New Hire Reporting & Payroll Setup
Checklist for Maryland Employers

In our last post, we covered how to correctly classify a worker as a 1099 contractor or a W-2 employee. Once you've decided someone is an employee, a specific sequence of paperwork and setup steps kicks in — and Maryland has a few requirements on top of the federal ones. This is a literal checklist. Bookmark it for the next time you hire.

Step 1: Federal Form I-9 (Employment Eligibility Verification)

Every employer in the country must complete Form I-9 for each new hire, verifying the employee is legally authorized to work in the U.S. The employee completes Section 1 no later than their first day of work, and you as the employer complete Section 2 within three business days of their start date, after physically examining acceptable identity and work-authorization documents.

• You do not file the I-9 with any agency — you keep it on file.
• Retain it for the longer of 3 years after the hire date, or 1 year after employment ends.
• I-9s must be kept separate from the employee's regular personnel file in case of an audit.

Step 2: Federal Form W-4 (Employee's Withholding Certificate)

The W-4 tells you how much federal income tax to withhold from the employee's paycheck. Like the I-9, this is completed by the employee and kept on file — it is not filed with the IRS. Employees can update their W-4 at any time if their situation changes (marriage, a new dependent, a second job).

Step 3: Maryland Form MW507 (State Withholding Exemption Certificate)

This is Maryland's counterpart to the W-4, and it's easy to forget since it's state-specific. Form MW507 tells you how much Maryland income tax to withhold. If an employee doesn't submit one, you're required to withhold as if they claimed no exemptions — which usually means over-withholding, so it's worth getting this one filled out promptly. Maryland recommends employees complete a new MW507 each year and whenever their personal or financial situation changes.

Step 4: Maryland New Hire Reporting (Within 20 Days)

As covered in our 1099 vs. W-2 post, Maryland law requires every employer to report new W-2 employees to the Maryland State Directory of New Hires within 20 days of their hire date. You'll need the employee's name, address, and Social Security number, along with your business name, address, and FEIN. This can be submitted electronically through the Maryland New Hire Reporting Center, or by mailing or faxing a copy of the employee's W-4.

Missing this deadline isn't just a technicality — Maryland can assess a penalty of up to $20 per violation per month, or $500 if the failure looks like a deliberate arrangement between employer and employee.

Step 5: Workers' Compensation Insurance

Maryland is stricter than most states on this point: any business with one or more employees — full-time or part-time — is required to carry workers' compensation insurance. There's no small-business exemption the way there is in many other states. The only real carve-outs are agricultural employers with fewer than three employees and payroll under $15,000 a year, and, separately, sole proprietors, partners, and independent contractors who don't need to cover themselves.

• Coverage is available through private insurers, or through Chesapeake Employers Insurance Company (Maryland's insurer of last resort) if you can't find private coverage.
• Operating without required coverage can carry penalties as high as $25,000 per violation, and corporate officers can be held personally liable.
• If an employee is injured and unable to work more than three days, you must file a First Report of Injury with your carrier and the Workers' Compensation Commission within 10 days of learning about it.

Step 6: Set Up Payroll in QuickBooks Online

Once the paperwork is in place, here's the general sequence for getting a new employee running through QuickBooks Online Payroll:

• Add the employee profile — name, address, Social Security number, hire date, and pay rate.
• Enter W-4 and MW507 details — filing status and withholding elections from both forms.
• Set up direct deposit — collect a voided check or bank details and authorization.
• Confirm your Maryland unemployment insurance account is linked so state UI is calculated correctly (see our next post for the quarterly filing details).
• Add any deductions or benefits — health insurance, retirement contributions, garnishments.
• Run a test payroll before the employee's first real paycheck to confirm withholding and net pay look right.

QuickBooks Online Payroll automates most of the ongoing tax calculations and filings from here, but the initial setup is where accuracy matters most — a mistake here compounds with every paycheck until it's caught.

The Quick Reference Checklist

• ☐ Form I-9 completed within 3 business days of start date
• ☐ Federal Form W-4 collected
• ☐ Maryland Form MW507 collected
• ☐ New hire reported to Maryland within 20 days
• ☐ Workers' compensation insurance confirmed active
• ☐ Employee set up correctly in QuickBooks Online Payroll
• ☐ Test payroll run and reviewed before the first live paycheck

Don't Want to Manage This Alone?

Every one of these steps is a place where a small error can turn into a compliance headache later. My Maryland Bookkeeper can set up new hires correctly the first time — forms, filings, and QuickBooks all handled — so you can focus on running your business instead of chasing paperwork.