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12 Payroll Terms Every Employer Should Know About


When you’re new to payroll, the jargon might be perplexing. It’s critical to spend some time understanding the most widely used payroll jargon so you don’t make potentially costly mistakes.

The following are the top 12 payroll words you should be familiar with before conducting payroll:

1. Obtain

This implies to collect or build up over time. Accruals can occur in a variety of ways in payroll processing. Payroll accruals are payments owing to employees for hours worked in the past but not yet awarded for.

Accruals are also common as part of an employee motivation package. Many workplaces provide paid vacation, sick leave, and personal time, which is typically accrued. This implies that each pay period, a set amount of time off is earned.

2. ACH (automated clearing house) 

ACH is an abbreviation for automated clearing house. An ACH is a computer-based electronic network for transaction processing. Payroll direct deposits are frequently included in these payments.

3. Deductions

Deductions are sums of money deducted from an employee’s paycheck. They are voluntarily deducted sums that the employee chooses to have deducted from their salary (health insurance premiums, retirement plan contributions, etc.) Depending on the nature of the deduction, some things might be either pre-tax or post-tax.

4. Disposable Income

After all taxes and deductions have been deducted from an employee’s paycheck, the remaining wages are referred to as disposable income. This figure is then used to calculate the amount of salary that is subject to garnishment or child support withholding.

5. Employee

Employee appears to be easy, however we need to explain. Employees are individuals who have been formally hired to fill a certain role inside a firm. They are not to be confused with independent contractors, which we shall discuss more later.

Employers must pay a fair salary and may provide benefits, particularly if employees work at least 40 hours per week; you must also pay and withhold taxes on employee earnings. In exchange, these employees must follow business guidelines about when and how they work. Prepare now to become the sort of applicant that companies are seeking for.

6. Employer Identification Number (EIN)

The EIN is a unique nine-digit number provided to all employers who submit an IRS EIN application; it aids in the identification of firms when filing taxes, applying for business loans, and opening company bank accounts. In brief, it functions similarly to a Social Security number for businesses and is necessary for every firm that processes payroll. In case you use a paystub generator this information will be needed. (1)

7. Exempt Employees

Exempt is a categorization that businesses often allocate to employees who are paid on a salary basis rather than on an hourly basis (although in some circumstances, hourly workers can be exempt). Exempt employees get paid overtime for any hours worked in excess of 40 in a week.

8. Fair Labor Standards Act

You’ll hear this term tossed around a lot, and it’s also known as the Fair Labor Standards Act (FLSA). This is the federal act that comprises a number of legislation designed to ensure that employees are treated properly and compensated appropriately. This legislation encompasses the federal minimum wage and overtime standards, as well as recordkeeping requirements and child labor prohibitions.

9. FICA Taxes (Federal Insurance Contributions Act)

FICA taxes are Social Security and Medicare contributions levied by the federal government on each employee’s wages. Employers must deduct 7.65 percent from employee paychecks (6.2 percent for Social Security + 1.45 percent for Medicare) and pay the difference to the IRS; they must also deduct the same amount from business earnings.

Furthermore, they must withhold an extra 0.9 percent for Medicare on any employee earnings in excess of $200,000 per year ($250,000 for married couples filing jointly). The greatest amount that may be taxed for Social Security is $142,800 per year.

10. Supplemental Benefits

Employees might be granted fringe benefits in addition to their base pay. Some firms prefer to provide these perks to all employees, while others award them to high-level staff as a bonus. Some fringe benefits are taxed, while others are not.

Benefits on the periphery include:

  • Health insurance policies that are subsidized
  • Memberships to gyms
  • Tuition help options are available.
  • Advantages of Commuting

11. Refreshment

Garnishments are court orders that instruct companies to deduct a specified amount from an employee’s paycheck to settle a debt.

Employers are responsible for withholding and transferring the money as ordered on the garnishment notice; moreover, the notification may include a termination date that company owners can refer to before the collection action is terminated. Employers might be held accountable if they do not respond swiftly after getting a notification.

12. General Ledger

A general ledger (GL) is a record of accounts that can be identified by unique numbers and names and is used to track business transaction activity.

This is more payroll accounting than payroll language, but it’s crucial to understand because the balances in certain GL accounts change every time you run payroll. For example, when pay day approaches and cash is transferred from your bank account, the cash general ledger account should show a drop.

Understanding basic payroll terminology is critical for proper payroll processing. You don’t have to be a tax expert to understand that both you and your employees must pay FICA taxes and that all W-2s must be submitted by January 31. By incorporating payroll terminology into your vocabulary, you make it simpler to comprehend associated rules and concepts. (2)

Felicia Wilson


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