The amount an employee pays in payroll taxes over the course of his or her career may be indirectly related to the level of benefits for which he or she is eligible. Withholding refers to the federal income tax amount taken out of your employee’s paycheck. This program has greatly reduced costs for employers while making it easier for individual taxpayers to get their taxes in on time. Disposable earnings refer to any wages that are left over after all government taxes and defined deductions have been taken out of the paycheck. The Fair Labor Standards Act (FLSA) generally mandates that non-exempt employees receive overtime pay at a rate of at least 1.5 times their regular rate of pay for all hours worked over 40.
Health Insurance
The amount of federal income tax an employer is required to withhold from an employee’s wages. The federal, state, and local taxes an employer is required to withhold from employees’ wages. A payroll journal entry is an accounting record that tracks payroll-related expenses, including wages paid, payroll taxes, and deductions. A garnishment is a legal order requiring an employer to withhold a portion of an employee’s wages to cover debts, such as child support, unpaid taxes, or court judgments.
Savings Account
These transfers often include payroll direct deposits. It is common for employers to offer a matching contribution to encourage participation, typically up to a certain percentage. 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.
FMLA (Family and Medical Leave Act)
That’s where an intuitive, people-centered payroll tool can be transformative. Payroll taxes and related concepts support compliance with federal and state regulations. Under the Fair Labor Standards Act, overtime must be paid to nonexempt workers for hours worked beyond 40 in a single workweek. An individual or entity that is required to pay taxes to government authorities. The portion of an individual’s income that is subject to taxation after accounting for deductions and exemptions. Employers must file various tax returns, including Form 941 and Form 940, to report and pay employment taxes.
Pay Period
Many states have specific regulations regarding how PTO must accrue, whether it can expire, and if it must be paid out upon termination. Employees can then use or, in some cases, cash out these accrued benefits later. Common pay frequencies include weekly (52 paychecks per year), bi-weekly (26 paychecks), semi-monthly (24 paychecks, typically on specific dates like the 15th and 30th), or monthly (12 paychecks). Errors here can erode employee trust and lead to questions or complaints, impacting morale and productivity. This is the money that gets deposited into their bank account or paid via check. We’ll break down 17 key terms, explain their significance, and highlight why a clear grasp of each is absolutely crucial for your business’s financial health and legal standing.
In this situation, the partial pay system is used. Health Savings Account (HSA) funds can be used for qualified medical expenses and are wholly owned by the employee. A high-deductible health plan (HDHP) is a health insurance plan that has lower premiums and higher deductibles than a typical health insurance plan. Also known as “Transmittal of Wage and Tax Statements”, it’s sent to the Social Security Administration (SSA) every year at the same time as the W-2.
Federal Insurance Contributions Act (FICA)
Deductions can be pre-tax (reducing taxable income) or after-tax (affecting take-home pay but not taxable earnings). According to the Bureau of Labor Statistics, 43% of U.S. businesses use biweekly pay cycles, while 33% opt for weekly payroll. Learn key terms like gross pay, deductions & more to navigate payroll successfully. Comprehensive human resources information systems (HRIS) like Leapsome’s can help you tackle payroll tasks, take care of core HR processes, and carry out meaningful people enablement and engagement initiatives.
- Supplemental wages include any earnings employees incur outside of the agreed-upon pay rate.
- The amount paid for insurance coverage, such as health insurance, life insurance, or disability insurance.
- Federal income tax withholding is based on the employee’s Form W-4 and the IRS’ withholding tax tables.
- Common pay periods include weekly, biweekly, semimonthly, and monthly.
- A 401(k) plan allows employees to contribute a portion of their salary on a pre-tax and/or post-tax basis for retirement.
Base pay is the fixed salary or hourly wage an employee receives before additional earnings like overtime or bonuses. Explore deductions that affect take-home pay, including pre-tax and post-tax options for savings, benefits, and other employee contributions. A fixed period of seven consecutive days is used for calculating overtime pay for nonexempt employees. Withholding includes federal and state income taxes, Social Security and Medicare taxes, and voluntary deductions.
Additional Topics
A wage garnishment is a legal procedure where a portion of an individual’s wages is withheld by an employer for the payment of a debt, as ordered by a court or government agency. Recordkeeping in payroll refers to the legal what is capital in accounting requirement for employers to accurately create, maintain, and store detailed payroll records for a specified period. Failure to pay at least the applicable minimum wage can result in significant penalties, mandatory back pay orders for employees, and costly lawsuits. These can be mandatory, such as taxes and wage garnishments, or voluntary, like premiums for health insurance, contributions to retirement plans (401(k)s), or union dues. Employers must accurately calculate, withhold, report, and remit these taxes to the appropriate federal, state, and local government agencies on time.
FICA (Federal Insurance Contributions Act)
Each deduction reduces the employee’s gross pay to arrive at their net pay. Accrual is the process of accumulating benefits or entitlements over a period of time. It also directly affects employee satisfaction; consistent and predictable paychecks are crucial for financial stability.
The portion of an employee’s wages that is subject to taxation, such as federal income tax, Social Security tax, Medicare tax, and state income tax. A statement given to employees showing details of their wages received for the pay period, such as hours worked, total wages or salary, overtime, and bonus. An employer-paid federal payroll tax which is used to help fund the unemployment insurance system.
Base pay is the minimum amount of money an employee is paid, usually in the form of a fixed salary or regular hourly rate. In payroll processing, an accrual occurs any time there is a difference between the pay cycle allocation and the actual expenses paid. Learn more about Lift HCM’s payroll solutions today and ensure your business stays compliant and efficient.
- Back pay refers to wages owed to employees for past work due to errors, disputes, or legal claims.
- For employers, tax liabilities include federal income tax withholding, Social Security and Medicare taxes, and unemployment taxes.
- An EIN is required for employers to report taxes and other information to the IRS.
- It represents the actual amount deposited into an employee’s bank account.
Common types of garnishments include those for child support, student loans, and tax levies. Examples include health insurance, retirement plans, and educational assistance. The amount withheld is based on employee earnings, filing status, and allowances claimed on Form W-4. Enrollment periods typically occur when an employee is first hired and during annual open enrollment periods.
Employers must include imputed income in the employee’s W-2 form for tax purposes. When an employee’s wages are garnished, he or she is forced to forfeit a given portion of the paycheck to a debtor. The W-2 form is a lot like a 1099, but it is used to report wages earned for traditional employees. This act mandates that all non-exempt employees working overtime (over 40 hours in a week) be paid time and a half. With EFTPS, employers and taxpayers can goodwill definition and meaning pay their taxes by phone or online free of charge. It does not include any extra payments an employee may receive, such as overtime pay, commission, bonuses or benefits.
The added income a business makes from selling one extra unit of a product or service. Temporary workers provided by an employee leasing company for a specific timeframe or project. An employer-funded benefit for reimbursing health insurance costs and medical expenses. A comprehensive HR strategy focused on managing and explanation of certain schedule c expenses developing employees as key assets. A benefits plan that uses employer contributions to reimburse eligible healthcare expenses.
In terms of state payroll taxes, an employee is a resident if the state is officially their home and they have no intention of living there temporarily. The total financial and nonfinancial compensation an employer pays an employee for work performed. Allows employees who live in one state and work in another to pay state income tax to their home state, instead of the state they work in. Additional wages paid to employees for working undesirable hours, such as weekends, nights, or holidays. An internal form managers and employees can use to submit payroll requests, such as for manual checks, salary advance, or retroactive pay. The length of time for which employees are paid, based on their pay frequency.
The legally-required amount an employer must withhold from an employee’s wages to satisfy a spousal support order from the court. The maximum amount of taxable income on which an employee must pay taxes in a given year. A worker who earns wages from an employer that withholds and reports taxes to the IRS via Form W-2. The extra amount added to an employee’s wages for working outside normal business hours.
