Depending on which days she takes off as leave, it will either be 6 hours or 9 hours from her total leave entitlement. Therefore, statutory leave entitlement should be calculated in days, and then multiplied by the average length of the working day. The 12.07% figure is based on the fact that all workers are entitled to 5.6 weeks’ leave. This means that a worker’s total working weeks in a year is 46.4 (52 weeks in a year minus 5.6 weeks of leave). Ian would not qualify as part-year worker if his contract reflects that there are weeks where he is not working and there are no weeks where he does not receive pay. (Ian would need to not receive pay during the periods he is not working, in order to be classified as a part-year worker).
- The relevant period would run from the day before the worker starts their maternity or family related leave or time off sick, going back for 52 weeks.
- Some laws falling under FLSA include the federal minimum wage, overtime rules, child labor laws, and recordkeeping rules.
- Workers with regular hours and fixed pay must receive the same holiday pay as the pay they would receive if they were at work and working.
- Non-exempt employees must be paid the minimum wage and are entitled to overtime pay for every hour worked above the standard workweek.
- Click through for a roundup of words that are commonly used in the payroll industry.
- With respect to disadvantages, when companies outsource their payroll system, they must rely on individuals outside the business for accurate accounting.
Here are the top-line payroll terms you’ll hear as a small business owner. The acronym SSA can refer to either the Social Security Act or the Social Security Administration. The Social Security Act was enacted by President Roosevelt in 1935 as part of the New Deal plan. Its aim was to set up a social insurance system in order to reduce destitution among senior citizens and the disabled. The Social Security Administration is the government body set up by the Social Security Act. Its job is to administer both Social Security and the Supplemental Security Income (SSI) program.
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Many employers offer paid vacation, sick, and personal time, which is often earned on an accrual basis. This means that a certain amount of time off is earned per pay period. The deductions made on the employees’ wages are called payroll deductions, and it can be calculated as the difference between gross pay and net pay. As part of a compensation package, many employers offer paid vacation, sick, and personal time. Often employers choose to allow the employee to earn (or accrue) a certain amount of time per pay period. Most deductions don’t affect the amount of an employee’s taxable income, but some are considered pre-tax.
In addition to financial savings, internal payroll systems help companies keep confidential financial information private. However, software programs can be time-consuming, which can pose a problem for small companies with few staff. Once the salaries are dispatch, the payroll manager or the HR manager has to check if the salaries are correctly dispatched and every employee has received the correct amount or not. This payroll term also includes resolving employee-related payroll issues that are raised every once in a while. The input which is collected at the previous stage is utilized to calculate the salaries of the employees.
Payroll Terms and Acronyms Glossary
A pay period is the time frame of work for which you’re paying an employee. 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. 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. 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.
Supplemental Wages
These items can be considered pre-tax or post-tax, depending on the nature of the deduction. Payroll is the process of paying the company’s employees after calculating their due amount. Processing payroll involves the employees’ names, wages, hours worked, deductions, benefits, and taxes. Overtime is calculated differently for hourly and salaried employees.
A Glossary of Payroll Terms
A non-exempt employee is entitled to overtime pay when they work more than 40 hours in a week. Overtime pay is equal to 1 ½ times the employee’s regular rate of pay. When an employee’s wages are garnished, he or she is forced to forfeit a given portion of the paycheck to a debtor. Garnishments are most common for employees who have failed to pay their debts (such as student loans) and for child support payments. The Federal Insurance Contributions Act (FICA) mandates a payroll tax to be imposed on both employees and employers.
The IRS’s Income Withholding Assistant will help you determine how much federal income taxes your employees owe. Payroll can also refer to the list of a company’s employees and the amount of compensation due to each of them. Payroll is a major expense for most businesses and is almost self-employment tax always deductible, meaning the expense can be deducted from gross income lowering the company’s taxable income. Payroll can differ from one pay period to another because of overtime, sick pay, and other variables. This is one payroll term which is known but rarely acknowledged.
Her experience has allowed her to learn first hand what the payroll needs are for small business owners. A copy should also be sent to the IRS and state tax agency, if applicable. The information provided helps employees complete their tax returns with accurate information.
The tax document that records all earnings, taxes, and deductions of an employee is the W-2 Form. Employees must receive this document by Jan 31 following the reporting year. Net pay refers to the final amount an employee receives on their paycheck after all the deductions. Gross pay refers to the amount of an employee’s paycheck before all the deductions. Funds for a Health Savings Account (HSA) are often used for covering qualified medical expenses and belong solely to the employee.
Employers of agency workers must include this information in the agency worker’s Key Information Document. Employees can voluntarily choose to have set amounts taken from their pay to contribute towards things like health insurance premiums or retirement plan contributions. Deductions are such money employers take out of an employee’s paycheck. Depending on the nature of deductions, employers calculate them pre- or post-tax. Gross pay is the amount of an employee’s paycheck before payroll deductions are withheld. For hourly employees, this is their hourly rate multiplied by the number of hours they’re being paid for the period—plus any overtime, bonuses, and additional pay.
Search our glossary to get simple definitions of common payroll-related words, phrases, and acronyms. Calculation of TDS, EPF, etc. are all on behalf of the employer, which are deducted automatically from the salary of the employee. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. Someone with a working knowledge of these 28 payroll terms will be able to speak intelligently about payroll.