Payroll Terms To Learn Before Doing Payroll

The annual salary is divided by the number of pay periods in the year to determine gross pay for a pay period. 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. 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).

  1. The FLSA sets out various labor regulations, including minimum wages, requirements for overtime pay, and limitations on child labor.
  2. A payroll tax deferral is intended to provide some temporary financial relief to workers by temporarily boosting their take-home pay.
  3. As such, there is a big opportunity to get into the business of offering payroll outsourcing to companies in your area.
  4. Knowing the language always helps better negotiate new territory.

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. Employees fill out Form W-4 and a state withholding certificate to direct their employers how much to withhold for income tax payments. Compensation includes total cash and noncash payments made to an employee in exchange for his or her services rendered.

Employee self-service (ESS)

If you pay every other Friday, the pay period could be from the prior two weeks, with the last day being on the Friday that’s also payday. Exempt is a classification that employers typically assign to employees who are paid on a salary basis versus hourly (although in some circumstances, hourly workers can be exempt). Exempt employees are paid overtime for any excess hours they work over 40 in a week. Payroll taxes include Social Security, which takes out 6.2% of your income up to $132,900. Payroll taxes also pay for Medicare, which takes out 1.45% of your income.

Learn how you can easily create payslips for your employees by using our free downloadable payslip template for small businesses. Businesses with hourly employees often pay in arrears to give time for employees to submit timesheets. Just like states have their minimum wages, they also set their corresponding tip credits. Payroll tax forms are documents created to collect and report information related to employee compensation. The Worker Adjustment and Retraining Notification (WARN) Act was signed in 1988 in hopes of protecting employees and their families from the economic fallout surrounding unannounced mass layoffs. Under this law, employers are required to notify employees at least 60 days before a plant closing or other type of mass layoff.

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). 1040ez tax calculator farmers bank and trust Finally, discretionary deductions like health plan contributions and retirement plan amounts are taken out. Employees may edit their addresses and submit updated income tax withholdings forms through the portal. Taxable wages are the earnings from which an employer must withhold taxes.

Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional. Nonexempt employees are not excluded from FLSA minimum wage or overtime provisions. These employees must be paid no less than the federal minimum wage, along with overtime if they work more than 40 hours in a workweek. Paid time off is time your employees don’t spend working but still earn a paycheck (at their regular pay rate). It consists of any paid leave, i.e., vacation or sick time and even jury duty and holidays.


Other tax rates will be determined by Federal, state, or local laws and your employee’s W-4. There are many different types of cloud-based accounting software available for small businesses. The type of industry and number of employees are two factors that will dictate which accounting software is appropriate. For example, a freelancer would not need the same features in a piece of accounting software as a restaurant owner. The FLSA also sets out how to treat jobs that are primarily compensated by tipping.

ACH (Automated Clearing House) – This is an electronic network for processing direct deposits and other payroll transactions. The world of global payroll is full of excitement but also has its challenges. ­An HR System of Record (SOR) refers to the primary database where employee data resides. Ideally, the HR SOR automatically integrates so that data “flows” with minimal manual intervention into other important systems, such as the payroll system and the Time & Attendance (T&A) system. The SOR is considered the “single source of the truth” for employee data. A Global System of Record (GSOR), then, extends this concept to mean one unified HR system for the enterprise around the world.


The views expressed on this blog are those of the blog authors, and not necessarily those of ADP. This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties.

They pay 6.2% of your income, so the government gets 12.4% of your total income, and your employer pays 1.45% of your income toward Medicare. The law requires overtime—hours worked in excess of 40 hours per week—to be paid at one-and-a-half times the regular hourly rate. Some employees are exempt from the FLSA, and the Act does not apply to independent contractors or volunteers because they are not considered employees. Courts sometimes issue garnishment orders for debts like student loans, small claims judgments, child support, or other amounts the employee owes. You must comply with the order if you receive a garnishment notice ordering your business to garnish wages.

A payroll tax cut would mean that less Social Security and Medicare taxes are withheld and taken out of paychecks. The idea is that workers and businesses would take home a little extra with each paycheck and that would encourage them to spend more and stimulate the economy. The U.S. Department of Labor requires employers to keep all payroll records for three years. The IRS requires that all tax records, including those for payroll taxes, be kept for at least three years, and longer in some cases. Not all wages are taxable; for example, an employer’s contribution to an employee’s health insurance premiums is not taxable. Gross pay, also called gross wages, is the total amount an employee earns before payroll deductions.

What Is the Difference Between Payroll and Salary?

Discover the power of labor forecasting, the key to optimizing your workforce. Upskilling employees is essential for the growth of any organization. Learn how investing in your workforce can drive success in your organization. SSN stands for Social Security number, or the code assigned by the Social Security Administration to every American’s social security account. Applicants cannot gain employment without providing this number. In most circumstances, resident aliens can only be employed by organizations or companies that have sponsored their admission into the United States.

HMRC collect PAYE information as it happens in real time instead of at the end of the tax year. Garnishment – A legal proceeding authorizing an involuntary transfer of an employee’s wages to a creditor to satisfy a debt. This is the amount owed to an employee because he or she was paid at a lower rate for a previous pay period.