Payroll: What Is It?

SSN stands for Social Security number, or the code assigned by the Social Security Administration to every American’s social security account. Whether you’re a seasoned pro or a newcomer to running payroll, there’s a lot of jargon and terminology you need to know (and remember!) Fortunately, this comprehensive glossary is here to help. From accruals to W-2s and other related payroll abbreviations, this list will provide you with definitions and explanations for the most common payroll terms.

After subtracting taxes and other deductions from the employee’s gross wages, voila. One of the most important (and confusing) parts of payroll is subtracting taxes and other deductions from employees’ gross wages. Overtime is a provision outlined in the FLSA that allows nonexempt employees to receive a minimum of 1.5 times their normal hourly wage for every hour worked over 40. Unlike time differentials, overtime is only determined by the amount of time worked, not when. Subtract amounts from an employee’s wages for taxes, garnishments or levies, and other deductions (like medical insurance or union dues).

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. Acas provide free and impartial advice to employers and workers on employment matters. You can read their guidance on holiday entitlement and pay for more information.

  • Additionally, imputed income may be used to determine an amount for child support payments in some states.
  • Most payroll taxes are calculated as a percentage of employee earnings.
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2 Leave entitlement when leaving a job part-way through a leave year

Disposable earnings refer to any wages that are left over after all government taxes and defined deductions have been taken out of the paycheck. 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.

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. Small business owners benefit from accounting software because it helps them track accounts receivable and accounts payable, gauge their profitability, and prepare for tax season.

It can also describe a business’s process of paying employees and any corresponding taxes. A payroll tax holiday is a deferral of payroll tax collection until a later date, at which point those taxes would become due. A payroll tax deferral is intended to provide some temporary financial relief to workers by temporarily boosting their take-home pay. Investopedia conducted a review of payroll management and accounting software for small businesses and evaluated their cost, ease of use, features, integrations, and scalability.

2 Rolled-up holiday pay

The employer is only required to perform this calculation once per period of leave. To work out how much holiday she accrues in June, you will need to calculate 12.07% of 68 hours. How a worker is classified will depend on the precise nature of their working arrangements. We would encourage employers to ensure that working patterns are clear in their workers’ contracts. It is not intended to be relied upon in any specific context or as a substitute for seeking advice (legal or otherwise) on a specific circumstance, as each case may be different. If employers introduce changes to terms and conditions, they must seek to reach an agreement with their workers or their representatives.

Fringe Benefits

Minimum wage is the lowest hourly pay rate you’re legally allowed to pay an employee. Per the Department of Labor (DOL), the federal minimum wage rate is currently $7.25 an hour, but state rates vary. cost center definition Tipped employees are another group you’ll find the law makes exceptions for. Federal tipped minimum wage is $2.13 an hour, but employers must ensure that employee tips make up for the differential.


There’s also Form W-2 reporting, state unemployment tax reporting and, for applicable large employers, Affordable Care Act reporting. If the reference period method of accrual is used, the holiday pay irregular hour workers and part-year workers receive will be their average pay over the previous 52 weeks worked. This involves taking the last whole week in which they worked and earned pay, ending on a Saturday, as the most recent week. (If the worker is paid weekly on a day other than a Saturday, this would not apply). Employers using rolled-up holiday pay should calculate it based on a worker’s total pay in a pay period. A pay period is the frequency at which workers get paid, that is weekly, fortnightly, monthly, and the like.

Holiday entitlement for irregular hours workers and part-year workers

Gross pay is the total paid to an employee each pay period before any deductions for taxes or other purposes are made. It’s determined in different ways for salaried and hourly employees. These employees are paid a salary (not an hourly rate) and must perform executive, administrative or professional duties. They are not paid overtime rates for hours exceeding 40 in a week. 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). If a New Jersey server doesn’t make enough in base pay and tips to earn $12 per hour each shift, the employer must contribute the difference.

Employers must also send a copy of the W-2 Form to the IRS and state tax agency as applicable. Learn about the key terms and concepts that will help you to manage the complexities of payroll systems effectively, and to confidently meet compliance requirements. Whether you are new to payroll, or someone on your team is, The A to Z of payroll will take you through the fundamentals to build a solid knowledge base. Payroll terminology can be intense to digest if you’re new to the role, and challenging to remember even with payroll experience. Get your free, comprehensive A to Z of payroll guide to help you understand key terminology and the basics of payroll, so you can confidently meet compliance requirements.

Social Security is often used to provide retirement benefits and disability income; the tax used to fund this federal program is applied to virtually all eligible employees in the United States. Pay period is the window of time — usually biweekly or monthly — that determines when paychecks go out. Net pay, also known as take-home pay, is the wages an employee receives after deductions. Deductions are funds subtracted from one’s total earnings to pay for things like taxes, benefits and garnishments.

SSN stands for Social Security number, or the code assigned by the Social Security Administration to every American’s social security account. Whether you’re a seasoned pro or a newcomer to running payroll, there’s a lot of jargon and terminology you need to know (and remember!) Fortunately, this comprehensive glossary is here to help. From accruals…