Payroll Terms & Definitions Every Business Owner Needs To Know



The Affordable Care Act (ACA) was signed into law in March 2010 and consists of health coverage mandates for company owner. Research whether your small company requires to offer health protection and what your state requirements look like.


The Automated Clearing House (ACH) is an electronic funds transfer system.


Payment is the pay (money) made to staff members as salary or earnings.


Payroll reductions are payments withheld from an employee’s paycheck each pay duration. These can be voluntary amounts that the employee selects (like retirement contributions) or involuntary reductions (like kid support/garnishments; health insurance coverage premiums). Some deductions can be made post-tax or pre-tax.

Direct Deposit

This is when funds/money is moved electronically into a monitoring or savings account.


A staff member is a person who gets a wage or wage for a task. For the purposes of payroll, taxes, and the federal government, a worker is an individual you use, over whose time and work you have control. It sounds similar to archaic work-systems, however control is defined as:

  • Work/Behavior Control: Do you assign this person a schedule? Do you manage their work?
  • Financial Control: Do you pay a consistent salary? Do you add to a retirement fund? Is this individual granted compensation for products and tools?

If workers are not workers, they might be independent specialists.

See: Independent Contractors


Exempt ways “exempt from overtime” and is a reference to the type of work someone carries out for your company. Exempt employees usually consist of supervisory, expert, and executive positions.

See: Nonexempt FICA The acronym FICA represents: Federal Insurance Contributions Act. This is a compulsory federal payroll reduction in the form of taxes that you, as an employer, send to the IRS. The FICA tax rates are 6.2% for Social Security tax and a 1.45% Medicare tax.


The Federal Unemployment Tax Act (FUTA) covers the costs of joblessness insurance and state-run task programs. These taxes are based upon workers’ gross earnings– that suggests they are not withheld from their wages. Rather, these are a monetary responsibility that companies cover.


This refers to a court order from a judge which enables a staff member’s wages to be taken and paid to a lender to settle a financial obligation.

Gross Pay

This is the overall amount of cash paid to a worker. Gross pay is reported to the IRS and the employee pays income taxes on that amount. For salaried workers, gross pay is a stated yearly amount. For per hour workers, gross pay is their hourly rate multiplied by hours worked.

See: Net pay

Hourly Hourly workers are paid by the hour; their per hour rate is how much they are paid per hour.

See: Salary Income Tax Income tax is a tax that varies based upon income or earnings (taxable income) and is usually picked by a pre-determined tax rate. Tax might vary by kind of taxpayer. This kind of tax is withheld from staff members’ paychecks.

See: FICA Independent Contractors An independent contractor is a person who is worked with by means of agreement to do work for your organisation. Professionals are not staff members.

See: Employees, 1099 Imputed Income This is any non-monetary compensation provided to

staff members in the

form of additional benefit. Companies need to recognize imputed earnings in employees ‘incomes as it is taxable income. Imputed pay undergoes Medicare and Social Security taxes however not to federal income tax. Net Pay This is the amount of net earnings an employee gets after withholdings and reductions. See

: Gross pay Nonexempt A nonexempt employee is not exempt from overtime arrangements and is entitled to overtime pay. See: Exempt Off-cycle Payroll An off-cycle payroll is run during a time when payroll isn’t usually

used. Off-cycle payroll might be used to manage holiday or reward pay, termination pay, repairing an error, or any other uncommon situation. Overtime is the number of extra hours an

worker works. Unless a worker is exempt, staff members must receive overtime pay if they work more than 4o hours in the workweek. Payroll A payroll is a list of a company’s employees and the amount of money paid as wages

and wages. Paystub A

paystub, sometimes referred to as a payslip, is a document that includes or is attached to an income. It is a record of gross incomes, net revenues, deductions, and withholdings.

Some states have

laws requiring a company to supply a paystub; check your state’s regional standards.

You can also examine out our short article Payroll 101: What Is A Paystub for a more comprehensive take a look at what a paystub includes. Pay Period A pay duration is a repeating schedule that identifies when you pay your workers for their time worked. The most typical pay duration frequencies are weekly, bi-weekly, semi-monthly, and monthly. Read our post Choosing The Right Pay Schedule For Your Business for a more detailed breakdown of pay

periods. Payroll Processing Payroll processing refers to the process of handling a business’s payroll. Steps include gathering staff member timecard details; managing reductions, taxes, and advantages; recording and distributing pay. Quarterly FederalTax Returns Form 941 is a business’s

quarterly federal tax returns and the type is utilized to report income taxes, social security tax, or Medicare tax kept from a staff member’s income. The form is also used quarterly to pay the company’s portion of social security or Medicare. These are estimated payments made to

the IRS for business year and

you are needed to make these payments if: You expect to owe at least$1000 in federal taxes You anticipate federal withholding/refundable credits to be less than:90 -100%of the tax to be shown on your 2020 federal tax return Dates for payments throughout a typical tax year fall on April 15, June 15, September 15, January 15. See: Withholdings Reimbursements When you pay a staff member back for payments/purchases made for the business with their own money, cost repayment happens. Little organisations need to utilize a reimbursement policy. Compensation via payroll need to not

be reported as taxable income. See: Taxable earnings Wage This is your staff member’s set earnings revealed as a yearly amount. Social Security Social

Security began in the 1930s as

federal government support for retirees, veterans, handicapped individuals, employees, or their families. Today’s workers are spending for present social security receivers and these contributions are mandatory. Paying social security is part of a worker’s FICA taxes. See: FICA Gross income The list of kinds of taxable earnings can be

long! In general, taxable earnings consists of salaries, incomes, bonuses, commissions, and pointers. It can also include charges, interest and dividends

, task of earnings, or revenue on a sale. The IRS Publication 525 lists complete kinds of nontaxable and taxable earnings. Workweek A workweek is the variety of hours or days a worker is set up to work during a seven-day

period. The Department of Labor and the Federal Government have this technical meaning of a workweek for the functions of overtime and tax functions: An employee

‘s workweek is a fixed and frequently recurring duration of 168 hours– seven consecutive 24-hour durations. It need not coincide with the calendar week, but might start on any day and at any hour of the day. Various workweeks may be established for various workers or groups of staff members. Averaging of hours over 2 or more weeks is not permitted. Withholdings are the federal, state,and local

taxes drawn from a worker’s income and delivered to their suitable firms by an employer. Withholdings decrease a staff member’s pay however also reduce taxes owed at the end of the year. There are a couple of things that identify a staff member’s withholdings, consisting of the staff member’s earnings, marital status, number of dependents, and variety of jobs. The number and type of withholdings for a worker are figured out by the details noted on a worker’s W4. See: W4 W2 A W2 is a standard tax return called the “Wage and Statement “file that reveals taxes and wages kept during a fiscal year. This document is prepared

by the employer for the employee and must be sent out to staff members by Jan. 31 every year. Employers likewise send copies of W2s to the IRS. W4 The W4, likewise called an Employee’s Withholding Allowance Certificate, is an IRS type that an employee utilizes to show their tax circumstance( exemptions and marital status, etc. ). This form informs the company the quantity of taxes to withhold from a paycheck. A W-4 is based on allowances; the more allowances, the less cash a company withholds. See: Withholding 1099 A 1099 is a details return for independent professionals. Payers

use this type, likewise referenced as a Miscellaneous Income type, to report payments to a person who is not a worker. Discover more About Payroll Paying your staff members is not an optional part of running a little service, and you need to discover a payroll system and a method of running payroll that includes quality to your company, not mayhem

. You will want this not just for yourself but likewise for your employees. After the first step– understanding the ins and outs of payroll in general– the next action is to have a concrete understanding of what payroll systems work best for you and your business. Research and comprehend what you require, know your service, and take the leap into arranging your systems with seamless payroll. The IRS and your staff members


thank you. Wish to know more? Merchant Maverick has actually put together a handy Small Business Payroll Guide to assist

small company owners through decisions

associated with payroll and payroll systems. No abacuses required.

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