To get going as quickly and successfully as possible, you may want to invest in a payroll accounting franchise such as Padgett Franchises. By becoming a franchisee you get the necessary training and community to help you in your business as well as instant name recognition. Payroll is the list of employees and workers a company must pay and the amount they will receive. It’s also the total amount of salaries and wages a company pays to its employees. Managing it using payroll software can make life much easier. Understanding basic payroll terminology is essential to processing payroll successfully.

  • A statement for an employee showing the amount paid to them, by the business for a given pay period.
  • Unlike payroll taxes, employers never contribute to paying their employees’ federal or state income taxes.
  • Is a minimum amount an employer must pay their employee for the work performed.
  • Income tax withholding refers to the money an employer keeps, or withholds, from an employee’s paycheck to remit for paying federal or state income taxes.
  • Employers pay a reasonable wage and may offer benefits, especially if employees work at least 40 hours weekly; you must also pay and withhold taxes on employee earnings.

Independent contractors are self-employed people or businesses hired to complete specific tasks and most often receive project-based compensation. Companies hire employees to perform services and are salaried or paid hourly. These are out-of-pocket work related expenses employees have incurred and need to be reimbursed. FICA taxes are Social Security and Medicare taxes that the federal government charges on each employee’s earnings.

Withholding

Fringe benefits, also called imputed income, are the perks that businesses offer aside from regular wages. When an employee’s wages are garnished, he or she is forced to forfeit a given portion of the paycheck to a debtor. Garnishments are most common for employees who have failed to pay their debts (such as student loans) and for child support payments. The Federal Insurance Contributions Act (FICA) mandates a payroll tax to be imposed on both employees and employers. This tax is then used to fund such programs as Social Security and Medicare.

  • The federal minimum wage and overtime rules fall under this act as do recordkeeping rules and child labor laws.
  • Handling your own payroll for your business can be tricky because the payroll/payroll tax process involves a vocabulary all its own.
  • The tax free threshold is the amount of money that the Government has declared to be tax free.
  • The annual salary is divided by the number of pay periods in the year to determine gross pay for a pay period.
  • These articles and related content is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional.
  • The individual retirement account (IRA) offers employees greater control over their retirement savings.

To encourage your workers to take the overnight shift, you might offer any takers an additional $5 per hour. Compensation is an overarching term that encompasses all the types of payments an employee earns. For example, say you hire Julie and say you’ll pay her a $50,000 salary. When employees are terminated through no fault of their own, they may be eligible for a special payment known as severance pay.

Payroll Terms and Acronyms Glossary

With this retirement plan, employees can deposit funds and enjoy access to tax advantages. First passed in 1993, the Family Medical Leave Act (FMLA) allows employees to take leave from work in order to care for themselves or family members. When these employees return to work, their prior salary and health benefits must be fully restored. In payroll processing, an accrual occurs any time there is a difference between the pay cycle allocation and the actual expenses paid. W2 are the amounts that are have been withheld from the payments included in W1. Leave can be annual leave, personal/carer’s leave , compassionate leave just to name a few.

Employer Identification Number (EIN)

State laws, however, differ; for instance, California requires employers to provide at least 24 hours (three days) of paid sick leave each year. In payroll processing, accruals can happen a few different ways. Payroll accruals are funds owed to workers for hours they previously worked what is the completed contract method but haven’t yet been compensated for. Payroll can be confusing for everyone, but especially for small business owners that are new to it. It’s important that you understand these terms and acronyms to be confident that you’re processing payroll for your employees accurately.

They are not paid overtime rates for hours exceeding 40 in a week. A shift differential is a premium amount that you can pay employees who work outside of normal business hours. For some companies, this is the overnight shift and weekends.

Retroactive Pay

In turn, employers don’t pay payroll taxes on their earnings; instead, they complete a 1099-NEC form for all contractors they paid over $600. Deductions – Deductions are amounts taken from the employee’s paycheck (not to be confused with taxes). These items can be considered pre-tax or post-tax, depending on the actual deduction. Deductions are amounts taken from the employee’s paycheck (not to be confused with taxes). A statement for an employee showing the amount paid to them, by the business for a given pay period. Gross pay is the amount of an employee’s paycheck before payroll deductions are withheld.

California law, however, requires double-time pay for all hours worked over 12 in a day and for all hours worked over eight on an employee’s seventh consecutive day of work. The Federal Unemployment Tax Act (FUTA) tax is a payroll tax that employers are required to pay to the federal government to help fund unemployment benefits. The tax is 6% of the first $7,000 that an employee earns; however, most businesses do not pay the full 6%. Non-exempt employees must be paid the minimum wage and are entitled to overtime pay for every hour worked above the standard workweek. For example, the New Jersey minimum wage is $12 per hour in 2021. Their maximum tip credit is $7.87 per hour, meaning employers of tipped workers must pay their employees at least $4.13 per hour ($12 – $7.87).

Payroll Terms Every Small Business Owner Should Know

Businesses may use paper timesheets, time clock software, or an ESS portal to track how much an employee worked. Variable pay, or incentive pay, is a far-reaching term for employee payments made to influence employee behavior or reward meeting specific goals. Employees earn variable pay after reaching a company milestone, like a sales target, or an employee-specific objective, like making a sale as a salesperson.