Supporters say Maryland should stop treating payroll processors as money transmitters
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Summary
SB 261 would amend Maryland’s Money Transmission Act to exclude payroll processors from being classified as money transmitters, sponsors said, arguing compliance costs and multi‑state bonding make the current categorization impractical for small payroll firms and that most states do not treat payroll processors as money transmitters.
Sydney Hamilton, presenting on behalf of Senate sponsor, told the committee that SB 261 would amend the Maryland Money Transmission Act to align with most states by clarifying that payroll processors are not money transmitters.
Hamilton said payroll processors provide advisory and payroll‑administration services with contractual relationships to employers and do not present the same counterparty risk as traditional money transmitters such as PayPal or Western Union.
"Payroll processors are overseen by the banking industry through NACHA, and the IRS also provides oversight through its mandate reporting requirements," Hamilton said, arguing that subjecting small payroll firms to licensing, bonding and audited financials imposes prohibitive costs.
She said the Office of Financial Regulation updated regulations in 2023 to include payroll processing in the definition of money transmission, and that SB 261 would reverse that treatment; Hamilton added sponsors had coordinated with OFR in drafting the bill and noted the issue had been studied previously.
Committee members asked procedural questions about cross‑filed companion bills; members confirmed companion legislation in the House was identical. The presenter noted SB 261 passed the Senate 41–0 and asked for a favorable report to the House.
