Cost of hiring an employee in Texas

Texas is a low friction state for payroll tax, but the new employer unemployment rate is not a flat number for everyone and workers compensation is optional in a way it is not anywhere else.

Updated 2026 figures

What makes Texas distinctive

Texas has no state income tax, so there is no employer withholding obligation for state income and no local wage tax layer to model. That removes a whole administrative category rather than a large dollar amount, since income tax is an employee cost, but it does make Texas payroll simpler to run.

The one wrinkle is the new employer unemployment rate. The standard figure is 2.7 percent, but if your industry's average rate is higher than that, the state assigns the industry average instead. Construction and staffing employers routinely open above 2.7 percent. Check what the state assigns you rather than assuming the default.

Texas is also the only state where private employers can choose not to carry workers compensation coverage. Going without it is called non subscription. It removes a premium line but exposes the business to negligence claims without the usual liability limits, so most employers of any size carry coverage anyway.

The employer cost breakdown in Texas

Employer FICA, 7.65 percent

Social Security at 6.2 percent up to the annual wage cap and Medicare at 1.45 percent with no cap. This is identical in every state and is the largest single statutory line for most employers.

Federal unemployment tax

Federal unemployment tax runs at the standard 0.6 percent effective rate on the first 7,000 dollars, about 42 dollars per employee per year, assuming the full state credit applies.

Texas unemployment insurance

New employer rate: 2.7 percent for new employers, or the industry average if that is higher. Taxable wage base: 9,000 dollars per employee per year. That works out at about 243 dollars per employee at the standard new employer rate.Experienced employers are given an individual rate based on their own claims history, which can be lower or higher than the new employer figure.

There is no state income tax, so employers run federal withholding only.
New employers in higher claim industries can be assigned a rate above 2.7 percent from day one.
Workers compensation coverage is elective for private employers in Texas, which is not the case in the other states in this cluster.

Workers compensation

Where employers do carry coverage, Texas rates sit at or slightly below the national median for office roles and rise steeply for energy, construction and transport class codes.

Benefits and overhead

Medical premiums in Texas are close to the national average, with Houston and Dallas plans typically cheaper than coastal equivalents at the same coverage level.Medical, dental, vision, life, disability and any retirement match usually dwarf the tax lines. Add equipment, software seats and a share of space or remote stipend on top.

Worked example: a 70,000 dollar salary in Texas

Total employer cost lands somewhere in the region of 86,000 dollars to 108,000 dollars a year. The range is wide because benefits design and workers compensation class code move the total far more than any tax rate does.

Base salary	70,000 dollars
Employer FICA at 7.65 percent	about 5,355 dollars
Federal unemployment	about 42 dollars
State unemployment	about 243 dollars
Workers compensation	0 to about 2,000 dollars
Benefits and retirement	about 8,500 to 20,000 dollars
Equipment, software and overhead	about 3,000 to 11,000 dollars
Estimated total employer cost	86,000 dollars to 108,000 dollars

Payroll tax is a rounding error against benefits here. If you want to move the total, the lever is the medical plan, not the tax code.