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This term encompasses all your company’s payroll filing obligations under federal, state and local laws. It might include reporting federal payroll taxes quarterly on IRS Form 941 and federal unemployment tax annually on IRS Form 940. There’s also Form W-2 reporting, state unemployment tax reporting and, for applicable large employers, Affordable Care Act reporting. They are voluntary amounts that the employee elects to have taken from their pay (health insurance premiums, retirement plan contributions, etc.).

The individual retirement account (IRA) offers employees greater control over their retirement savings. With this retirement plan, employees can deposit funds and enjoy access to tax advantages. First passed in 1993, the Family Medical Leave Act (FMLA) allows employees to take leave from work in order to care for themselves or family members. When these employees return to work, their prior salary and health benefits must be fully restored. An acronym for Automated Clearing House, ACH refers to an electronic network dedicated to credit and debit transfers.

QuickBooks Online was considered the best overall software, while Xero was considered the best for micro-business owners. FreshBooks was best for service-based businesses, and QuickBooks Self-Employed was best for part-time freelancers, but Wave was the best https://intuit-payroll.org/ free software. With respect to disadvantages, when companies outsource their payroll system, they must rely on individuals outside the business for accurate accounting. In the event of an error, the company’s on-site personnel must deal with upset employees.

These items can be considered pre-tax or post-tax, depending on the nature of the deduction. Processing payroll is a complex and time-consuming endeavor that requires adherence to strict federal and state rules and regulations. It requires extensive record-keeping and attention to detail. Small businesses often handle their own payroll using cloud-based software. Other companies choose to outsource their payroll functions or to invest in an integrated ERP system that manages the overall accounting and payroll. In lieu of using specialized payroll services, some companies opt to rely on payroll software programs.

Examples of taxable fringe benefits include using a company car for personal activities, wellness program incentives like gym memberships, gift cards, and prizes or awards. Even small amounts like a $100 gift card must be reported as taxable income by employees. These deductions are subtracted from employees’ wages after pretax deductions and payroll taxes have been taken out.

1. Also called a cafeteria plan, a Section 125 plan lets employees pay for their benefits — such as health insurance, flexible spending accounts and traditional 401(k) plans — with pretax money.
2. The annual salary is divided by the number of pay periods in the year to determine gross pay for a pay period.
3. This is not to be confused with form P11(Deductions Working Sheet), which is for tracking deductions made by PAYE.
4. Federal law doesn’t have strict guidelines or requirements regarding PTO; you choose whether you want to offer paid vacation time or not.
5. The Social Security Administration is the government body set up by the Social Security Act.
6. First passed in 1993, the Family Medical Leave Act (FMLA) allows employees to take leave from work in order to care for themselves or family members.

Here are some of the most common terms, phrases, acronyms, and/or concepts that are helpful to understand in the realm of global payroll. State laws, however, differ; for instance, California requires employers to provide at least 24 hours (three days) of paid sick leave each year. All information is stored in the National Directory of New Hires and helps child support agencies locate parents who owe money. Before you can begin reporting, you must register under your state’s New Hire Reporting Program. Employees are workers that are formally hired to fulfill a specific position within a company.

Calculate Your Employees’ Gross Pay

The amount of a paycheck is the employee’s net pay, or gross pay minus payroll deductions. Supplemental wages include any earnings employees incur outside of the agreed-upon pay rate. Supplemental wages are taxed differently than regular wages. The term “pay period” refers to the frequency with which an employer chooses to pay employees and contractors.

Payroll Terminology and Acronyms

Net pay is the final amount you pay your employees for their work, after all deductions have been made. Most pay stubs also give employees an update on how many vacation and sick days they’ve accrued and used during the year. Solve the mysteries of terminology with this informative resource.

We have explained these key terms alphabetically below for ease of reference. The State Unemployment Tax Act (SUTA) tax is a payroll tax that states require employers to pay in order to provide unemployment benefits. An ACH is a computer-based electronic network for processing transactions. Payroll can be confusing for everyone, but especially for small business owners that are new to it. It’s important that you understand these terms and acronyms to be confident that you’re processing payroll for your employees accurately. You should be comfortable with the common terminology even if you have an accountant to do your payroll accounting or you use payroll software or a payroll service company.

Learn the specifics with our A to Z guide to payroll terms

Arrears payroll points to a delayed payroll process where the business only pays employees once the pay period has ended, not before. The U.S. Department of Labor reduces the credit reduction for businesses in states that are late on repaying federal advances to fund their state unemployment program. For the past few years, the Virgin Islands has been the only state or territory designated paid electricity bill by cheque journal entry as a credit reduction state. The FICA tax rate is 15.3%, split evenly between employees and employers, with 12.4% going toward Social Security tax and the remaining 2.9% for Medicare. The Social Security tax applies to the first $142,800 of eligible compensation in 2021. The Medicare tax doesn’t have a limit, though higher-earning employees must contribute an additional 0.9%.

A high-deductible health plan (HDHP) is a health insurance plan that has lower premiums and higher deductibles than a typical health insurance plan. Participating in an HDHP is a requirement for having an HSA. 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. The ‘Starter Checklist’ replaces the P46 but it similar in its design. Before RTI came into being, employees that joined a company without a P45 would have to fill out a P46.

Section 125 plan

The chosen pay period is defined by its beginning and ending dates. Gross pay – Gross pay is the total pay received by the employee before taxes and deductions are removed. This includes the base pay plus any additional earnings (ex. bonuses, vacation pay, commissions, etc). This is an employee benefits plan that meets the requirements of Section 125 of the Internal Revenue Code. Also called a cafeteria plan, a Section 125 plan lets employees pay for their benefits — such as health insurance, flexible spending accounts and traditional 401(k) plans — with pretax money. ACH accomplishes the electronic transfer of funds from one bank account to another.

The W-2 also contains information pertaining to taxes withheld (such as Social Security) and compensation outside of wages (such as moving allowances). The Electronic Federal Tax Payment System (EFTPS) was created in hopes of automating the otherwise clumsy process of handling physically mailed tax payments. With EFTPS, employers and taxpayers can pay their taxes by phone or online free of charge. This program has greatly reduced costs for employers while making it easier for individual taxpayers to get their taxes in on time. A 401(k) plan allows employees to contribute a portion of their salary on a pre-tax and/or post-tax basis for retirement.