payroll terminology

However, some companies may house payroll inside of the finance or accounting department, and some larger companies may even carve out a distinct payroll office. In addition to financial savings, internal payroll systems help companies keep confidential financial information private. However, software programs can be time-consuming, which can pose a problem for small companies with few staff. As a business grows, its accounting needs become more complex.

Unlike employees, employers aren’t allowed to dictate how or when contractors complete their work. EFTPS stands for the Electronic Federal Tax Payment System, which is a free system offered by the U.S. Learn how you can easily create payslips for your employees by using our free downloadable payslip template for small businesses.

Gross pay is an employee’s total wages before any deductions are taken. Deductions are funds subtracted from one’s total earnings to pay for things like taxes, benefits and garnishments. The maximum amount of employee compensation subject to Social Security, FUTA, and state unemployment insurance taxes.

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The W-2 also contains information pertaining to taxes withheld (such as Social Security) and compensation outside of wages (such as moving allowances). An Instalment Activity Statement (IAS) is statement that is similar to the BAS but is lodged to the ATO on a monthly basis. It does not contain all the taxes listed on the quarterly BAS and is usually used by those business having to report the PAYG on a monthly basis. Some businesses may opt to also report their GST on a monthly basis.

Overtime must be paid at one-and-a-half times the person’s hourly pay rate for employees who work more than 40 hours in a workweek. The calculation for net pay begins with gross pay, then amounts for federal and state income taxes are taken out, as well as FICA tax (Social Security and Medicare). Finally, discretionary deductions like health plan contributions and retirement plan amounts are taken out.

The FLSA sets out various labor regulations, including minimum wages, requirements for overtime pay, and limitations on child labor. For example, FLSA rules specify when workers are considered on the clock and when they should be paid overtime. These types of payments are taxable, so you must separate them out when you’re doing payroll accounting and include them in the employee’s taxable wages for the year.

A statement for an employee showing the amount paid to them, by the business for a given pay period. 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.

The IRS’s Income Withholding Assistant will help you determine how much federal income taxes your employees owe. Under normal circumstances, payroll processing takes place at the predetermined end of a pay period. However, if an employee is hired, promoted or terminated, that payroll may begin or end in the middle of the usual pay period. For salaried employees, the partial pay rate can be calculated by dividing the annual salary by the number of work days in one year.

payroll terminology

The terms “salaried employee” and “hourly employee” relate specifically to how these employees are paid. Salaried employees are paid an annual salary, while hourly employees are paid an hourly rate times the hours they’ve worked. Most deductions don’t affect the amount of an employee’s taxable income, but some are considered pre-tax. These are subtracted from the employee’s gross income to reduce their taxable income. Examples are retirement plan contributions and some health care costs. Independent contractors and employees are two categories of workers.

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An essential part of the process is holding a portion of each employee’s earnings and making tax payments on their behalf. In addition, employers are responsible for employer taxes, paid using business funds separate from employee compensation. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service.

  1. The chosen pay period is defined by its beginning and ending dates.
  2. This payroll glossary provides simple, jargon-free definitions that help you understand all things payroll.
  3. Investopedia conducted a review of payroll management and accounting software for small businesses and evaluated their cost, ease of use, features, integrations, and scalability.
  4. Upon the resident alien’s admission, the sponsor is required to sign an affidavit agreeing to support the admitted individual.
  5. Payroll taxes include Social Security, which takes out 6.2% of your income up to $132,900.

Passed in 1938, the Fair Labor Standards Act (FLSA) instituted a number of regulations over working conditions designed to keep employees safe and fairly paid. This act mandates that all non-exempt employees working overtime (over 40 hours in a week) be paid time and a half. The FLSA also established the federal minimum wage and provided several mandates related to child labor. The individual regulations in FLSA may, under certain circumstances, be superseded by state and local laws.

What Is the Difference Between Payroll and Salary?

For more than 30 years, Paycor has maintained a core expertise in payroll, tax filing and compliance. If you don’t want to go it alone, you can entrust your payroll to the experts at Paycor. When hiring independent contractors, employers must be able to provide proof, or reasonable basis, that the contractor label is actually justified.

This threshold and the amount of tax an employee incurs may vary depending on their age or residential status. Money set aside by your employer over your working life for you to live off when you retire from work. A Pay Schedule is the frequency which you pay yourself or your employees. A GST branch is formed with a business entity separately registers Its branch to suit the structural, management and accounting arrangements of the organisation. This allows the branch to report their GST separately from their parent entity. Net pay, also known as take-home pay, is the wages an employee receives after deductions.

This definition includes step-relations (for example, step-parents and step-children) as well as adoptive relations. The Office of the Fair Work Ombudsman is an independent statutory agency created by the Fair Work Act 2009 (FW Act). The Fair Work Ombudsman (FWO) is supported by staff who assist with the performance of workplace compliance and advisory functions set out in the Fair Work Act. Time sheet is a system or document outlining the hours worked by every employee. I-9 – This is a form used to verify if an employee is legally eligible to work in the United States.

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. The FLSA also sets out how to treat jobs that are primarily compensated by tipping. In the case of tipped service workers, the employer must pay the minimum wage to the employee unless they regularly receive more than $30 per month from gratuities. The U.S. Department of Labor requires employers to keep all payroll records for three years.

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. Wage garnishment is a legal process that requires employers to withhold a specified amount of money from an employee’s paycheck and remit it to a third party. Garnishment is a tool that courts use to get people to repay debts, whether they’re unpaid child support or credit card bills. Federal Insurance Contributions Act (FICA) taxes comprise Social Security and Medicare taxes.

Additionally, imputed income may be used to determine an amount for child support payments in some states. Independent contractors are workers who are hired to perform a specific job or project. They’re not employees, so they aren’t protected by federal labor laws or the federal government’s minimum wage requirement. 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.

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