Employer of record in Texas: PEO licensing, payroll registration and what the client still owns (2026)

Texas licenses professional employer organizations (PEOs) but does not define "employer of record." As of October 2026, Labor Code chapter 91 bars anyone from engaging in or offering professional employer services in Texas without a license from the Texas Department of Licensing and Regulation (TDLR), and a licensed PEO is the employer of its covered employees for Texas unemployment tax and the Payday Law. Workers' compensation stays elective, but the PEO contract must say which party carries it, and the client keeps sole responsibility for directing the work, for its own products and services, and for what the workers do within the scope of its business.

This page is for a company outside Texas, or a staffing firm, deciding whether to employ someone in Texas through an employer of record (EOR) or PEO, or to register itself. How an EOR, a PEO, a staffing agency and payrolling differ is in what is an employer of record and payrolling services explained; the general Texas checklist is in hiring employees in Texas; and the personnel-service fee rules are in staffing agency license in Texas, which does not cover PEO licensing. This page fills that gap.

Texas employer of record and PEO rules at a glance

Does Texas license employer of record companies or PEOs?

It licenses PEOs. Labor Code § 91.011 says "A person may not engage in or offer professional employer services in this state unless the person holds a license issued under this chapter," and § 91.001(14) defines those services as "services provided through coemployment relationships in which all or a majority of the employees providing services to a client or to a division or work unit of a client are covered employees." Section 91.0011 describes coemployment as "an ongoing relationship rather than a temporary or specific one," in which employer rights and duties are allocated by the professional employer services agreement; any duty the agreement does not give the PEO stays with the client.

To get a license, TDLR's application page asks for the application form, a personal information form and fingerprints for each controlling person, audited financial statements and, if the PEO will provide workers' compensation, a certificate of insurance. TDLR says applicants must wait until the license is issued before operating in Texas. The working capital floor in § 91.014 rises with the number of covered employees, and the audited statement must be "without qualification as to the going concern status of the applicant." A license runs for one year (§ 91.016(b)); if a PEO misses its renewal, its status as employer of covered employees continues for 18 months after expiration and then ends (§ 91.016(d)).

Section 91.061 bars using the titles "professional employer organization," "PEO," "staff leasing company," "employee leasing company" or "administrative employer" without a license. To check a provider, search TDLR's license search and confirm the license is current.

What if the provider is an employer of record but not a licensed PEO?

Then find out what it actually is. Three answers are common:

• Payroll processing only. TDLR's practice standards page says a company "only providing payroll services to another entity" is not required to hold a PEO license. That also means none of chapter 91's employer rules attach to it, so ask in writing whose Texas Workforce Commission account the wages are reported under.
• Temporary help. Chapter 91 excludes temporary help, defined in § 91.001(16) as hiring your own employees and assigning them to support a client "in a special work situation," such as an absence, a skill shortage, a seasonal workload or a special project. For unemployment tax, Labor Code § 201.029 says "a temporary help firm is the employer of an individual employed by the firm as a temporary employee."
• One or two workers inside a larger client workforce. The PEO definition turns on "all or a majority" of the employees serving the client or a division or work unit. An EOR placing one remote employee with a company whose other staff are its own may be relying on the work-unit wording; ask how it applies to you.

Who pays Texas unemployment tax on an EOR or PEO worker?

For a licensed PEO, the PEO. Section 91.044(a) says "A license holder is the employer of a covered employee for purposes of Subtitle A, Title 4," the Texas Unemployment Compensation Act. Three details matter to the client:

• Wages you paid the employee earlier in the same calendar year count toward the taxable wage limit (§ 91.044(a-1)), so the switch does not restart it.
• The PEO must report each client's name, address, telephone number, federal tax ID and industry code to the TWC every quarter (§ 91.044(a-2)).
• If the contract ends, or the PEO fails to file or pay, "the contracting client shall be treated as a new employer without a previous experience record unless that client is otherwise eligible for an experience rating" (§ 91.044(b)).

If you also employ people in Texas directly, you need your own TWC account for them: the TWC's liability tests and ten-day registration deadline are in our Texas hiring checklist.

Who carries workers' compensation in Texas?

Whoever the agreement says, if anyone. Texas makes coverage elective for most private employers (Labor Code § 406.002), and § 91.042(a) lets "A license holder or client" elect it. Under § 91.042(a-1) the agreement must "specify whether the parties have elected to obtain workers' compensation insurance coverage for the covered employees and shall specify which party must maintain coverage."

• If the PEO carries it, premiums are based on the client's experience rating for the first two years (§ 91.042(b)), and on written request the PEO must give the client its claims, payments and reserves within 60 days (§ 91.042(g)-(h)).
• If the client carries it, the client pays premiums on its own experience rating (§ 91.042(a-2)). Under § 91.006, a certificate showing either party's coverage is proof for both.
• If neither carries it, both are subject to the non-subscriber rules (§ 91.042(d)): written notice to the Division of Workers' Compensation (§ 406.004), notice to employees at hire and on posted notices (§ 406.005), and the loss of common-law defenses such as contributory negligence in an injury suit (§ 406.033).

Which registrations, reports and notices still apply?

• Income tax withholding: none at the state level; Texas has no personal income tax.
• Notice of coemployment: the PEO gives each covered employee written notice of the agreement "not later than the first payday" after the person becomes a covered employee (§ 91.031(c)), and must disclose in writing that the client alone owes any wages it promised that the PEO did not contract to pay (§ 91.032(c)-(d)).
• Workers' compensation notice at hire: § 406.005(b) requires telling each new employee whether there is coverage "at the time the employee is hired."
• New-hire report: due to the Attorney General's Child Support Division within 20 calendar days of the date the employee starts earning wages, per the OAG's new hire page; agree which party files it.
• E-Verify: Texas requires it of state agencies and certain state contractors, not of private employers generally; see E-Verify requirements in Texas.

What does the client company still own in Texas?

Section 91.032(b) is blunt: "a client retains sole responsibility for" the direction and control of covered employees "as necessary to conduct the client's business," the goods and services it produces, and "the acts, errors, and omissions of covered employees committed within the scope of the client's business." Other sections keep more with the client:

• Professional licenses: a licensed worker is treated as the client's employee for the license (§ 91.004(b)).
• Labor relations: chapter 91 does not relieve the client of duties under the National Labor Relations Act or other labor relations law (§ 91.007).
• Tax credits and incentives based on employment belong to the client (§ 91.050).
• The hiring process. You usually choose the person. Texas is a one-party consent state for recording, but a candidate elsewhere may not be; see Texas recording consent law for interviews. Checks follow Texas background check laws, and AI screening tools fall under the Texas AI hiring law.
• Co-employment exposure. Section 91.0011 says coemployment "is not a joint employment arrangement" for chapter 91, but federal agencies apply their own tests; see joint employer liability for staffing agencies.

When is registering your own company in Texas the better route?

• You expect more than a handful of Texas employees. With no state income tax, Texas registration is mainly a TWC account within ten days of becoming liable, a workers' compensation decision with its notices, and new-hire reporting.
• You want one employer of record per worker, not two. Coemployment splits duties by contract; some clients prefer to hold them all.
• The engagement is a short project. A staffing firm's temporary help or payrolling arrangement may fit better than an ongoing PEO agreement.
• The provider is payroll-only. If chapter 91 does not apply to it, you may be the employer anyway, so the registrations are yours.

Questions to ask an employer of record or PEO before signing for Texas

1. Do you hold a full or limited TDLR PEO license, and when does it expire?
2. If you are not licensed, are you a temporary help firm, a payroll processor, or something else, and whose TWC account will report the wages?
3. Does our agreement say whether workers' compensation is elected and which party maintains it?
4. Who gives the workers' compensation notice at hire and the written coemployment notice by the first payday?
5. Which wages do you contract to pay, and which stay with us under § 91.032(c)?
6. Who files the new-hire report with the Attorney General?
7. If the contract ends, how will our unemployment and workers' compensation experience be handled?
8. Are you an IRS certified professional employer organization, and who is liable for federal employment taxes if you fail to pay?
9. How do hiring, discipline and termination decisions work under the shared rights in § 91.032(a)?

Hiring in another state? Florida licenses the same model under the name employee leasing; see employer of record in Florida. The national comparison is in what is an employer of record.