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Texas PEO Buying Guide: Licensing, Workers' Comp and Costs (2026)

By Cesar Figueroa, Owner, ReUp Benefits · Licensed health insurance and PEO broker · October 2026

In this guide

What should you know before choosing a Texas PEO? Texas requires a TDLR license for any PEO with even one covered employee in the state, lets most private employers skip workers' comp, and taxes the first $9,000 of each employee's wages for unemployment. Verify the license, decide who carries workers' comp, and compare every quote line by line.

In Texas, most private employers have no legal requirement to carry workers’ comp, and that changes how you judge a PEO’s offer. I spent more than ten years inside three PEOs. This guide covers what Texas law requires, what it leaves optional, and what to ask, including what matters if you are looking for a Houston PEO. If you are new to PEOs, start with our guide to what a PEO is.

Does Texas regulate PEOs?

Yes. Texas licenses PEOs under Labor Code Chapter 91, and the Texas Department of Licensing and Regulation (TDLR) runs the program. Per TDLR, a PEO must be licensed if it has "any" covered employees in Texas, "even just one."

There are two license types. The full PEO license is the standard one. The limited license is for out-of-state companies that assign 50 or fewer employees in Texas. TDLR also requires audited financial statements and working capital or other financial security, and it approves independent assurance organizations. Details sit in its rules, so ask any PEO to show you the license, not describe it.

Checking takes two minutes. TDLR has a license search filtered to the PEO program. Confirm the legal name on your contract matches the licensed entity, the license is active, and the PEO is not on the limited license if you plan to grow past 50 Texas employees. A PEO that cannot show a current Texas license is not one to sign with.

How does workers' comp work with a Texas PEO?

It works differently here because Texas does not require it. The Texas Department of Insurance says private employers "can choose to carry workers' compensation insurance coverage, but it is not required in most cases." Employers without it are called non-subscribers, and they must report to the state that they have no coverage and report work injuries with more than one day of lost time.

Non-subscribing is common but shrinking. The 2024 DWC biennial report found 24% of employers were non-subscribers, the lowest since 2016, and 13% of Texas employees worked for one, the lowest in a decade.

Texas PEO workers' comp context: 24 percent of Texas employers and 13 percent of Texas employees were non-subscribers to workers' comp in 2024.

Fewer Texas employers skip workers' comp than at any point since 2016.

Chapter 91 adds rules that apply when a PEO is involved. As summarized by FindLaw (confirm against the current statute), Labor Code 91.042 says either the PEO or the client may elect coverage, and the services agreement must state whether coverage was elected and who maintains it. If the PEO holds the policy, it prices coverage on the client's experience rating for the first two years. The PEO and client are coemployers for workers' comp, so if neither elects coverage, both stay exposed. On written request, a PEO that provides coverage must give the client a list of its claims with payments and reserves within 60 days.

Guide on whether you are working with a Houston PEO company or out of state, Texas PEO workers' comp under Labor Code 91.042: the client policy, the PEO policy or no coverage, and who is exposed in each case.

The agreement should say in writing who carries the policy.

Practically, the question to ask is who holds the policy, what rate per $100 of payroll you pay for each class code, and how it compares to a standalone quote. Our guide to PEO workers' comp covers how pay-as-you-go billing works and how to leave. In my experience, Texas buyers who already skip coverage are the ones who most need to price it honestly, because one serious injury claim can cost more than years of premium.

How does Texas unemployment tax work with a PEO?

Texas applies unemployment tax to the first $9,000 of each employee's wages, according to Experian's 2026 summary, and the Texas Workforce Commission sets each employer's rate every year. A PEO can change whose rate you pay and what you are billed for it.

Ask every PEO the same three questions: is the rate I will be billed my own, the PEO's or a blended one; does the bill add a markup to the state rate; and what happens to my rate if I leave. If you have low turnover, a pooled rate can cost more than your own. If you have high turnover, it can cost less. For the broader picture, see how PEOs earn margin in PEO pricing and the legitimate and illegitimate ways to lower SUI in our guide to PEO discounts.

What should you look for in a Houston PEO?

Look for a PEO that matches your industry's risk, has a plan for storms, and offers health networks your employees use. Being based in Houston is not a pricing advantage on its own, but it can mean a closer service team.

Two large PEOs are headquartered in the area. Insperity's 2025 annual report lists its principal offices in Kingwood, Texas, and says 8% of its worksite employees were in Houston. G&A Partners says on its own Houston page that it has been headquartered in Houston since 1995. Those are company statements, not rankings. A Houston PEO is worth shortlisting, but compare it to national options on the same census.

Industry risk. Construction, manufacturing and logistics carry higher workers' comp rates, and not every PEO will take them. Our guide to high risk PEO service shows who does.

Storm planning. Hurricane Beryl peaked at 2.26 million CenterPoint customers without power in July 2024, and some waited 11 days for restoration, according to Bisnow. Ask each PEO whether it can run off-cycle payroll and file injury claims if your office is down and your team is scattered.

Health networks. A PEO's carriers and plan networks often differ from what you have now. Check that your employees' hospitals and doctors are in network before you move, using our comparison of the best PEO for health insurance.

How do you compare Texas PEO quotes?

Give every PEO the same census and ask for an unbundled rate sheet, then convert each quote to total cost per employee per year. PEO quotes are hard to compare because each prices differently, and our breakdown of average PEO fees shows how wide the range is.

What to check Why it matters in Texas
TDLR license Required for even one covered Texas employee
Who holds workers' comp Optional in Texas, so the PEO's offer sets your real cost
Rate per $100 by class code Bundled pricing hides the workers' comp load
SUI rate and markup First $9,000 of wages; the billed rate may not be the state rate
Admin fee model Per employee per month or a percentage of payroll
Health carriers and networks Houston hospitals and doctors in network
Renewal history and caps Increases drive most year-two cost changes
Contract term and exit fees Auto-renewal and termination charges

A PEO broker can run this comparison across several PEOs at once. If you are weighing quotes against each other, our PEO discounts guide covers what is negotiable, and PEO renewal explains what happens after year one. Hiring in Florida too? Our Florida PEO buying guide covers a state where the PEO must carry workers' comp.

What should you ask before signing with a Texas PEO?

Get these answers in writing before you sign:

  1. What is your TDLR license number and entity name?
  2. Who elects and maintains workers' comp, and what is my rate per $100 for each class code?
  3. Will you give me a claims list with payments and reserves if I ask?
  4. Which unemployment rate will you bill, and is there a markup?
  5. What were your health renewals for groups like mine over the last three years, and is any part capped?
  6. What is your storm plan for payroll, claims and benefits?
  7. Who is my day-to-day contact, and where are they based?
  8. What are the term, auto-renewal and exit fees?

Want a second set of eyes on a Texas proposal? Book a 20-minute call with me. Bring the proposal and your current invoice, and I will break it down line by line.

Frequently asked questions about Texas PEOs

Do I need a Texas-licensed PEO?

Yes. Texas requires a license for any PEO with covered employees in the state, even one. Ask for the license number and check it in TDLR's search.

Do I have to buy workers' comp in Texas if I use a PEO?

Most private employers are not required to carry it. A PEO's agreement must say whether coverage was elected and who maintains it, so the PEO decides what is offered. Employers who skip coverage should talk to a Texas employment attorney about the risks.

Is a Houston PEO better than a national one?

Not automatically. Local headquarters can mean closer service, but pricing depends on the PEO's rates, risk and contract. Compare both on the same census, rates per class code and total cost.

Does a PEO change my unemployment tax in Texas?

It can change which rate you are billed. Texas taxes the first $9,000 of wages, and rates are set annually by the Texas Workforce Commission. Ask whether you pay your own rate, the PEO's rate or a marked-up rate.

How much does a PEO cost in Texas?

I did not find a Texas-specific price list. Fees follow the national structure of a per employee monthly charge or a percentage of payroll, plus insurance and taxes. See our guide to average PEO fees for ranges.

Sources

This guide is general information, not legal, tax or insurance advice. Texas rules and PEO pricing change, so confirm current requirements with TDLR, TDI and the Texas Workforce Commission. Figures are as of October 2026 unless a different date is shown.