How to Do Payroll in Maryland

Maryland is one of the most influential states in the United States. It has a unique set of rules and guidelines that every business owner needs to know about when setting up shop on their new turf. This article will talk about some key aspects of Maryland’s tax system, as well as how payroll works for businesses operating within this state.

The “posc payroll” is a tool that allows for the creation of payroll documents.

Payroll in Maryland necessitates familiarity with local rules, such as the $11.75 state minimum wage, as well as a thorough understanding of state and municipal income tax withholding schedules. It contains many more complexities than the ordinary state, with 23 counties charging local taxes, for example. Maryland has its own payroll requirements, some of which are harsher than federal law, ranging from employee calculation to paid time off.

Payroll software like Gusto is the ideal method to handle your payroll, from pay runs to storing documentation and employee data. It makes it simple to comply with federal, state, and local regulations, pay workers on time in a number of methods, and store records in an easily accessible file system. Find out more about Gusto to determine whether it’s the best fit for you.

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Payroll Procedures in Maryland: Step-by-Step Instructions

Step 1: Register your company as an employer. You’ll need your employer identification number (EIN) and an account with the Electronic Federal Tax Payment System (EFTPS) at the federal level (EFTPS).

Step 2: Register with the state of Maryland. Send a Combined Registration Application to the Maryland Department of Labor within 20 days of starting your company to register with the state. You may also fill out the application online if you want. You’ll also need to open a BEACON account to pay taxes under the State Unemployment Tax Act (SUTA).

Step 3: Create a payroll system. Employees should be paid at least twice a month in most circumstances. You may do it manually (which we don’t advocate), create an Excel payroll template, or use payroll software.

Collect employee payroll paperwork in step four. This is easier to do throughout the onboarding process. W-4, I-9, and Direct Deposit information are all included on Forms for Payroll. Form MW507 is required for Maryland.

Collect, evaluate, and approve time sheets in step 5. You may utilize a paper time sheet or sign up for time and attendance software that is either free or inexpensive.

Step 6: Work out your payroll and pay your staff. Payroll may be calculated using software, a calculator, or simply an Excel spreadsheet.

Step 7: File payroll taxes with both the federal and state governments in Maryland. For federal taxes, including unemployment, follow the IRS’s guidelines.

• Income Taxes in Maryland: bFile Maryland allows you to file and pay these forms online. You may also upload W-2s in bulk. You must adhere to the following timetable:

• SUTA: Use BEACON to pay your SUTA using an automated clearing house (ACH) or a credit card. The following dates apply to state Unemployment Benefits (UI) tax reports and payments:

If a report or tax payment is due on a Saturday or Sunday, the report or payment is due the next working day.

Step 8: Keep track of your payroll data. Payroll paperwork should be kept for at least three years in Maryland. Read our post on what payroll papers to preserve for more details, or look up Maryland’s recordkeeping regulations.

Step 9: Complete your year-end payroll tax returns. Send the W-2 (for workers) and 1099 (for non-employees) federal forms (for contractors).

Check out our how to do payroll guide for a more basic overview of how to make payroll according to federal law.

Payroll Laws, Taxes, and Regulations in Maryland

To begin, you must comply with federal law on income taxes, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes. FICA taxes, which include Social Security and Medicare, are withdrawn from each employee’s salary at rates of 6.2 percent and 1.45 percent, respectively; you’ll also pay a corresponding amount out of your bank account.

Check out our post on taxes, FICA, and FUTA to learn more about federal payroll taxes and withholdings.

Taxes in Maryland

Maryland is more difficult to administer since it contains both state and municipal taxes. You’ll need to know where each employee lives so you can figure out which tax agency you have to pay.

Income Taxes in Different States

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 Taxes in Maryland website to help you determine how much you should withhold.

Except for the following workers, you must withhold taxes from all of them:

• Those who earn less than $5,000 each year
• Domestic employees in a private residence, a fraternity or sorority, or a college club
• Clergy
• Maritime employees who are not permanent residents
• Some non-residents
• Employees that have a total income of less than a certain level, such as $234.62 per week or $12,200 per year. For a complete list, see the chart on Page 9 of the Maryland Withholding Guide.
• Exemption for military spouses under the Military Spouse Residency Relief Act. (Make sure they complete Form MW507M.)

Income Taxes in Your Community

In addition, Maryland’s 23 counties and Baltimore City also levy Income Taxes in Your Community, which range between 2.25% and 3.2%. There are taxes for nonresidents as well. The latest rates by county are below, and the Maryland Withholding Guide has the tax tables.

Local Tax Rates by County in 2021

Employees from Maryland who work in Delaware

Employees who live in Maryland are taxed at a separate rate if you have offices in Delaware. On page 10 of the Maryland Withholding Guide, you’ll find the rates table.

Unemployment Benefits (UI)

Maryland levies SUTA taxes, which are calculated on a $8,500 taxable salary basis. For new employers, the usual rate is 2.3 percent. For experienced employers, rates vary from 2.2 percent to 13.5 percent, as shown in Rate Table F. Employers in the construction business with a corporate headquarters in another state have a 7% unemployment rate.

The UI benefit ratio of an employer is calculated by dividing their experience rate by the total taxable earnings paid to workers in the three fiscal years previous to June 30. The amount of UI benefits awarded to former workers is known as the experience rate.

Employers are not liable for workers who are furloughed as a result of COVID-19, which may affect chargeable benefits provided to former employees from July 1, 2019, to June 30, 2020, but has no effect on employer rates in 2021.

In some circumstances, the following employee classifications are excluded from UI coverage, as listed in the Maryland Employer’s Quick Reference Guide.

• Drivers of taxicabs
• Tractor drivers in specific E and F grades who are self-employed
• Employment in the maritime industry
• Workers in the electoral process
• Employees of the church and clergy
• Employment on the railroads
• The distribution of newspapers
• Sales of insurance and real estate
• Service for sending messages
• Sellers that sell directly to customers
• Work in a foreign country
• Work-related stress reduction and training
• Members of the family
• Patients in hospitals
• Interns or student nurses
• Yacht salespeople who work purely on commission for a licensed merchant
• Services of foreigners who enter the US exclusively to complete a full term of study at specific vocational and other non-academic institutions, such as students, scholars, trainers, instructors, and so on.
• Officials in recreational sports
• Employees who work from home
• Yardwork is one example of casual labor.

What You Should Know:

You may be eligible for a 5.4 percent reduction on your FUTA taxes if you pay SUTA taxes.

Insurance for Workers’ Compensation

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

Maryland’s Minimum Wage Laws

Workers aged 18 and above are covered under Maryland’s minimum wage. Employees under the age of 18 must earn at least 85% of the minimum wage. Maryland’s minimum wage is steadily climbing to $15 per hour. The following are the most recent reported rates:

Please note that Montgomery County has its own minimum wage law, which mandates $15 for big firms beginning July 1, 2022, mid-sized employers beginning July 1, 2024, and small employers beginning July 1, 2025.

There are a few exceptions:

• Family members in the immediate vicinity
• Agricultural workers in particular
• Employees in the executive, administrative, and professional ranks
• Salespeople from the outside
• Employees who are paid on commission
• Employees that are in training for a special education program in a public school
• Restaurants, bars, and other businesses with annual gross revenues of less than $400,000
• Drive-in cinemas
• Canning is the preservation of food.
• Employees who do not work in the administration of the camp

If an employee receives more than $30 in tips per month, they are entitled to the state minimum wage. All except $3.63 per hour may be deducted from tips.

Overtime Regulations in Maryland

If an employee works more than 40 hours in a workweek in Maryland, they must be paid 1.5 times their hourly rate, which follows federal overtime requirements.

There are a few exceptions:

• Chauffeurs
• Auto repair and sales
• Promoters of non-profit concerts, plays, festivals, or music
• Amusement parks and recreational facilities that are open just during the season
• Agricultural employees (60 hours allowed)
• Establishments that provide bowling (48 hours)
• Other than hospitals, on-site care for the ill, elderly, or handicapped (48 hours)

Employees Can Be Paid in a Variety of Ways

Employees might be paid in cash, cheque, or direct deposit. You cannot, however, force an employee to utilize direct deposit. If you want to utilize direct deposit as one of your payment methods, you’ll need to provide at least two alternatives.

Pay Stub Laws in Maryland

Each pay month, Maryland requires you to provide workers a pay stub that includes gross earnings, deductions, employer contact information, how wages are earned (salary, hourly, commission, etc.), net wages, allowances, overtime, piece rates, deductions, and net compensation. The Pay Stub Transparency Act of 2016 provides further information.

Download one of our free paystub templates if you need a template to make your own pay statements. You may print and use them right away since they’re already formatted.

Minimum Pay Period

Non-executive, professional, and administrative employees must be paid every two weeks or twice a month.

They must be paid on time; if a payday comes on a non-working day, such as a weekend or holiday, they must be paid the next working day, not the following day.

Download one of our free payroll calendars to keep track of your pay dates and periods.

Payroll Deduction Regulations

The following expenses may be deducted from an employee’s pay:

• Taxes
• Child support garnishments, for example, are court-ordered deductions.
• To reimburse an employee for anything of value they received, such as a loan or advance.
• Something to which the employee has specifically consented, such as health benefits or compensation for damages or theft committed by the employee
• Uniforms emblazoned with the company’s emblem

Some deductions are deducted before taxes are computed, which saves money for both your workers and you. Check read our page on post-tax vs. pre-tax deductions to discover more about how it works.

Laws Regarding Final Paychecks

Final compensation must be received on or before the employee’s usual payday. You are not required to enable an employee to work for two weeks prior to termination or to compensate them for the period they were unable to work. Depending on the documented business policy, unused PTO may or may not be paid out. Unless otherwise stated in business policy, unused sick leave does not have to be paid out.

Paid Time Off (PTO) has been accrued.

Maryland does not mandate paid vacation, sick leave, or paid time off. Adhere to government guidelines. Retail employees, on the other hand, may request a religious day of rest each week if they do so in writing.

Sick Leave with Pay

Maryland workers must obey two extra requirements in addition to the federal Family and Medical Leave Act:

• The Maryland Flexible Leave Act authorizes employees of employers with 15 or more workers to use “leave with pay” for illnesses in their Family members in the immediate vicinity.
• Employers must earn one hour of sick leave for every 30 hours worked under the Maryland Earned Sick and Safe Leave Act, with a maximum of 40 hours per year and a total of 64 hours at any time. This time off may be used to take care of one’s mental or physical health, get preventive medical treatment, care for a family member, take maternity or paternity leave, or deal with difficulties arising from domestic abuse that was not committed by the employee.

Parental Leave is a period of time when a parent

Eligible employees are allowed six weeks total of unpaid Parental Leave is a period of time when a parent in a 12-month period for the birth or adoption or fostering of a child.

Deployment Day is a day off for those who are deployed.

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 Members of the family. It does not have to be paid leave, but you cannot require them to use accrued leave, sick, or vacation leave.

HR Laws in Maryland That Affect Payroll

There are various state-specific HR rules in Maryland, and some of them have an impact on payroll.

Reporting of New Hires in Maryland

The Maryland New Hiring Reporting site may be used to report new hires. You have 20 days from the date of their hiring or rehire to complete this task. If you are unable to access the site, you may complete and send the New Hires Form.

Requirements for Lunch and Other Breaks

Minors and retail employees are the only people who are subject to Maryland’s laws.

• Breaks for retail employees: Retail employees are entitled to lunch and brief breaks. This applies to establishments or franchises that have employed more than 150 employees on a daily basis for the last 20 calendar weeks or more. This law does not apply to employees who make more than half of their income from commissions and earn more than 1.5 times the minimum wage for each hour worked.

Employees who meet the criteria are entitled to the following benefits:

*If an employee works fewer than six hours in a row, the employer and employee may agree to waive the 15-minute break requirement in writing.

**An employee who is eligible for a 30-minute break is not also eligible for a 15-minute break. Following the employee’s prior break, the extra consecutive hours begin. If an employee performs a 10-hour shift and has a 30-minute break at hour 5, he or she is entitled to a 15-minute break at hour 9.

• Minors under the age of 18 are entitled to a 30-minute break for every five hours working.

Minors in the Workforce

To work in Maryland, minors under the age of 18 must get a work permit. Work permits are not available to minors under the age of 14. According to federal legislation, minors are not permitted to work in dangerous occupations. Other regulations apply to student learners. Visit the Department of Labor’s website for further information, or download the Minor Fact Sheet.

Minors aged 14 and 15 are not permitted to work.

• During the school day
• When school is in session, I work more than three hours each day or 18 hours per week.
• When school is not in session, you may work more than eight hours per day or 40 hours per week.
• Work from 7 p.m. until 7 a.m. (between 9 p.m. and 7 a.m. from June 1 to Labor Day)

16 and 17-year-olds

• A total of 12 hours of school and labor may not be worked in a single day.
• Every 24 hours, you must have eight hours of non-work/non-school time.

Forms for Payroll

Maryland features a number of state-specific forms that may be useful to your company. The state W-4 form is required for all businesses; the others will vary according on the kind of business and the types of workers.

W-4 Form for Maryland

Maryland’s state income tax withholding form is MW507 If you don’t fill out the form, you’ll have to rely on the deductions indicated on the federal W-4.

Other Payroll and Tax Forms in Maryland

Federal Forms for Payroll

• W-4 Form: Used by businesses to figure out how much tax to withhold from employees’ paychecks.
• W-2 Form: This form is used to report total yearly earnings (one per employee)
• W-3 Form: Reports all workers’ total pay and taxes.
• Form 940 is used to report and compute the amount of unemployment taxes owed to the IRS.
• Quarterly income and FICA taxes deducted from paychecks are reported on Form 941.
• Annual income and FICA taxes deducted from paychecks are reported on Form 944.
• Non-employee pay information is included on 1099 forms to assist the IRS in collecting taxes on contract labor.

Payroll Tax Resources and Sources in Maryland

• Maryland Department of Labor provides information on labor regulations, unemployment insurance, access to forms, and more.
• Maryland Employment Standards Service Page: Includes links to necessary employee notifications, as well as information on minimum wage, rules, and frequently asked questions. (A lot of it is meant for workers, not employers.)
• Maryland Comptroller: Find out about business taxes and how to register your company.
• Unemployment Insurance Quick Reference Guide for Employers: Who pays, how much to pay, and other relevant facts regarding SUTA
• Maryland Withholding Guide: Everything you need to know about Taxes in Maryland but were afraid to ask
• Maryland Workers’ Compensation Commission: Provides information about workers’ compensation, mostly from the perspective of employees.

Check out our payroll compliance guide for additional information on federal payroll rules.

Conclusion

Maryland not only has state income tax but Income Taxes in Your Community as well. It charges unemployment taxes of up to 13.5%. Its rules on vacation and breaks are different from most states, 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.

You should consider utilizing payroll software like Gusto to assist you avoid incurring penalties or fines. It maintains track of all taxes, both employer and employee, and guarantees that you are paying the most current rates. If you make a mistake and are fined by the IRS, Gusto will cover the cost. For 30 days, you may try it for free.

Gusto is a great place to visit.

The “state of maryland payroll schedule fy 2022” is a great resource for employees who are trying to figure out how their paychecks will be structured.

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