How To Do Payroll in Maryland

Doing payroll in Maryland requires knowing local laws, such as the $11.75 state minimum wage, and keeping track of state and local income tax withholding schedules. Maryland has more nuances than the average state—for instance, there are 23 counties that charge local jurisdictions.

It also has its own state laws that affect payroll, from employee calculation to paid time off, some of which are stricter than federal law.

Step-by-Step Instructions for Doing Payroll in Maryland

Step 1: Set up your business as an employer. Get your company’s Federal Employer Identification Number (FEIN). If your company is brand-new, you may need to apply for a FEIN. This is a simple process that can be completed online via the Electronic Federal Tax Payment System (EFTPS). Meanwhile, if you work for a company that already has one, keep the FEIN handy. The FEIN is required to pay federal taxes.

Step 2: Register with Maryland. Register with the state within 20 days of doing business by sending a Combined Registration Application to the Maryland Department of Labor. Alternatively, you may fill out the application online. You will also need to apply for a BEACON account for paying State Unemployment Tax Act (SUTA) taxes.

Step 3: Create your payroll process. You may have inherited a payroll process if you work for an established business. However, if your company is new, you may need to establish your own. Decide how often you’ll be paying employees, when you’ll pay them, and how you’ll track and calculate hourly employees’ work time. You can opt to do payroll yourself by hand, set up an Excel payroll template, or sign up for a payroll service to help you handle your Maryland payroll.

Step 4: Have employees fill out relevant forms. New employees should submit certain documentation, including payroll forms, during onboarding. All employees must complete I-9 verification no later than their third day on the job. Every employee must also have a completed W-4 on file. For Maryland, you’ll also need the Form MW507. If you choose to pay your employees using direct deposit, make sure to collect direct deposit information, as well.

Step 5: Collect, review, and approve time sheets. This step is one you’ll repeat as you do payroll each period. Keeping track of employees’ hours is essential for ensuring accurate payroll. Whether you use paper time sheets or time and attendance software, ensure that you review time sheets for accuracy and discuss any errors or issues with employees right away. Having employees sign their time sheets is a good idea, whether they do so electronically or by pen on paper.

Step 6: Calculate employee pay and taxes. Using a standard process and payroll software to calculate pay reduces errors. There are many ways to calculate payroll, and it’s up to you to decide which is best for you. You can use payroll software or even Excel.

Step 7: File payroll taxes with the federal and Maryland state government. Follow the IRS instructions for federal taxes, including unemployment.

• Maryland Income Taxes: File and pay these online via bFile Maryland. You can also bulk upload W-2s. Ensure that you withhold by the following schedule:

• SUTA: Pay your SUTA by automated clearing house (ACH) or credit card via BEACON. State unemployment insurance (UI) tax reports and payments are due by the following dates:

If the due date for a report or tax payment falls Saturday or Sunday, reports and payments are due the following business day.

Step 8. Document and store your payroll records. In Maryland, it’s best to retain your payroll documents for at least three years. For complete information, read our article on what payroll documents to keep or check out Maryland’s recordkeeping requirements.

Step 9: Complete year-end payroll reports. At the end of the year, you will need to first complete all W-2 forms for your employees and 1099 forms for your independent contractors. These forms must be provided to employees and contractors no later than Jan. 31 of the following year.

Maryland Payroll Laws, Taxes & Regulations

Naturally, you need to begin by following federal law for income taxes, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes. Social Security and Medicare are called Federal Insurance Contributions Act (FICA) taxes and are withheld from each employee’s paycheck at respective rates of 6.2% and 1.45%; you’ll also pay a matching amount out of your bank account.

Maryland Taxes

Maryland has state and local taxes, making it more complicated to manage. You’ll need to know where each employee resides so you’re aware of which tax agencies you’re responsible for paying.

State Income Taxes

Maryland has a graduated income tax rate of a flat amount plus a percentage over a specific income. You can find the tax tables on the Maryland Taxes website to help you determine how much you should withhold.

You need to withhold taxes for all employees except the following:

• Those making less than $5,000 annually
• Domestic workers in a private home, college club, fraternity, or sorority
• Clergy
• Nonresident maritime workers
• Certain other nonresidents
• Single and student employees with total income less than specific amounts, such as $234.62 weekly or $12,200 annually. See the chart on Page 9 of the Maryland Withholding Guide for a full list.
• Military spouses claiming exemption under the Military Spouse Residency Relief Act. (Be sure they fill out a Form MW507M.)

Local Income Taxes

In addition, Maryland’s 23 counties and Baltimore City also levy local income taxes, which range between 2.25% and 3.2%. There are taxes for nonresidents as well.

The latest rates by county are below:

Maryland Resident Employees Who Work in Delaware

If you have offices in Delaware, your employees who are Maryland residents are taxed at different rates. Find the rates table on Page 10 of the Maryland Withholding Guide.

Unemployment Insurance (UI)

Maryland charges SUTA taxes, which are based on a taxable wage base of $8,500. The standard rate for new employers is 2.3% (which has not changed from 2021). Rates range from 2.0% to 10.5% for experienced employers and are noted in Rate Table C. Employers in the construction industry headquartered in another state have a 5.4% rate.

An employer’s UI benefit ratio is computed by dividing their experience rate by the amount of taxable wages paid to employees in the prior three fiscal years ending June 30. The experience rate is the dollar amount of UI benefits paid to former employees.

The following employee types are exempt from UI coverage in certain conditions, which you can find in the Maryland Employer’s Quick Reference Guide:

Workers’ Compensation Insurance

Employers who have one or more employees, full- or part-time, must provide workers’ compensation insurance. You can purchase it from a licensed insurance company or the Chesapeake Employers’ Insurance Company, which is Maryland’s state-operated fund.

Minimum Wage Laws in Maryland

The Maryland minimum wage applies to workers 18 and older. Employees under 18 must earn at least 85% of the minimum wage. Maryland is gradually increasing its minimum wage to $15. These are the current published rates:

The minimum wage in Maryland is scheduled to reach $13.25 on Jan. 1, 2023 and then $14.00 on Jan. 1, 2024.

The following exemptions apply:

• Immediate family
• Certain agricultural employees
• Executive, administrative, and professional employees
• Outside salesmen
• Commissioned employees
• Employees who are trainees in a public school special education program
• Non-administrative camp employees
• Restaurants and bars earning less than $400,000 gross annually
• Drive-in theaters
• Food canning establishments

If an employee earns more than $30 per month in tips, they must be paid the state minimum wage. Tips can count for all but $3.63 per hour.

Maryland Overtime Regulations

Employees in Maryland must be paid 1.5 times their hourly rate if they work over 40 hours in a workweek, which mirrors federal overtime rules.

The following exemptions apply:

• Cab drivers
• Agricultural workers (60 hours allowed)
• Bowling establishments (48 hours allowed)
• On-premise care (other than hospitals) for sick, aged, or disabled (48 hours allowed)
• Auto sales and repair establishments
• Nonprofit concert promoters, theaters, or music festivals
• Seasonal amusement and recreational establishments

Different Ways To Pay Employees

You can pay employees by cash, check, or direct deposit. However, you cannot require an employee to use direct deposit. This means you’ll need to offer at least two payment options if direct deposit is one payment method you plan to use.

Maryland Pay Stub Laws

Maryland requires that you provide employees with a pay stub each pay period with the following information:

You can learn more from the Pay Stub Transparency Act of 2016.

Minimum Pay Frequency

Employees who are not in executive, professional, or administrative roles must be paid every two weeks or twice a month. They must be paid on time; if a payday falls on a non-workday like a weekend or a holiday, they must be paid on the preceding workday, not after.

Paycheck Deduction Rules

You can deduct money from an employee’s pay for the following:

• Taxes
• Court-ordered deductions such as child support garnishments
• Something of value an employee received such as an advance or loan
• Something the employee had expressly agreed to such as health benefits or to recompense for damages or theft caused by the employee
• Uniforms with the company logo

Final Paycheck Laws

Final paychecks must be paid on or before the employee’s regular payday. You do not need to allow an employee to work two weeks before termination or pay them for the time they were not allowed to work. Unused PTO may or may not be paid out, depending on written company policy. Unused sick leave does not need to be paid out unless written in company policy.

Maryland HR Laws That Affect Payroll

Maryland has some state-specific HR laws—some of which affect payroll:

Maryland New Hire Reporting

You must report new hires through the Maryland New Hires Reporting portal within 20 days of their hire or rehire date. If you cannot access the portal, you can fill out the New Hires Form and mail it in.

Lunch and Other Break Time Requirements

The only break laws in Maryland apply to minors and retail workers.

• Breaks for retail workers: Retail workers must receive lunch and short breaks. This applies to stores or franchises employing over 150 people working each day in the last 20 or more calendar weeks. If an employee earns more than half their earnings from commissions and they earn more than 1.5 times the minimum wage for each hour worked, they are exempt from this rule.

Qualifying employees receive the following entitlements:

*For employees working less than six consecutive hours, the 15-minute break requirement may be waived by written agreement between the employer and employee.

**An employee who is entitled to a 30-minute break is not entitled to the 15-minute break as well. The additional consecutive hours begin following the employee’s previous break. For example, if an employee works a 10-hour shift and is given a 30-minute break at hour 5, the employee would be entitled to a 15-minute break at hour 9.

• Breaks for Minors: Minors under 18 must receive a 30-minute break for every five hours worked.

Paid Time Off

Maryland does not require paid time off, vacation, or sick leave. Follow federal standards. The exception is for retail workers, who can request a religious day of rest each week, as long as they do so in writing.

Paid Sick Leave

In addition to the Federal Family and Medical Leave Act, Maryland employees follow two additional laws:

• The Maryland Flexible Leave Act authorizes employees of employees with 15 or more workers to use “leave with pay” for illnesses in their immediate family.
• The Maryland Earned Sick and Safe Leave Act mandates that employers earn sick leave at the rate of one hour for every 30 hours, with a maximum of 40 in a year and an accumulation of 64 hours at any time. This leave can be used for caring for one’s own mental or physical health, preventative medical care, care of a family member, maternity/paternity leave, or handling issues due to domestic violence not perpetrated by the employee.

Parental Leave

Eligible employees are allowed six weeks total of unpaid parental leave in a 12-month period for the birth, adoption, or fostering of a child.

Day Off for Deployments

If you employ more than 50 people, any employee who has worked for you at least 12 months with 1,250 hours worked in that time, is allowed a day of leave to send off or welcome a military member who is deploying on or returning from active duty outside the US. This applies only to immediate family members. It does not have to be paid leave, but you cannot require them to use accrued leave, sick, or vacation leave.

Hiring Minors

Minors under 18 are required to have a work permit to work in Maryland. If under 14, minors cannot get work permits. Also, minors cannot work hazardous jobs as defined by federal law. Student learners have other rules. Learn more on the DOL website or download the Minor Fact Sheet.

Minors aged 14 and 15 may not work:

• During school hours
• More than three hours a day or 18 hours a week when school is in session
• More than eight hours a day or 40 hours a week when school is not in session
• Work between 7 p.m. and 7 a.m. (between 9 p.m. and 7 a.m. from June 1 to Labor Day)

For minors 16 and 17, they must:

• Not work more than 12 hours of combined school and work in a day
• Have eight consecutive non-work/non-school hours every 24 hours

Payroll Forms

Maryland has several state-specific forms that may be applicable to your business. The state W-4 form is one all employers need; the others will depend on the type of organization you have and the type of employees.

Maryland State W-4 Form

MW507: Maryland’s state income tax withholding form. If not filled out, then you use the deductions listed in the federal W-4.

Other Maryland State Payroll and Tax Forms

• MW507M: For military spouses requesting a waiver from tax withholdings
• MW508: Annual Employer Withholding Reconciliation Form
• MW508CR: For nonprofits claiming income tax credits
• Maryland State Directory of New Hires Form: For use if you cannot report your new hire online

Federal Payroll Forms

• W-4 Form: To help employers calculate taxes to withhold from employee paychecks
• W-2 Form: Reporting total annual wages earned (one per employee)
• W-3 Form: Reports total wages and taxes for all employees
• Form 940: Reports and calculate unemployment taxes due to the IRS
• Form 941: Filing quarterly income and FICA taxes withheld from paychecks
• Form 944: Reporting annual income and FICA taxes withheld from paychecks
• 1099 Forms: Providing non-employee pay information that helps the IRS collect taxes on contract work

Maryland Payroll Tax Resources and Sources

• Maryland Department of Labor: Information on labor laws and UI, plus access to forms
• Maryland Employment Standards Service Page: Links to notices you’re required to post for employees, plus information on minimum wage, guidelines, and questions. (Much is written for employees rather than employers.)
• Maryland Comptroller: Information on business taxes and where you can register your business
• Employer’s Quick Reference Guide for Unemployment Insurance: Who pays, how much to pay, how to pay, and other important information about SUTA
• Maryland Withholding Guide: Maryland employer withholding forms, plus all relevant tax tables for employers
• Maryland Workers’ Compensation Commission: Information about workers’ compensation, mostly from an employee POV

Bottom Line

Maryland not only has state income tax but local income taxes as well. It charges unemployment taxes of up to 10.5%. The state’s rules on vacation and breaks are different from most, and the minimum wage is different in Montgomery County. Be sure you understand the laws affecting payroll not only for the state but also for your local area.