Payroll Glossary: Key Terms for Employers Article

The individual regulations in FLSA may, under certain circumstances, be superseded by state and local laws. This amount is then used to determine the level of pay subject to garnishment or child support withholding. The IRS defines an independent contractor as any worker who is self-employed, as opposed to traditionally employed by a company.

For employers, tax liabilities include federal income tax withholding, Social Security and Medicare taxes, and unemployment taxes. Social Security tax is withheld at a rate of 6.2% from employee’s wages up to the annual taxable wage base, with an equal amount paid by employers. Taxes that employers must withhold from employee’s wages or pay based on employee compensation.

• This amount is then used to determine the level of pay subject to garnishment or child support withholding.
• In this case, the taxpayer may have the option to receive the overpayment as part of their annual tax return or apply the overpayment to the subsequent year’s taxes as a credit reduction.
• The compensation received by an employee for services rendered, including regular wages, overtime pay, bonuses, and commissions.

Taxable Income

The physical check or electronic payment an employee receives that details their gross pay, deductions, and net pay for a specific pay period. PTO is considered a form of compensation and may be accrued based on hours worked or time employed. Employees who are entitled to overtime pay under the Fair Labor Standards Act.

Learn key terms like gross pay, deductions & more to navigate payroll successfully. Link multi-country payroll vendors with no disruptions. Affordable mandatory and add-on localized benefits. It shows daily tax liabilities and must be filed quarterly if an employer has a daily tax liability of $100,000 or more. Employers can reverse an incorrect payroll direct deposit if they meet certain conditions set by the Automated Clearing House (ACH).

• The act of repaying employees for business-related expenses they incurred using their own funds.
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• The amount withheld is based on employee earnings, filing status, and allowances claimed on Form W-4.
• A form or set of forms filed with tax authorities to report income, calculate tax liability, and request refunds if applicable.
• Compensation paid to employees for services performed, typically calculated on an hourly, salary, or piece-rate basis.

Social Security Tax

Medical services and products provided to employees as part of their benefits package. Employers must maintain employees’ health benefits during FMLA leave. A tax levied by the federal government on an individual’s taxable income. An EIN is required for employers to report taxes and other information to the IRS. The total amount of wages, salaries, bonuses, commissions, and other compensation earned by an employee during a specific period. Some states require employers to provide disability insurance, and premiums may be paid by the employer, employee, or both.

A 2023 study found that 78% of employees say receiving bonuses significantly boosts job satisfaction and loyalty. In the U.S., bonuses are subject to supplemental tax rates, typically 22% for federal tax withholding. Employers must ensure accurate withholding to prevent tax liabilities or employee penalties. Deductions can be pre-tax (reducing taxable income) or after-tax (affecting take-home pay but not taxable earnings). According to the Bureau of Labor Statistics, 43% of U.S. businesses use biweekly pay cycles, while 33% opt for weekly payroll. This means that if the employee qualifies for unemployment, they will receive less than their full weekly benefit amount.

Form 1099NEC

Under the Fair Labor Standards Act, overtime must be paid at a rate of at least one and one-half times the regular rate of pay. Additional compensation paid to nonexempt employees for hours worked beyond 40 in a workweek. The federal minimum wage is set by the Fair Labor Standards Act, but states and localities may establish higher minimum wage rates.

The amount withheld is based on employee earnings, filing status, and allowances claimed on Form W-4. Enrollment periods typically occur when an employee is first hired and during annual open enrollment periods. Accruals are typically calculated based on hours worked or time employed and may be subject to caps or expiration policies. Midsize businesses thrive with the efficiency, clarity, and analytics capacity of Lattice. Small businesses leverage the flexible, scalable power of Lattice to maximize performance for their mini teams.

Learn about benefits and best practices of HR automation, including how to automate HR effectively. If you don’t want to go it alone, you can entrust your payroll to the experts at Paycor. While these are useful basic terms to know, the ins and outs of payroll processing are far more complex and definitely require more thorough knowledge. A mechanism to factor in tip payments when calculating minimum wage. A specific amount that companies can subtract from the taxes they owe to the government. These wages may include tips, commissions and bonuses.

Employee Classification and Compensation

Disposable earnings refer to any wages that are left over after all government taxes and defined deductions have been taken out of the paycheck. It does not include any extra payments an employee may receive, such as overtime pay, commission, bonuses or benefits. To start off, we need to define and understand specific basic but key terms such as what payroll and payroll taxes mean. As you advance your payroll strategies, remember that investing in knowledge today protects your business’s stability and reputation tomorrow. Late or missed payments can rapidly erode discounted payback calculator employee morale, lead to complaints to labor departments, and negatively impact a company’s reputation as a fair employer. Failure to pay at least the applicable minimum wage can result in significant penalties, mandatory back pay orders for employees, and costly lawsuits.

Direct Deposit

It can be voluntary or involuntary and is used to fund things like Social Security, income taxes or financial obligations such as child support. Certain states’ reporting will include or require information regarding supplemental taxes, surcharges, credits, penalties and monthly employee counts. Rather than pay a salary equivalent to their typical pay, HR may omit earnings — such as for an eight-hour shift — to account for the employee’s absence. In fact, a merger could have a significant impact on an organization’s experience rating and, thus, the rate of its state unemployment tax. A higher rating means a company may present a higher risk of turnover and may be taxed at a higher rate depending on state law.

For example, a private-sector business with 50 or more full-time (or full-time equivalent) employees must adhere to the Affordable Care Act (ACA). This agreement should specify their hours and compensation and grant the contract employee access to FLSA benefits. While it’s common with certain public sector jobs, it can be illegal to use compensatory time to avoid properly compensating employees. Like state or federal taxes, city or local income taxes can shift based on earnings, exemptions, marital status and more.

Multistate Payroll Processing: A Guide for HR

For example, this could occur when an individual knowingly lies on their original claim or continues to accept benefits after they know they are no longer eligible. This document contains the IRS guidance for paying, fixing, reporting, depositing and withholding employment taxes. A personal bankruptcy may involve attachment of all or a portion of an employee’s wages to satisfy outstanding debts. The portion of an individual’s income that is subject to taxation after accounting for deductions and exemptions. Employers must file various tax returns, including Form 941 what is the traditional and Form 940, to report and pay employment taxes.

Explanations and examples to make payroll terms less mysterious

Employers must include imputed income in the employee’s W-2 form for tax purposes. Even small amounts like a $100 gift card must be reported as taxable income by employees. Examples of taxable fringe benefits include using a company car for personal activities, wellness program incentives like gym memberships, gift cards, and prizes or awards. The employer then uses Form W-4 to calculate how much of an employee’s salary is withheld for tax purposes.

The Fair Labor Standards Act (FLSA) generally mandates that non-exempt employees receive overtime pay at a rate of at least 1.5 times their regular rate of pay for all hours worked over 40. Overtime pay refers to the additional compensation required by law for certain employees who work more than a standard number of hours in a workweek, typically 40 hours. Minimum wage is the lowest hourly wage an employer can legally pay their employees. Employers must accurately calculate, withhold, report, and remit these taxes to the appropriate federal, state, and local government agencies on time. These include federal taxes like Social Security (FICA), Medicare (FICA), and Federal Unemployment Tax Act (FUTA) taxes, as well as various state and local unemployment, disability, and income taxes.

EFTPS (Electronic Federal Tax Payment System)

Our payroll pros have defined many common payroll terms below. To get going as quickly and successfully as possible, you may want to invest in a payroll accounting franchise such as Padgett Franchises. Whether you are learning payroll or have been working in payroll for many years, we hope that this Payroll Dictionary will be gross margin vs contribution margin: what’s the difference of service to you.

For example, this could refer to all contributions made to a company’s state unemployment insurance (SUI) account (minus benefit deductions). A fixed period of seven consecutive days is used for calculating overtime pay for nonexempt employees. Withholding includes federal and state income taxes, Social Security and Medicare taxes, and voluntary deductions. Unemployment insurance is funded through employer-paid taxes. An individual or entity that is required to pay taxes to government authorities. For payroll purposes, taxable income is calculated by subtracting pre-tax deductions from gross pay.

Social Security

Many states have specific laws governing paydays, the frequency of payments, and what constitutes a “prompt” payment upon termination of employment. Retention periods vary by law but are often at least three years, and sometimes longer for certain documents. Employee classification refers to determining an individual’s legal status in the workplace.