How to setup payroll in Maryland

1. Register as a Foreign Entity in Maryland (If You’re Out of State)

If your business is formed in another state (or country) and you plan to hire in Maryland, you generally need to register as a foreign entity with the Maryland Department of Assessments & Taxation (SDAT).

Timeframe: 2–6 weeks (or sooner if you pay for expedited service).

2. Obtain a Federal Employer Identification Number (FEIN)

If your business does not already have an EIN, you need one for federal tax withholding and reporting.

Timeframe: Instant if you apply online during IRS business hours.

3. Apply for a Maryland Combined Registration

Maryland has a Combined Registration process that covers:

  1. Maryland withholding tax (to withhold state income tax from paychecks).

  2. Maryland unemployment insurance (to pay state UI taxes).

Timeframe: Usually a few days to a couple of weeks for the state to process.

4. Configure Your Payroll System for Maryland Withholding

Once you have your Maryland withholding account number and unemployment insurance account number, update your payroll system.

Note: Each payroll provider has its own process to add state tax accounts; consult their documentation.

5. Obtain Workers’ Compensation Insurance in Maryland

Maryland requires employers with at least one employee to carry workers’ compensation coverage.

Timeframe: Can be set up in days, depending on your chosen insurer.

6. Comply with Maryland Labor Laws

  1. Minimum Wage: Maryland Minimum Wage and Overtime Law

  2. Earned Sick and Safe Leave: Maryland Department of Labor – Earned Sick & Safe Leave FAQs

  3. Overtime Requirements: Same link as above (Maryland wage law).

  4. Wage Payment Frequency: Maryland Wage Payment & Collection Law

Check for local (county/city) minimum wage laws if hiring in jurisdictions like Montgomery County or Prince George’s County, which may have different rates.

7. Report New Hires to the State

Maryland, like all states, requires New Hire Reporting within 20 days of an employee’s start date.

Why: Ensures compliance with child support requirements and other obligations.

8. Understand Maryland Employment Discrimination Laws

Maryland enforces anti-discrimination laws via the Maryland Commission on Civil Rights (in addition to federal laws like Title VII, ADA, etc.).

Stay compliant during recruiting, hiring, and employment practices.

9. Maintain Employment Records

Keep accurate payroll, time, and other employment records in accordance with both federal and Maryland guidelines. Maryland typically requires you to keep records for at least 3 years (though federal requirements, like FLSA, can differ).

10. Use a Registered Agent (If You’re a Foreign Entity)

If you’re not physically located in Maryland, you must designate a registered agent with a physical address in MD.

  • List of Registered Agent Services: You can find many service companies online (e.g., CT Corporation, LegalZoom, etc.), but ensure they meet MD requirements.

  • Alternatively, you can use an attorney or anyone with a physical Maryland address who agrees to serve.

11. Ongoing Filings and Renewals

  1. Annual Report (Form 1) & Personal Property Return (if applicable):

  2. Unemployment: Submit quarterly wage reports to Maryland’s Division of Unemployment Insurance.

  3. Withholding Tax Returns: Frequency (monthly, quarterly, annual) depends on assigned schedule by the Comptroller of Maryland.

Estimated Timelines

  • Registering a foreign entity with SDAT: 2–6 weeks (faster with expedited).

  • Maryland Combined Registration: A few days to a couple of weeks.

  • Workers’ comp insurance: Days to complete once you identify an insurer.

  • Updating payroll system: Typically immediate once you have account numbers.

  • New hire reporting: Within 20 days of the employee’s start date (online process is quick).

Alternative Option: Employer of Record (EoR) or PEO

If you’d rather not handle all state registrations, tax withholding, and compliance, you could use an Employer of Record (EoR) or Professional Employer Organization (PEO). They handle:

  • Registration and compliance in Maryland under their own entity.

  • Payroll, benefits, and unemployment taxes.

However, you’d have less direct control over HR processes, and the employee would technically be employed by the EoR/PEO, not your company.

Key Takeaways

  1. Foreign Qualify in MD if out-of-state.

  2. Obtain a Combined Registration for withholding/unemployment.

  3. Configure your payroll system with MD withholding details.

  4. Get workers’ comp insurance in Maryland.

  5. Adhere to Maryland labor laws (wage, overtime, sick leave).

  6. Report new hires promptly.

  7. Stay on top of annual reports and tax filings.

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