Compensation is an overarching term that encompasses all the types of payments an employee earns. Payroll tax forms are documents created to collect and report information related to employee compensation. Additional pay an employee receives for hours worked outside of normal business hours, such as evening or night shifts. The Social Security and Medicare taxes a self-employed person is legally required to pay. The total financial and nonfinancial compensation an employer pays an employee for work performed.
The calculation for net pay begins with gross pay, then amounts for federal and state income taxes are taken out, as well as FICA tax (Social Security and Medicare). Finally, discretionary deductions like health plan contributions and retirement plan amounts are taken out. Gross pay is the worker’s hourly rate times the number of hours worked in that pay period for hourly employees. Gross pay is the total paid to an employee each pay period before any deductions for taxes or other purposes are made.
- Companies might also face tax penalties for errors made by the payroll service.
- A process for calculating how much gross amount is needed to guarantee a specified net amount.
- The W-3 form is completed by employers, and summarizes employee wages and tax information from the W-2 form.
- This act mandates that all non-exempt employees working overtime (over 40 hours in a week) be paid time and a half.
- Federal payroll taxes used to fund Social Security and Medicare programs.
Prevailing Wage
Businesses often entice employees to work the graveyard shift by paying a few dollars more per hour or a percentage increase on accounts receivable turnover ratio their regular hourly pay. In some states, employers must pay out unused vacation time to terminated employees. When an employee does not collect their paychecks after a period of time, the employer must follow the state’s escheat laws, which governs unclaimed property.
State Disability Insurance (SDI)
It’s determined in different ways for salaried and hourly employees. Independent contractors and employees are two categories of workers. Independent contractors are self-employed people or businesses hired to complete specific tasks and most often receive project-based compensation. Companies hire employees to perform services and are salaried or paid hourly. Payroll taxes are taxes levied on employers, employees, or both based on employee earnings.
The federal, state, and local taxes an employee is legally required to pay (though payroll withholding). A form of overtime compensation that is paid at twice the employee’s regular hourly rate. An employee’s pay after legally-required deductions (such as payroll taxes) are taken out. A type of ACH payment that allows employers to transfer employees’ wages directly into their bank accounts, thereby avoiding paper checks. The basic salary or hourly wages paid to an employee in exchange for their services.
Gross Pay
Bonuses include holiday, signing, referral, and retention bonuses. Most bonuses are discretionary, meaning they are given at the sole discretion of the employer and not because employees expect to receive them. Supplemental wages include any earnings employees incur outside of the agreed-upon pay rate. 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. Disposable earnings refer to any wages that are left over after all government taxes and defined deductions have been taken out of the paycheck.
Also called “mandatory deductions,” involuntary deductions are legally-required payroll deductions, such as payroll taxes and wage garnishments. Non-financial benefits offered to employees, on top of their regular pay — such as healthcare benefits, paid time off, mobile phone, company vehicle, company computer, and meals. An employee’s direct and indirect compensation qualitative characteristics of financial statements equals their total compensation. An employer-paid federal payroll tax which is used to help fund the unemployment insurance system. Also provides a fund that states can borrow from for unemployment benefits purposes. Represents the Social Security tax and Medicare tax an employer must withhold from employees’ paychecks plus the employer’s share of those 2 taxes.
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. No matter your involvement with payroll at your business or organization, we have broken down some of the most common payroll definitions and terms to know. A payroll tax holiday is a deferral of payroll tax collection until a later date at which point those taxes would become due. A payroll tax deferral is intended to provide some temporary financial relief to workers by temporarily boosting their take-home pay. Payroll taxes include Social Security which takes 6.2% of your income up to $168,600 as of 2024.
A savings account that allows employees to use pre-tax income to cover qualified medical expenses. A labor metric representing the total hours of all part-time staff in relation to a full-time employee’s hours. Portions of an employee’s income that aren’t taxable for a variety of reasons. A counseling service offered by employers to help what is the reciprocal of 7 employees with personal or work-related problems. An arrangement in which an employee’s earnings are withheld and paid out at a future date. The concept that income is taxable, even if the taxpayer hasn’t yet physically received it.
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.
