes. Start by explaining all the benefits and different stages of the transition to a PEO. Develop a step-by-step process for the PEO transition with the provider and key stakeholders. Assign responsibilities to specific team members and schedule regular update sessions to stay on track.

See also: How to Choose a PEO or US Payroll Provider: 9 Questions to Answer

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Manage your Texas, US, and global workers with Deel

Deel streamlines payroll and human resources management for businesses of all sizes and locations.

As your PEO*, Deel takes care of payroll, HR, and benefits administration while handling sensitive issues and ensuring state tax compliance. We include:

  • Expert payroll services
  • Access to benefit plans from leading carriers and benefits administration
  • Robust HRIS with free IT, Finance, and PTO management
  • State-specific training, HR policies, and on-demand HR support
  • Advanced tax and benefits compliance
  • And more

Book a demo to learn more about using Deel’s PEO in Texas.

*Provided by Deel PEO US, LLC, Deel Employment Services, LLC, or through Deel's partnership with licensed providers where required.

Disclaimer: This article is intended for informational purposes and should not be considered legal advice. Consult a qualified licensed attorney for help on legal issues. Content is accurate at the time of publishing.

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