Hiring Your First Employee
in Maryland

Decide: employee or contractor?

Before you go any further: are you actually hiring an employee, or are you bringing on an independent contractor? In Maryland, this decision is governed by the ABC test for UI and most wage-and-hour purposes. A worker is an employee unless all three of these are true:

• A. The worker is free from control and direction in how they do the work.
• B. The work is outside the usual course of the business OR performed outside the business's regular places of business.
• C. The worker is customarily engaged in an independently established trade.

If your "contractor" works only for you, on your core business, on your schedule, with your tools — you have an employee. Misclassification costs: back UI taxes, back workers' comp premiums, treble damages under the Maryland Wage Payment and Collection Law. Get this right.

This guide assumes you've decided: this is a W-2 employee.

3–4 weeks before start date: Foundation

Confirm your EIN

You should already have one from forming the business. If you don't, get it now at irs.gov — takes 10 minutes online, free. You need it before anything else.

Register for Maryland employer accounts

Two separate registrations required:

• MD Income Tax Withholding account — through the Comptroller of Maryland Combined Registration Application at marylandtaxes.gov. Takes about 1 business day.
• MD Unemployment Insurance account — through the Maryland Department of Labor (formerly DLLR). Separate registration, separate account number. Allow 1–3 business days.

Both registrations are free. Don't skip the MD UI registration — you can't legally pay an employee until you have it, and the new-employer rate of 2.6% on the first $8,500 of wages kicks in immediately.

Quote workers' compensation insurance

Maryland requires workers' comp for nearly all employers with 1+ employees. This is the step most first-time employers underestimate — rates vary wildly by job classification.

• Office and administrative roles — typically 0.3–1.0% of payroll. Cheap.
• Sales / outside service — 1.0–2.5%.
• Skilled trades (electricians, plumbers, HVAC) — 4–8%.
• Construction / roofing — 10–20%+. Verify before signing offers.

Quote with at least three carriers. The Injured Workers' Insurance Fund (IWIF / Chesapeake Employers' Insurance) is the state's residual market — expensive but always available. An independent insurance agent or broker can usually find a better commercial rate.

Pick a payroll provider

Do not run Maryland payroll manually. Even if you're confident, the cost-benefit is wrong — $40–$80/month is cheaper than one penalty for late MD UI filing.

• Gusto — modern UX, popular with small MD businesses, handles MD UI and withholding cleanly. Pricing starts ~$40/mo + $6/employee.
• ADP RUN — older but extremely solid. Better for businesses that anticipate growing past 25 employees.
• QuickBooks Payroll — integrates with QBO if you're already on it. Marginally less polished than Gusto.
• OnPay — a lighter, cheaper alternative; works well for 1–5 employee businesses.

Onboard the provider before your hire's start date. They'll need your federal EIN, MD withholding account, MD UI account, bank info, and the new employee's info (which you'll have after day 1).

Update your insurance

Beyond workers' comp:

• Employment Practices Liability Insurance (EPLI) — covers wrongful termination, harassment, and discrimination claims. Usually $500–$1,500/year for a 1–5 employee business. Worth it.
• General liability — review your policy. Adding an employee may change coverage or pricing.
• Health insurance — not required until 50 FTEs (ACA mandate), but offering it is a real recruiting differentiator. The Maryland Health Connection SHOP marketplace and brokers can quote small-group plans.

2 weeks before: The offer

Pin down the role and pay

Before you make the offer, decide:

• Exempt or non-exempt? Salaried-exempt requires meeting both a salary threshold (federal FLSA test) and one of the duties tests (executive, administrative, professional). Just calling someone "salaried" doesn't make them exempt — if they're non-exempt, you owe overtime at 1.5x for hours over 40 in a week.
• What's the pay range? Maryland has pay transparency requirements — you must disclose the wage range to applicants on request, and certain postings must include it. Decide your range and put it in the job description from the start.
• What's the total loaded cost? Base salary × ~1.20–1.28 for a typical office role in Maryland (FICA, FUTA, MD UI, workers' comp, benefits, overhead). Use the Payroll Cost Calculator to model it.

Write a written offer letter

Verbal offers in Maryland are dangerous — ambiguity around start date, pay, or terms creates downstream disputes. Cover at minimum:

• Title and reporting structure
• Start date
• Exempt or non-exempt classification
• Pay (annual salary for exempt; hourly rate plus expected weekly hours for non-exempt)
• Pay frequency (biweekly is most common)
• Benefits summary (health, PTO accrual, anything offered)
• Statement that employment is at-will (Maryland is an at-will state)
• Conditions to start (background check, I-9 verification, signed offer)

Avoid promising specific terms of duration ("you'll be employed for 2 years") — that can undermine at-will employment.

Background check (if you do them)

If you run a background check, you must comply with the federal Fair Credit Reporting Act (FCRA): written disclosure, written consent, adverse action notice if you don't hire based on the report. Maryland has "ban-the-box" rules restricting when in the process you can ask about criminal history. Several MD jurisdictions (Baltimore City, Montgomery County, Prince George's) have additional restrictions. Consult a Maryland employment attorney if you're not sure.

Day 1: Paperwork

Have these ready on day one. Most can be e-signed in advance through your payroll provider.

• Federal I-9 (Employment Eligibility Verification) — Section 1 by the employee on or before day 1; Section 2 by the employer within 3 business days. View original (not photocopies) of acceptable documents. Retain the form for 3 years after hire or 1 year after termination, whichever is later.
• Federal Form W-4 — federal income tax withholding.
• Maryland Form MW507 — Maryland income tax withholding. Different form, has to be filed separately.
• Direct deposit authorization — optional but standard. Bring a voided check.
• Maryland Wage Rate Notice — required by Maryland law. Written notice of pay rate, regular pay date, and employer's legal business name. Can be combined with the offer letter.
• Handbook acknowledgment — if you have a handbook (you should, even a simple one at 1–3 employees).
• Benefit enrollment forms — if you're offering benefits, day 1 is the time.
• Required pamphlets and notices — Maryland sick leave (Healthy Working Families Act), workers' comp claim instructions, federal FMLA poster (once you're at 50+ employees).

Maryland New Hire Reporting

Report every new hire to the Maryland State Directory of New Hires within 20 days. Filed online; takes 5 minutes. Used for child support enforcement, but penalties apply for non-compliance.

Required workplace postings

Display in a conspicuous place (or distribute electronically to remote workers). The main ones:

• Maryland minimum wage and overtime
• Maryland Healthy Working Families Act (sick & safe leave)
• Maryland Equal Pay for Equal Work Act
• Maryland workers' compensation
• Maryland unemployment insurance
• Federal FLSA, OSHA, USERRA, IRCA, polygraph protection

The MD Department of Labor publishes a consolidated state poster — free to download. Federal posters come from U.S. DOL. Update annually when minimum wage changes.

First paycheck mechanics

What's coming out of the gross pay (assuming standard MD employee, single, no special elections):

• Federal income tax — per W-4, ranges with income.
• FICA (employee share) — 6.2% Social Security up to wage base + 1.45% Medicare. 7.65% total.
• Maryland income tax — per MW507, plus county-specific local tax (county rates vary roughly 2.25%–3.20%).
• Benefits — health insurance share, retirement contribution.

And what you as the employer are paying on top:

• FICA (employer share) — matching 7.65%.
• FUTA — 0.6% net (after MD UI credit) on the first $7,000.
• MD UI — 2.6% new-employer rate on the first $8,500.
• Workers' comp — per quoted rate.
• Benefits — employer share of health, retirement match, etc.

Your payroll provider handles the calculations and remittances automatically. Verify the first paycheck stub before it goes out — this is when set-up errors surface.

First 30 days: Onboarding well

The biggest mistake first-time employers make: they're so focused on the paperwork they forget the actual onboarding. Set a 30-day plan:

• Week 1 — orientation, tool setup, meet key stakeholders, observe how things work.
• Week 2–3 — shadow on real work, take on simple tasks, get feedback.
• Week 4 — first solo project, 30-day check-in conversation about what's working and what isn't.

Document this in a simple Google Doc shared with the new hire on day 1. Sets expectations on both sides and gives you a way to measure progress.

Common Maryland pitfalls

• Pay frequency: Maryland requires payment at least once every two weeks or twice per month. Monthly payroll is not legal for non-exempt employees.
• Final paycheck: Due by the next regular pay period after termination (voluntary or involuntary). Withholding to "wait for the laptop to come back" is how WPCL treble damages happen.
• Vacation payout: Maryland doesn't require payout of unused vacation, but if your handbook says you will (or is silent), you must. Audit your handbook.
• Salaried-exempt misclassification: The fastest-growing source of MD wage claims. If your "exempt" employee isn't really exempt, you owe back overtime + treble damages.
• Sick leave administration: 15+ employees triggers paid sick & safe leave under MHWFA. Don't require doctor's notes for short absences or use as a coverage requirement.
• Non-competes: Maryland restricts non-competes for low-wage workers and has tightened scope. If you're considering one, have a Maryland attorney draft it.

The minimum-viable handbook

Even at 1 employee, a simple handbook is useful. Not a 60-page legal document — a 5–10 page document covering:

• At-will employment statement
• Equal employment opportunity / anti-harassment policy with reporting procedure
• Pay frequency and overtime policy
• PTO and sick leave policy (MHWFA-compliant)
• Holiday schedule
• Confidentiality and IP assignment expectations
• Technology and acceptable use
• Disciplinary and termination overview (without committing to specific procedures — preserve at-will)
• Acknowledgment page

This guide is educational. It is not legal, tax, or HR advice. Maryland and federal employment law change — verify all thresholds, deadlines, and rates against current Maryland Department of Labor, Comptroller of Maryland, and U.S. Department of Labor publications. For specific situations, consult a Maryland-licensed employment attorney.