Feeling crabby about running payroll? We can help. ADP’s payroll services are designed to reduce labor-intensive data entry, saving you time, and our experts are knowledgeable in all of the complex Maryland compliance regulations. If you still feel like going it alone or just want more information about the payroll process, here’s everything you need to know about paying employees in the Old Line State.
Overview of Maryland tax payroll rates and withholding requirements
Maryland’s payroll and employment laws are some of the most stringent in the country. The state charges income tax, has a minimum wage rate that’s higher than the federal government and has laws governing shift breaks, leave and equal pay.
Maryland wage and tax facts at a glance
The minimum wage for most non-exempt employees in Maryland is $11.75 per hour, effective January 1, 2021. If your business is located in Montgomery County, the minimum wage is higher and may fluctuate based on the number of employees you have.
If any non-exempt employees work more than 40 hours in a workweek, they may be entitled to overtime pay that’s 1.5 times their regularly hourly wage. The state requires you to post the applicable rate information. When calculating overtime, only count the hours actually worked and not leave hours, such as vacation, sick time, holiday, etc.
Maryland state unemployment tax rate
Employers in Maryland are required to contribute to state unemployment tax at a rate consistent with their unemployment experience. You may pay as low as 2.2% or as high as 13.5%. New businesses with no experience begin at 2.3%.
Maryland income tax withholding
Maryland’s income tax rate ranges from 2% to 5.75%, based on the employee’s income and filing status with some exceptions for retirees. Employees who receive Social Security benefits, for instance, are exempt from taxation.
Additionally, twenty-three counties and Baltimore City levy a local income tax based on where employees live, not where they work. The rates range from 2.5% to 3.2%. For the convenience of local governments, this tax is collected with the state income tax.
Maryland wage payments, pay statements and pay frequency
In Maryland, you can pay employees by paper check or cash. Direct deposit and payment to a debit card or card account are voluntary options that require prior authorization from employees. State law prohibits you from mandating electronic payments, although you’re free to encourage participation.
However you pay your employees, Maryland requires you to include a statement of each individual’s gross earnings and deductions for every pay period. If you print checks, the wage payments and any attachments to them must not include an employee’s Social Security number. The state further mandates that you provide in writing by any reasonable method, including online systems, your employees’ earned sick and safe leave balances.
Payments and the required pay statements must be delivered at least once every two weeks (biweekly) or twice in a month (semimonthly). There is an exception to this rule, however, for certain types of workers. Those who classify as either executive, professional or administrative employees can be paid less often. You can also offer weekly pay, if you so choose, but this may raise your payroll operating costs.
Note: If you operate a restaurant, you must also supply employees with a tip credit wage statement.
State of Maryland benefits
Employees in Maryland are entitled to certain benefits by law, such as leave, shift breaks (for retail workers), equal pay and the right to vote.
Paid and unpaid leave
Maryland offers a number of sick and family leave options for employees. It does not, however, guarantee days off for holidays or any special holiday pay for private sector employees, except a religious day of rest each week for retail employees who give prior written notice to their employers.
With that said, in order to accurately process payroll, your time and attendance solution must be able to account for these types of leave:
- Maryland earned sick and safe leave
The Maryland Healthy Working Families Act requires you to provide paid sick and safe leave for certain employees if your workforce consists of 15 or more people. And if you employ 14 or fewer people, certain employees are entitled to unpaid sick and safe leave.
- Flexible leave
Employees can take paid leave time to care for an immediate family member with an illness. Maryland’s Flexible Leave Act only applies to businesses with 15 or more employees.
- Parental leave
You’re required to offer eligible employees six workweeks of unpaid leave during a 12-month period for the birth or adoption of a child.
- Adoption leave
If you offer paid parental leave for employees who birth a child, you must extend the same benefits to those who adopt.
- Deployment leave
Employees who have an immediate family member serving in the United States armed forces may take a day of leave when the individual leaves for or returns from active duty. Certain criteria must be met for this benefit. Review Maryland’s Deployment Leave legislation for more details.
Maryland’s Shift Break law
Generally, you’re not required to provide breaks, including lunch breaks, to employees 18 years of age or older. The exception to this rule is Maryland’s Healthy Retail Employee Act, or “the Shift Break law,” which allows workers in certain retail businesses to take a nonworking break, the length of which is dependent upon hours worked. You must comply with this law only if you have a retail business or retail franchise with the same trade name and have 50 or more retail employees for each working day in the last 20 or more calendar weeks. Restaurants and wholesalers are exempt, as are some types of employees. Check Maryland’s Shift Break law for specific criteria.
In Maryland, equal pay legislation applies to businesses of all sizes, not just those with 15 or more employees, as dictated by the Equal Employment Opportunity Commission. The state’s Equal Pay for Equal Work law prohibits you from paying an employee of one sex or gender identity at a rate less than that paid to other employees under certain circumstances. You must also not provide less favorable employment opportunities based on sex, gender or identity.
Right to vote
State law mandates that you must give employees at least two hours paid time off so that they can vote on election days. This regulation only applies to workers who don’t have adequate time outside of work (defined as two successive hours) to attend polling places while they are still open.
Maryland payroll recordkeeping requirements
In Maryland, you’re required to keep the following records about each employee:
- Name, address and Social Security Number
- Race and gender
- Exemption certificate
- Occupation and period of employment
- Amounts and dates of all wage payments
- Hours worked each day and each workweek
- Amounts and dates for all Maryland income taxes withheld from wage payments
In addition, Maryland’s Revenue Administration Division may ask to inspect your employer identification number, the amount of Maryland income tax withheld and paid to the Comptroller of Maryland, and the dates payments were made.
Employee records must be retained in or about the place of employment for at least three years. And tax-related records should be kept at least three years after the date the tax was due or the date the tax was paid, whichever is later.
Maryland state tax resources
Maryland payroll might be complex, but there’s local help at your fingertips. Refer to the following for information on the latest employment legislation and tax documents:
- Comptroller of Maryland
- Maryland Department of Labor
- Maryland Division of State Documents
- Employer identification number (EIN) application
Maryland withholding form
Maryland has three different income tax withholding certificates:
- MW507 – Employee’s Maryland Withholding Exemption Certificate
This form, when completed by the employee, provides guidance on how much state income tax to withhold from his or her paycheck.
- MW507M – Exemption from Maryland Withholding Tax for a Qualified Civilian Spouse of a U.S. Armed Forces Servicemember
The Military Spouses Residency Relief Act exempts civilian spouses who meet certain criteria from paying Maryland state income tax.
- MW507P – Maryland Income Tax Withholding Form for Annuity, Sick Pay and Retirement Distributions
Individuals who receive these benefits can voluntarily request that state income tax be withheld from their payments.
Maryland paycheck and state tax calculator
Easily convert gross to net pay and estimate the total amount of Maryland state income tax to deduct from your employees’ wages.
State of Maryland pay scale for state employees for the fiscal year 2022
Maryland budgets salaries for its state employees at the start of the fiscal year and then adjusts them for cost of living in July, if approved by the state legislature. View the FY 2022 pay scales for:
- Standard salaries
- Hourly standard salaries
- Bargaining unit (labor union) salaries
- Bargaining unit hourly rates
- Other salaries
Maryland payroll for employers
As we’ve covered, processing payroll in Maryland isn’t easy, especially if you’re doing it on your own. Working with a payroll service provider, like ADP, can save you time and money and ensure that you’re staying compliant with all the local regulations – whether you’re based in downtown Baltimore or on the shoreline of the Chesapeake Bay.
Our payroll software is fast and easy to use and it seamlessly integrates with time tracking and accounting software. You’ll also have access to expert professionals for those times when you’re not sure how the latest legislation affects your payroll process.
Maryland payroll FAQs
See what other employers in the Old Line State are asking about payroll:
What is the Maryland unemployment payroll tax rate?
Maryland’s payroll tax rate for state unemployment ranges from 2.2% to 13.5%. Each employer’s individual experience with unemployment benefits will determine the rate. New businesses start at 2.3%.
What is the Maryland state income tax rate for 2021?
Employees in Maryland can expect to pay between 2% and 5.75% state income tax for 2021, depending upon their total income and filing status. Retirees who receive Social Security as their source of income may be exempt from income tax.
What is the MD Withholding Exemption Certificate?
The Employee’s Maryland Withholding Exemption Certificate, also known as Maryland Form MW507, is used to determine how much income tax to deduct from employee wages. On it, employees list their full name, address, Social Security number, county of residence, filing status and exemption information. Individuals who are considered qualified spouses of military and those who are receiving annuity, sick pay or retirement distributions may need to complete separate withholding forms.
Are employers required to withhold Maryland local taxes?
Yes, twenty-three counties in Maryland and Baltimore City charge income taxes. Rates are as low as 2.5% in some areas and as high as 3.2% in others. Local income tax is based on where employees live, not where they work, and is included in state income tax withholding.
What deductions from wages are permissible in Maryland?
Wage deductions that are permissible in Maryland include court-ordered garnishments and federal, state and local taxes. In addition, if an employee receives something of value from an employer, such as long-distance phone usage or a personal loan, the Commissioner of the Maryland Division of Labor may allow the employer to offset the costs through wage deductions. Most other deductions require written authorization from the employee.
This guide is intended to be used as a starting point in analyzing an employer’s payroll obligations and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
Tax figures provided are as of the 2021 tax year.