“In general, \”hours worked\” includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work. The amount an employer deducts from a noncustodial parent’s wages to satisfy a child support order from the court. Under this law, employers are required to notify employees at least 60 days before a plant closing or other type of mass layoff. The IRS defines an independent contractor as any worker who is self-employed, as opposed to traditionally employed by a company. In terms of payroll, independent contractors are significant in that they do not require money to be withheld for Social Security or Medicare.

Updated regularly with industry-specific vocabulary and concepts, the Glossary provides easy-to-understand definitions of tax-related terms. 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.

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1. States use this information to enforce laws and benefits such as welfare assistance and fraudulent use of collecting unemployment insurance.
2. This professional designation is provided for those who successfully complete the certified payroll professional examination.
3. By becoming a franchisee you get the necessary training and community to help you in your business as well as instant name recognition.
4. The employer then uses Form W-4 to calculate how much of an employee’s salary is withheld for tax purposes.

Most often, deductions are made for items such as health benefits and union dues. The employee inputs their hours through an API and their pay is processed and deposited into their bank accounts. 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.

It includes tracking hours worked, calculating employees’ pay, and distributing payments via direct deposit to employee bank accounts or by check. Companies must also perform accounting functions to record payroll, taxes withheld, bonuses, overtime pay, sick time, and vacation pay. They must put aside and record the amount to be paid to the government for Medicare, Social Security, and unemployment taxes. Imputed income is added to the employee’s gross income and is subject to Social Security and Medicare taxes but typically not federal income tax.

Extended Illness Bank (EIB)

Base pay rate is the wage that has been agreed upon to be the starting point for employee earnings. This can be an hourly rate, a daily rate, a piece rate, or salary per pay. ACH is an electronic network for processing direct deposits and other payroll transactions. It is a safe way to transfer money between banks and credit unions and reduces the needs for paper and checks. An employee’s wages from the start of the year to their most recent payday.

Wage Base Limit

The individual retirement account (IRA) offers employees greater control over their retirement nonbank financial institution savings. With this retirement plan, employees can deposit funds and enjoy access to tax advantages. An acronym for Automated Clearing House, ACH refers to an electronic network dedicated to credit and debit transfers. Payroll Dictionary is a free resource and reference for payroll terminology and definitions.

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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. 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. Subtract amounts from an employee’s wages for taxes, garnishments or levies, and other deductions (like medical insurance or union dues). These amounts are paid over to the government agency or other party to whom they are owed. The amount an employer is required by law to take out of an employee’s wages for a specific payroll tax.

Refers to when an employee gets a predetermined amount of compensation each payday on a weekly basis, or less frequently (e.g., biweekly or semimonthly). Under the Fair Labor Standard Act’s salary basis rule, exempt employees generally must receive no less than $684 weekly. The portion of an employee’s wages that is subject to Medicare tax withholding. The federal employment tax reports that an employer must file periodically (e.g., quarterly and annually) with the IRS. Money an employee earns upon completing a task — typically for selling a specific amount of employer goods or services. Some employees earn commissions in addition to their base pay, while others receive only commissions.

The portion of an employee’s wages that is subject to Social Security tax. Compensation that an employer provides to terminated employees, typically those who are discharged through no fault of their own (e.g., layoff). Money paid to an employee for work done in a previous pay period, such as a salary increase that was due in the prior pay period.