Texas Minimum Wage: What Small Businesses Really Need to Know in 2025

Alright, let’s have a real talk. Running a small business here in Texas is a wild ride. One day you’re a marketing guru, the next you’re an expert plumber fixing a leak in the breakroom. And just when you think you’ve got a handle on things, you remember you have to navigate the labyrinth of… payroll laws. Yay.

I’ll never forget the panic I felt during my first year running my little coffee shop in Austin. I hired my first barista, a fantastic kid named Luis, and as I was setting up his payroll, I had a sudden, cold-sweat moment: “Wait a second… what is the minimum wage in Texas right now? Am I about to break the law without even knowing it?”

Turns out, I was paying above it, but that moment of sheer confusion stuck with me. I’ve talked to so many other small business owners at chamber of commerce mixers (you know, the ones with the questionable punch) who have the exact same question. It’s not always straightforward, and getting it wrong can cost you.

So, let’s cut through the legalese and break down everything you, as a Texas small business owner, need to know about the minimum wage in Texas. We’ll cover the basics, the myths, and what might be coming down the pipeline so you can sleep easy at night.

The Bottom Line: What is the Minimum Wage in Texas Right Now?

Here’s the deal that surprises a lot of folks new to the Lone Star State. The current minimum wage in Texas is $7.25 per hour. Yep, you read that right. It’s been $7.25 since July 24, 2009. That’s the federal minimum wage, and because Texas doesn’t have a state law setting a higher one, that’s the number that rules.

I know, I know. In a state with booming cities like Dallas and Houston, that number can feel… disconnected from reality. And in many ways, it is. The market has largely spoken here. Good luck finding a reliable employee in most metro areas who will work for that rate. The competition for workers has driven wages up significantly in most sectors. At my shop, we start folks at nearly double that because, frankly, we have to if we want good people who will stick around.

But the legal floor is still $7.25. It’s crucial to know that because it’s your absolute baseline legal responsibility.

The Tipped Employee Twist

This is where it gets a bit trickier, and where I see the most confusion. If you run a restaurant, bar, or any business where employees receive tips, the rules change.

The federal Fair Labor Standards Act (FLSA) sets what’s called a “cash wage” for tipped employees. In Texas, that’s $2.13 per hour. Wait, hold on—$2.13?! Before you panic, there’s a huge, non-negotiable catch.

This is only allowed if the employee’s tips + that $2.13 cash wage add up to at least the full federal minimum wage in Texas of $7.25 per hour. If it doesn’t, you, the employer, are legally required to make up the difference. This is non-negotiable. Period. End of story.

Let me give you a real-world example from my early days. One brutally slow, rainy Tuesday in February, my sole server, Chloe, had maybe two tables all afternoon. Her tips plus her $2.13/hour didn’t come close to $7.25 for the hours she worked. So, on her paycheck, I had to do a “tip credit” calculation and add enough money to bump her average hourly earnings up to at least $7.25. It’s a hassle to track, but it’s the law, and it’s the right thing to do for your team.

You also have to make sure your employees are aware of this rule. I’ve heard horror stories of places not making up the difference, and it’s a fast track to employee discontent and potential legal action.

The City vs. State Showdown: Preemption Laws

You might be thinking, “But I heard Austin or Dallas was trying to raise their own minimum wage!” And you’d be right. There have been pushes in larger cities to establish a local living wage.

However, Texas has what’s called a “preemption law.” Basically, the state government has declared that it alone sets the minimum wage in Texas. Cities and local municipalities are forbidden from setting their own, higher minimum wage rates. So, whether your business is in El Paso, Amarillo, or Corpus Christi, the state (and federal) rate is the one you must follow.

This is a huge relief for consistency—you don’t have to worry about different rules if you have multiple locations across different cities—but it also means the $7.25 rate is uniform across the entire state, from the most expensive urban centers to the most rural towns.

Looking Ahead: Is There a Minimum Wage in Texas 2025?

This is the million-dollar question. As of right now, sitting here today, there is no law passed to change the minimum wage in Texas 2025. Barring any unexpected and massive shift in the state legislature, it is almost certain to remain at $7.25 per hour.

The political landscape in Texas has been consistently resistant to raising the state minimum wage above the federal level. Arguments often center on protecting small businesses from increased labor costs and allowing the free market to dictate wages.

So, for your 2025 business planning and budgeting, you should feel relatively safe basing your models on the current rate. However—and this is a big however—the market rate is a completely different beast.

Why the “Market Wage” is What You Should Really Care About

Let’s be real. Unless you’re running a very specific type of business, you are almost certainly not paying $7.25 an hour. The concept of a “market wage” is the real-world force that actually dictates what you pay your employees. It’s what a competitor will pay to steal your best worker. It’s what a job seeker will accept to take a chance on you.

The tight labor market we’ve experienced has made this more important than ever. To attract and retain quality talent, you have to be competitive. Here in Texas, that means looking at sites like Indeed and LinkedIn to see what others are offering for similar roles. For a entry-level retail position in a suburban area, that might be $10-$12/hour. For a skilled trades assistant, it could be $15-$18. In a busy Austin restaurant, servers might average $25-$40+/hour with tips, making the base $2.13 almost irrelevant.

Ignoring the market wage is a surefire way to end up with high turnover, constant training costs, and a team that’s disgruntled and looking for the next opportunity. Paying a fair, competitive wage isn’t just good ethics; it’s good business. It saves you money on recruitment and builds a loyal, experienced team that makes your business better.

The Federal Contractor Exception

Here’s a niche but important exception. If your small business holds a federal contract, you are subject to different rules. The Executive Order 14026 sets a minimum wage for federal contractors of $17.20 per hour (as of 2024). Furthermore, tipped employees working on or in connection with a federal contract must be paid a cash wage of at least $14.75 per hour (though the tip credit can still apply if their total earnings meet the $17.20 threshold).

This is super specific, but if you do any contract work for the federal government, you absolutely must comply with this higher rate for the hours worked on that contract. Don’t get caught out on a technicality.

Best Practices for Texas Small Businesses

So, with all this in mind, how do you navigate this as a business owner? Here’s my advice, forged in fire and a few payroll mistakes over the years.

1. Know the Absolute Law: Always remember that $7.25 is your floor. You can never, ever go below it unless a very specific exemption applies (like for certain student learners). For tipped staff, the floor is $2.13, but you must guarantee they hit $7.25 with your help if needed.
2. Research the Market: Don’t use the state minimum as a guide for what to pay. Do your homework. See what similar businesses in your area are offering. Ask at local networking events. Paying fairly is your best defense against turnover.
3. Document Everything: Meticulous records are your best friend. Keep clear time records, track tips for your employees if applicable, and document every payment. This is your shield in case of any audit or dispute.
4. Communicate Clearly: Make sure your employees, especially tipped staff, understand how their pay works. Explain the tip credit and your obligation to make up the difference. Transparency builds trust.
5. Consider the Total Package: Sometimes you can’t compete on pure hourly wage. That’s okay. Think about the entire value proposition. Can you offer flexible hours? A positive work culture? Free meals? A killer bonus structure? These things have real value to employees.
6. When in Doubt, Ask for Help: Payroll can be a nightmare. Don’t be afraid to hire a bookkeeper or a payroll service like ADP or Gusto. The few hundred dollars a month it costs me for a pro to handle it is worth every penny for the peace of mind. A quick chat with an employment lawyer for a compliance check can also save you from world-ending fines down the line.

See Also: Minimum Wage in North Dakota 2025

The Final Sip on Texas Minimum Wage

Phew, that was a lot. Look, navigating the minimum wage in Texas is one of those unglamorous but utterly critical parts of the job. The key takeaway is this: while the legal minimum wage in Texas has been frozen in time for over a decade, the real world has moved on.

Your biggest concern shouldn’t just be “what is the minimum wage in Texas,” but rather, “what is a fair, competitive wage that allows me to build a fantastic team and grow my business?”

Stay informed, pay your people fairly and legally, and keep pouring your heart into your business. You’ve got this. Now, if you’ll excuse me, I have to go be a plumber. The sink in the back is making a funny noise again.