Small Business Payroll Glossary

Unsure about payroll terminology? Search our glossary to get simple definitions of common payroll-related words, phrases, and acronyms.

Showing all the terms

What is a 401(k) plan?

A 401(k) plan is a defined contribution plan that allows employees to make pretax contributions from their paychecks to a retirement plan. Employee contributions to 401(k) plans are not exempt from FICA withholding. They are exempt from federal income tax withholding and may be exempt from state income tax withholding, depending on the state. See FICA.

What is a 401(k) company match?

Employers that offer 401(k) plans can choose to match employees’ contributions up to a certain percentage. Employer contributions are exempt from federal income tax withholding.

What are 401(k) limits?

The IRS limits how much an individual can contribute to a 401(k) plan in a year. People age 50 and up can make additional “catch-up” contributions up to a certain limit.

What is a 1099 form?

Form 1099-MISC is a government tax form that businesses use to report payments made to an unincorporated business or to a person who’s not an employee. Employers must complete a Form 1099-Misc for any person the business paid $10 or more in gross royalties or $600 or more in rents or compensation. See Form 1099-MISC.

What is accrual?

Employee benefits calculated on an accrual basis are earned over a period of time. For example, employees may accrue a certain amount of paid time off for each hour worked.

What is the advance earned income credit?

The advance earned income credit is a federal program that allows employers to reimburse low-income employees for part of their federal income tax withholdings. Employers claim the reimbursements as tax credits on their Quarterly Federal Return (Form 941). See Earned Income Tax Credit. See Form 941.

What is an after-tax deduction?

A deduction from an employee’s wages that is taken out after all applicable taxes and pretax deductions have been withheld is called an after-tax deduction. See pretax deduction.

What is an amended rate notice?

Once an employer has established an unemployment history, state unemployment insurance tax rates are calculated annually. An amended rate notice alerts employers of a rate change and the factors involved in calculating the new rate. See SUI tax rate notice.

What is average taxable payroll?

The average of an employer’s taxable payrolls immediately preceding the SUI tax rate computation date for a specified period is used to compute the employer’s SUI tax rate. See SUI taxes. See SUI tax rate notice. See tax rates.

What is back pay?

Pay owed to an employee from a previous payroll period. See retroactive pay.

What is a bankruptcy lien?

If an employee declares bankruptcy, their employer will receive a federal court bankruptcy lien requiring them to garnish all or part of their wages to repay the debt. Bankruptcy liens take priority over most other types of liens. See garnishment.

What are bonus taxes?

Bonus compensation that employees receive above their usual compensation that is taxed differently from normal wages. There are two options: Using the percentage method, withhold a flat 25% of the bonus amount. Using the aggregate method, combine the amount of the bonus with the employee’s paycheck, then treat the whole amount as a larger-than-usual paycheck and withhold taxes at the normal rate.

What is a cafeteria plan?

An employee benefit plan that offers a “menu” of benefits such as health insurance and life insurance, is called a cafeteria plan. Employees choose the options they want and pay for some or all of the chosen benefits using pretax deductions from their wages.

What is a certified payroll report?

Businesses that are fulfilling federal government contracts must submit the certified payroll report (Form WH-347) to the contracting agency each week. Agencies use the form to verify that contractors are paying workers the prevailing wage. Employers must list all the employees who worked on the project, their hours, gross wages, benefits, and tax withholdings. See prevailing wage.

What is a city or local income tax?

Cities or local jurisdictions that have city or local income tax may require employers to withhold this tax from employees’ wages.

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a federal law requiring employers to offer qualifying former employees and dependents who lose their health insurance or dental insurance the chance to continue their group health insurance for a limited time.

What is a COD (court-ordered deduction)?

This legal notice directs an employer to withhold money from an employee’s wages and remit it to a court or other agency. See garnishment.

What is commission pay?

Compensation calculated based on a percentage or dollar amount of each sale an employee makes is called commission pay.

What is comp time?

Compensatory paid time off (comp time) can be given to employees in return for working extra hours. Comp time cannot be used instead of paying employee overtime.

What is a company car allowance?

An employee who uses their personal vehicle for work may be given a company car allowance to compensate for these vehicle expenses. The allowance is typically added to the employee’s paycheck.

What is a contract worker?

Contract workers are paid a set price for working for a set amount of time. Unlike independent contractors or freelancers, both of whom are self-employed, contract workers are employed by a company (such as a staffing agency or consultancy) that hires them out to other companies.

What are credit reduction states?

These states have taken loans from the federal government to fund state unemployment benefits and have not repaid the loans within the allotted time period. Wages subject to unemployment insurance tax are taxed at higher rates in credit reduction states.

What is the Davis-Bacon Act?

The Davis-Bacon Act is a federal law that requires contractors and subcontractors on federally funded public works contracts worth more than $2,000 to pay all laborers and mechanics involved the prevailing local wages. See prevailing wages.

What is a deferred compensation plan?

This employee benefit allows employees to contribute a percentage of their wages to a tax-deferred savings plan such as a 401(k) instead of receiving those wages as current compensation.

What is a de minimis fringe benefit?

A de minimis fringe benefit is any employee benefit with a dollar value so small that it’s unreasonable to include it as part of the employee’s income. See fringe benefits.

What is direct deposit?

Direct deposit is the use of an Electronic Funds Transfer (EFT) to deposit an employee’s wages directly into a bank account they designate.

What is disability leave?

Disability leave is a paid or unpaid leave of absence taken by a disabled employee as a reasonable accommodation or as part of an employer’s short-term or long-term disability policy. If the illness or injury is work-related, workers’ compensation insurance may pay the employee’s benefits while they’re on disability leave. Most states have laws regulating disability leave. Some states provide (or require employers to provide) short-term disability insurance (SDI) or temporary disability insurance (TDI) to replace part of employee wages lost to an illness or injury unrelated to work.

What is the Earned Income Tax Credit (EITC or EIC)?

This tax credit is available for working people with low to moderate income. See advance earned income credit.

What is an earnings allowance?

An earnings allowance is the maximum amount of compensation that people receiving unemployment benefits can earn per week without losing any of their weekly unemployment benefits. The state sets the earnings allowance.

What is the effective tax rate?

The percentage of an individual’s income that they pay in taxes is their effective tax rate.

What is the Electronic Federal Tax Payment System?

This secure government website allows users to pay federal taxes electronically online (or by phone using the EFTPS® Voice Response System).

What is Electronic Funds Transfer (EFT)?

Federal and state agencies may require employers to pay unemployment taxes using electronic funds transfer.

What are employee benefits?

Employee benefits are indirect, non-cash or cash compensation paid over and above an employee’s regular wages. Health insurance and life insurance are two examples of employee benefits. Employment taxes are also considered employee benefits. See fringe benefits.

What is the Employee Retirement Income Security Act (ERISA)?

This federal law sets minimum standards for retirement plans offered by private employers in order to protect individuals’ rights to their benefits.

What is employee time tracking?

Employee time tracking is the process of keeping count of and recording the hours employees work, for payroll, job costing, and more. Employee time can be tracked on paper, on a spreadsheet, or with a manual punch clock, though automated, cloud-based systems are available.

What is an Employer Tax Identification Number (EIN)?

A unique nine-digit number assigned by the IRS to any company with employees. Similar to a Social Security number for an individual.

What is the Employer’s Annual Federal Unemployment Tax Return?

What is the Employment Eligibility Form?

What are employment taxes?

Taxes that employers must legally withhold from employees’ wages, then deposit and report, are considered employment taxes. These include federal income tax, Social Security and Medicare taxes, and the Federal Unemployment Tax (FUTA).See Social Security taxes. See Medicare Taxes. See Federal Unemployment Tax.

What is an employment tax audit?

What is an exempt employee?

Exempt employees are, under some circumstances, not protected by state or federal wage and hour laws, including minimum wage protections. Exempt employees are usually paid a salary rather than hourly wages, though some are paid by the hour. Exempt employees are not eligible for overtime. See Fair Labor Standards Act. See nonexempt employee. See white collar exemption.

What is the Fair Labor Standards Act (FLSA)?

This federal law establishes the minimum wage, overtime pay eligibility, recordkeeping, and child labor standards for full-time and part-time workers.

What is the Family and Medical Leave Act (FMLA)?

This federal law entitles eligible employees to 12 workweeks of unpaid, job-protected leave for the birth or adoption of a child, to care for a seriously ill family member, or to recover from a serious medical condition. Eligible employees are also entitled to access their group health insurance coverage.

What is the Federal Insurance Contribution Act?

This federal law created a payroll tax to fund the Medicare and Social Security programs. See FICA.

What are Federal Supplemental Benefits (FSB)?

This temporary federal program provides supplemental unemployment benefits to people who have used up their regular unemployment benefits, their state-financed extended benefits, and/or their jointly financed federal/state extended benefits during periods of high unemployment.

What is federal tax withholding?

Employers are legally required to withhold the following federal taxes from employee paychecks: FUTA, FICA, and federal income taxes. See Federal Unemployment Tax Act. See FICA.

What is the Federal Unemployment Tax Act (FUTA)?

FUTA is a federal law that guides the administration of unemployment compensation programs and requires all eligible employers to pay a federal unemployment tax. Funds are used for state and federal unemployment programs and benefits. Some states have additional guidelines regarding unemployment taxes and benefits. See SUI tax. See State Unemployment Tax Act.

What is FICA?

The Federal Insurance Contribution Act (FICA) is a federal law that establishes payroll tax funds to Medicare and Social Security. Both employees and employers pay the FICA tax. Employees have FICA taxes withheld from their paycheck, while employers pay their own contribution.

What is a filing status?

Employees select a filing status on their Form W-4 to help determine the amount of tax withheld from their paychecks. There are three options for filing status: single, married or “married, but withhold at higher Single rate.” See withholding allowance.

What is the difference between fired and laid off?

An employee who is fired is permanently terminated for a cause such as poor performance or misconduct. A laid-off employee is terminated because their job is eliminated. Depending on the reason for firing and the state’s unemployment regulations, fired employees may not be eligible for unemployment benefits.

What is a Flexible Spending Account (FSA)?

This employee benefit allows employees to contribute pretax dollars to a savings account to be used for medical or child care costs.

What is the FLSA?

What is Form 940 (Employer’s Annual Federal Unemployment Tax Return)?

This government form is used to report the portion of FUTA tax that employers pay for their employees. See payroll tax forms.

What is Form 941 (Quarterly Federal Tax Return)?

This government form is used to report the payroll taxes withheld from employee paychecks. See payroll tax forms.

What is Form 944 (Employer’s Annual Federal Tax Return)?

This government form is used by employers whose annual liability for Social Security, Medicare, and withheld federal income taxes is $1,000 or less to file and pay these taxes. See payroll tax forms.

What is Form 1099-Misc?

What is Form I-9 (Employment Eligibility Form)?

This government form is used to verify the identity and employment authorization of every person hired for employment in the United States. U.S. employers must complete a Form I-9 for each person hired, including citizens and noncitizens.

What is Form W-2 (Wage and Tax Statement)?

A W-2 is a government form that summarizes an employee’s wages and withholdings for the year. Employers must file a form with the Social Security Administration (SSA) for each employee and issue each employee a copy by January 31 of the following year. Employers are not responsible for issuing W-2s to 1099 contractors, though these workers can receive a 1099-MISC report.

What is Form W-3 (Transmittal of Wage and Tax Statements)?

This government form summarizes the total earnings, Social Security payments, Medicare payments, and federal and state tax withholding for all employees of a company. Use an employees’ W-2 forms to arrive at the totals for the W-3. File it with the Social Security Administration (SSA) by January 31 of the following year.

What is Form W-4 (Employee’s Withholding Allowance Certificate)?

Employees use this government form to tell their employer how many personal exemptions they want to claim on their taxes. See withholding allowance. See wage withholding.

What is Form WH-347?

What is a fraudulent claim?

A fraudulent claim is a type of unemployment fraud where the claimant lies on an application, hides information, or uses someone else’s Social Security number to make an unfounded claim for unemployment benefits.

What is a freelancer?

What is a fringe benefit?

Any non-wage compensation provided to an employee is a fringe benefit, which may be taxable or non-taxable. See employee benefits.

What are frozen wage credits?

In some circumstances, state law allows individuals who were injured on the job to use a base year prior to the injury, effectively freezing those wage credits.

What is garnishment?

If an employer receives a lien on an employee for unpaid debts, they must withhold, or “garnish,” money from the employee’s wages to repay the debt. See bankruptcy lien.

What are gross earnings?

Gross earnings are an employee’s total compensation before taxes and deductions.

What is gross pay?

What is group term life insurance?

Group term life insurance coverage is provided and paid for by employers as an employee benefit. Coverage of up to $50,000 is not taxable to the employee; however, if employees purchase additional insurance coverage exceeding $50,000, that portion of the premium is taxable.

What is a Health Savings Account (HSA)?

An HSA is a tax-advantaged savings plan offered by employers along with a high-deductible health insurance plan. Both employers and employees can contribute pretax dollars to the HSA, which allows employees to save money tax-free for deductibles and qualified medical expenses.

What is HIPAA (Health Insurance Portability and Accountability Act of 1996)?

This federal law requires privacy protections for an individual’s’ health information.

What is holiday pay?

Holiday pay is paid time off for federal holidays. The FLSA does not require employers to give employees federal holidays off or to pay them for hours not worked; however, many employers do so.

What is an HSA?

What are HSA limits?

The IRS sets HSA limits on how much individuals and employers can contribute to an employee’s HSA annually. See Health Savings Account.

What is imputed income?

Imputed income is a non-cash service or fringe benefit provided to employees. While some non-cash benefits are tax-exempt (such as health insurance), imputed income is subject to employment tax withholding. See employment tax. See fringe benefits.

What is an independent contractor?

An independent contractor is a self-employed person who works for various companies on a project or contract basis. Employers do not withhold taxes from an independent contractor’s wages, pay their Social Security or Medicare taxes, or pay state unemployment taxes for them. See contract worker. See freelancer.

What is an Individual Retirement Account (IRA)?

An IRA is a tax-deferred retirement account that any employed or self-employed person can establish for themselves. Employees can authorize their employer to make payroll deductions and transfer them to the employee’s IRA.

What is a leave of absence (LOA)?

A leave of absence is a period during which an employee has permission to be absent from work without losing their job. Leaves of absence may be paid or unpaid, and they’re generally used in special circumstances such as when an employee has exhausted available paid time off (sick days, personal days, vacation days, and holidays). See disability leave. See Family and Medical Leave Act. See maternity leave. See paternity leave.

What is long-term disability insurance (LTDI)?

Long-term disability insurance protects employees against loss of income if a non-work-related illness or injury leaves them unable to work for an extended time. Employers sometimes provide long-term disability insurance as an employee benefit.

What is maternity leave?

Maternity leave is an approved absence from work given to a mother after or shortly before the birth of her child. Qualified employees of companies covered under the Family and Medical Leave Act (FMLA) can take up to 12 workweeks of unpaid leave for this purpose. Some states also provide paid disability leave for expecting mothers. Some states require employers to provide paid family leave. See disability leave. See Family and Medical Leave Act. See leave of absence. See paternity leave.

What is the maximum benefits amount?

This refers to the maximum amount of unemployment benefits a claimant can receive during a benefit year or the entire period of unemployment. It is also referred to as “maximum benefits payable.”

What is the maximum benefits payable (MBP)?

What is the maximum potential benefit amount?

This refers to the maximum unemployment benefit for weeks of total unemployment that a claimant can receive under state or federal unemployment insurance regulations.

What is the maximum potential duration?

This refers to the maximum number of weeks for which a claimant can receive unemployment benefits during a benefit year or the entire duration of unemployment.

What is the maximum weekly benefit amount?

This is the highest weekly amount of unemployment benefits a claimant can receive under state or federal unemployment insurance regulations.

What is the Medicare tax?

Medicare provides medical benefits for individuals age 65 and up and individuals under 65 with certain qualifying health conditions or disabilities. The Medicare tax is funded through FICA taxes paid by both employers and employees. See FICA.

What is mileage reimbursement?

This is money paid to reimburse employees for business use of their personal vehicles, Mileage reimbursement is calculated on a per-mile rate set each year by the IRS. See company car allowance.

What is the minimum wage?

The minimum wage is the lowest amount per hour that employers can legally pay employees. In addition to the federal minimum wage law, some states have their own minimum wage laws. In this situation, employers must pay the higher of the two wages.  

What is multi-state payroll?

If a business has employees who work in another state, it may be considered to have a “nexus” or business presence in that state and may be required to withhold the other state’s income tax from the employee’s wages.

What is net pay?

Net pay is the remainder of an employee’s wages after all deductions are subtracted from the gross wages. Net pay is also called take-home pay. Calculate net pay with a paycheck calculator. See gross earnings.

What is a nonexempt employee?

Nonexempt employees are entitled to overtime pay, under the Fair Labor Standards Act (FLSA). Some states, such as California, have their own overtime regulations. Nonexempt employees are still entitled to overtime pay, even if that time was unauthorized by their employer. See exempt employee.

What is OASDI (Old-Age, Survivors, and Disability Insurance Program)?

Old-Age, Survivors, and Disability Insurance Program is the official name for Social Security. See FICA.

What is off-cycle payroll?

Off-cycle payroll is a wage payment made outside of a company’s normal pay schedule.

What is officer’s compensation?

Officer’s compensation is compensation given to corporate officers in return for services performed for a business. This type of compensation must be treated as wages.

What is overtime?

Hours that nonexempt employees work over the maximum workweek hours set by federal or state laws. The Fair Labor Standards Act (FLSA) entitles nonexempt employees to overtime pay at least 1.5 times their regular rate of pay. Some states, like California, have their own overtime regulations. See FLSA. See nonexempt employees.

What is paid time off (PTO)?

Paid time off is an employee benefit that allows employees to take a specified number of days off with pay. PTO can include sick leave, paid holidays, vacation days, and personal time off. PTO is often earned on an accrual basis according to the number of hours or years employees have worked for a company.

What is a part-time worker?

Defined in the Affordable Care Act, part-time workers as those who work less than 30 hours per workweek, on average, or less than 130 hours per month. Full-time workers are those who work more than 30 hours per workweek, on average, or more than 130 hours per month. Employers can set their own parameters for full-time and part-time employment at their companies.

What is paternity leave?

Paternity leave is an approved absence from work given to a father after or shortly before the birth of his child. Qualified employees of companies covered under the Family and Medical Leave Act (FMLA) can take up to 12 workweeks of unpaid leave for this purpose. Some states require employers to provide paid family leave. See FMLA. See maternity leave. See leave of absence.

What is a pay period?

A pay period is a recurring period of time over which employee hours worked are recorded and wages paid. A business may have monthly, weekly, biweekly, or monthly pay periods. The pay period determines the number of paychecks employees receive per year.

What is a payroll advance?

Some employers offer employees payroll advances, or the opportunity to get their payroll funds before payday as a short-term, unsecured loan.

What are payroll deductions?

Payroll deductions are withheld from an employee’s paycheck. Some payroll deductions are voluntary (401(k) contributions). Others are involuntary (federal income taxes). Payroll deductions may be taken out before taxes are withheld (pretax) or after taxes are withheld (after-tax). See pretax deductions. See after-tax deductions.

What are payroll expenses?

Payroll taxes that employers pay on behalf of employees (the employer’s portion of Social Security and Medicare taxes) are considered business expenses. See payroll liabilities. See payroll taxes.

What are payroll liabilities?

Payroll liabilities are payroll taxes withheld from employee wages that are not considered business expenses. They are considered liabilities until the money is remitted to the government. See payroll expenses. See payroll taxes.

What is a payroll liability account?

To keep payroll liabilities from messing up cash flow, payroll liability accounts can be set up in payroll or accounting solutions to track these amounts. See payroll expenses. See payroll liabilities. See payroll taxes.

What is payroll processing?

Payroll processing is the process by which employees are paid each pay period. Payroll processes must comply with all applicable state and federal labor laws.

What are payroll taxes?

Payroll taxes are those required by the Federal Insurance Contributions Act (FICA) that says employers must withhold taxes from all employee wages and pay on their behalf. Payroll taxes include the federal income tax, federal unemployment tax, Social Security tax, and Medicare tax.

What is a payroll tax audit?

State or federal tax agencies may audit a company’s payroll taxes to make sure they are making payroll tax deposits on time and filing the correct payroll tax returns. A payroll tax audit is often conducted when the tax authority believes a business has misclassified employees as independent contractors. Payroll tax audits are also called employment tax audits.

What are payroll tax forms?

Form 941 is used to report the payroll taxes withheld from employee paychecks. Form 940 is used to report the portion of Social Security and Medicare tax employers pay for their employees. Form 944 is used by very small employers to report payroll taxes. See Form 940. See Form 941. See Form 944. See payroll taxes.

What are payroll tax penalties?

When employers can’t submit payroll taxes in full and on time, the IRS charges a penalty based on the number of days the payment is late. Before the beginning of each calendar year, employers can determine their deposit schedule by consulting Publication 15 and the IRS.

What are payroll tax returns?

What is a peg balance?

Some business bank accounts offer a sweep option that helps businesses maintain a certain minimum balance in their primary account and earn money market interest rates. Account holders determine a minimum, or “peg” balance, for their primary business checking account. At the end of each business day, any money over the peg balance is swept into an investment account. If the primary checking account balance dips below the peg balance, money is transferred back to that account to maintain the peg balance.

What is a period of employment?

A period of employment is the first day an employee works for a business through the last day he or she works before employment is terminated.

What is a piece rate?

In this system of determining wages, employees are paid a fixed amount for each unit they produce (that is, each piece). For example, if a business sells crafts, artisans might be paid a piece rate for the products.

What is a pooled account?

A pooled account is an unemployment fund into which an individual’s state unemployment insurance contributions are paid. All contributions commingle in the pooled account fund, and unemployment benefits are payable from the fund to all individuals eligible for compensation. See SUI tax.

What are post-tax deductions?

What is power of attorney (POA)?

Employers who have a payroll provider may be required by the state tax board to give that provider power of attorney. This allows the provider to deposit state taxes and file state tax returns on the business’s behalf but not to make legal decisions on behalf of the business.

What is pregnancy disability leave?

What are pretax deductions?

Money subtracted from an employee’s wages before any taxes are withheld are pretax deductions. Some benefits, such as health insurance or 401(k) plans, can be paid for with pretax deductions. See after-tax deductions.

What are prevailing wages?

The prevailing wage, required by the Davis-Bacon Act, is the average or majority hourly rate of pay, benefits, and overtime paid to the majority workers, laborers, and mechanics in the largest city of a given county. The prevailing wage applies to government-contract projects valued at least $2,000 and is reevaluated every three years. See Davis-Bacon Act. See certified payroll report.

What is private support?

Private support is a type of wage garnishment based on a private agreement between parties rather than a court order. Employees may ask for the garnished amount to be paid to a third party such as an attorney or bank. A private support lien is a lower priority than most other types of wage garnishment such as child support or federal tax liens. See COD. See garnishment.

What is PTO?

What is public assistance?

Public assistance programs give individuals and/or families cash assistance or in-kind benefits from a government entity. Assistance includes Supplemental Security Income (SSI) and Temporary Assistance for Needy Families (TANF). It is possible for people to be employed and still have incomes low enough to receive public assistance.

What is the Quarterly Federal Tax Return?

Employers must file the Quarterly Federal Tax Return, Form 941, each quarter to report income taxes, Social Security taxes, or Medicare taxes withheld from employee paychecks and pay their portion of Social Security or Medicare taxes. See Form 941. See payroll tax forms.

What is reimbursement?

Employees who pay for work-related expenses, such as mileage or transportation, out of their own pockets may be reimbursed for those expenses. In accountable reimbursements, the employee must keep records to justify the amount of reimbursement. In nonaccountable reimbursements, employees receive a set allowance every month. Employees do not pay income taxes on reimbursements. Employers do not submit payroll taxes on reimbursement.

What are retirement limits?

Retirement limits are the maximum dollar amount employees can contribute to retirement plans each year. The IRS sets retirement limits, which typically increase annually.

What is retroactive pay?

Retroactive pay is money owed to an employee from a previous pay period. See back pay.

What is severance pay?

Severance pay is compensation given to an employee upon termination of their employment. Severance pay is not required by law, but some employers provide it to help employees get through a period of unemployment. Severance pay is typically based on an employee’s length of service and can be given in a lump sum or installments over time. See supplemental wages.

What is the severance pay tax?

Employers must withhold state and federal income tax, Social Security tax, and Medicare tax from severance pay. The IRS treats severance pay as supplemental wages. If the money is given in a lump sum, it can either be taxed at a flat rate or added to the employee’s normal paycheck and taxed like regular wages. See bonus taxes. See supplemental wages.

What is sick leave?

Sick leave is an absence from work due to illness, injury, or disability. Fair Labor Standards Act (FLSA) regulations do not require employers to offer paid sick leave. The Family and Medical Leave Act (FMLA) requires covered employers to provide paid sick leave for short-term health needs and preventative care. See Fair Labor Standards Act. See Family and Medical Leave Act.

What is sick pay?

Sick pay may also refer to Short Term Disability Insurance in which compensation is paid by an employer or a third party (such as an insurer) due to an employee’s temporary absence from work as a result of injury, sickness or disability. Sick pay is subject to employee Social Security and Medicare tax withholding. How sick pay is reported for tax purposes depends on whether the the employer or a third party makes the payments. See third-party sick pay.

What are Social Security taxes?

All employees and self-employed people must pay Social Security taxes at the same tax rate, up to a certain income limit. Income over the limit isn’t subject to Social Security tax. Employers and employees pay a portion of Social Security tax through payroll withholding. See OASDI.

What are state income tax rates?

If a business is in a state that taxes earned income, employers must withhold state income taxes from an employee’s gross pay. If employees work in more than one state with state income tax, employers must withhold taxes from each employee’s gross pay at each state’s tax rate. See multi-state payroll.

What is state withholding?

State withholding is a state’s income tax withheld from an employee’s gross pay and remitted to the state.

What is state unemployment insurance tax?

State workforce agencies collect the state unemployment insurance tax to fund benefits for eligible unemployed workers. If an employer has employees in more than one state, employers must pay SUI taxes for each state. See multi-state payroll.

What are SUI tax rates?

States determine their own SUI tax rates within a certain range. The SUI tax rate a business pays depends on employees’ wages and how many employees have used unemployment insurance. Companies in seasonal industries that frequently lay off workers and rehire them again typically pay higher SUI tax rates.

What is a SUI tax rate notice?

Every year, states send a tax rate notice with a businesses SUI tax rate. See amended rate notice.

What are supplemental wages?

Supplemental wages are payments to an employee that aren’t regular wages. Supplemental wages include but are not limited to bonuses, commissions, overtime pay, sick pay, severance pay, awards, prizes, back pay, retroactive pay increases, and taxable fringe benefits. Rules for withholding on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. See bonus taxes. See fringe benefits. See imputed income.

What is SUTA (State Unemployment Tax Act)?

What is take-home pay?

What is a tax bracket?

Tax brackets are categories based on a person’s tax filing status that states how much tax they’ll pay on each portion of their income. For example, the first $9,525 of a person’s income is taxed at a certain rate. The next portion is taxed at a higher rate and so on.

What are tax codes?

Tax codes are also called tax laws. The United States has federal, state, and local tax codes.

What is a tax levy?

If an employee is delinquent on state or federal taxes, their employer will be served a notice from the tax authority requiring them to send them to garnish the taxes owed from the employee’s wages each month minus a small percentage that is exempt. See garnishment.

What is a tax rate?

A tax rate is the percentage at which something is taxed.

What are taxable benefits?

Taxable benefits are employee benefits that are taxable to the employee and reported as income on the employee’s W-2 form. Taxable benefits are based on their fair market value. Taxable benefits may include cars, employer-provided flights and travel expenses, free or discounted commercial flights, vacations, discounts on property or services, memberships for country clubs or other social clubs, and tickets to entertainment or sporting events. See de minimis benefits. See employee benefits. See fringe benefits. See imputed income.

What is a Taxpayer Identification Number (TIN)?

A Taxpayer Identification Number is one used by the IRS to identify a taxpaying individual or entity. For individuals, it’s a Social Security number. For employers, it’s an Employer Identification Number (EIN). See Employer Tax Identification Number.

What is third-party sick pay?

This disability insurance benefit pays employees partial or full wages during medical leave. Employees receive the benefit payments through an insurance company, union, or state temporary disability plan, not through their employer. Some third parties are considered “agents” of a business, which makes an employer responsible for withholding employment taxes on sick pay. Others third parties are considered nonagents, so they are responsible for withholding employment taxes on sick pay. See sick pay.

What is a timesheet?

A timesheet is used to record an employee’s hours worked for payroll. Timesheets may be digital or electronic, on paper, or in a spreadsheet.

What is a tipped employee?

Employees who regularly make $30 or more per month in tips are classified as tipped employees, and in some states, employers can pay them a direct wage of just $2.13 per hour. The direct wage plus tips must add up to at least the federal or state minimum wage (whichever is higher). If it doesn’t, employers must pay the difference.

What are unemployment tax rates?

What is the unemployment wage base?

The unemployment wage base is the maximum amount of compensation an employer pays in taxes for each employee. If the unemployment wage base is $10,000 per employee, employers pay the unemployment tax only on each employee’s first $10,000 in wages. Unemployment wage bases are set by each state and must be equal to at least the FUTA wage base.

What is the Uniform Interstate Family Support Act (UIFSA)?

This national law allows state child support agencies to send payroll withholding orders to employers across state lines. This is used in cases where a noncustodial parent lives in a different state from the child and the custodial parent.

What are vacation days?

Vacation days are a type of paid time off (PTO) employees can use to take vacations. See paid time off.

What is vesting?

Vesting is a way to gradually give employees ownership of a benefit such as company stock options or a 401(k) plan. Only benefits that involve both an employer contribution and an employee contribution are eligible for vesting. When an employee is fully vested in a benefit, they have full ownership of it. If their employment is terminated before the vesting period is over, the employee forfeits their right to the unvested part of the benefit.

What is visitation?

Some states have laws requiring employers to give employees unpaid time off for school visitation, or attending children’s school events such as parent-teacher conferences.

What is a voluntary contribution?

Some states allow employers to make voluntary contributions to their SUI accounts over and above the required payments. The voluntary contribution affects the account balance used to determine next year’s SUI tax rate. This can save employers money on next year’s taxes. See SUI tax rates.

What is a voluntary payroll deduction?

Voluntary payroll deductions are those employees choose to have withheld from their paychecks to pay for or contribute to employee benefits such as a retirement plan, health insurance, or group term life insurance.

What is Voluntary Plan Disability Insurance (VPDI)?

A Voluntary Plan Disability Insurance is a state option allowing an employer and/or individual to buy private disability insurance instead of a State Disability Insurance (SDI) plan. This insurance is administered by an employer or (if purchased by an individual) by an insurance carrier. 

What is a W-2?

A W-2 is a government form that summarizes an employee’s wages and withholdings for the year. Employers must file a form with the Social Security Administration (SSA) for each employee and issue each employee a copy by January 31 of the following year. Employers are not responsible for issuing W-2s to 1099 contractors, though these workers can receive a 1099-MISC report. See Form W-2. See Form 1099-MISC.

What is a W-3?

What is a W-4?

What is a wage and separation report?

If a former employee files a claim for unemployment benefits, their state unemployment insurance agency may ask an employer for a report confirming the wages the employee earned during a certain base period and the reason for separation from the company.

What is wage assignment?

In a voluntary wage assignment, an employee asks their employer to withhold part of their paycheck and send it directly to a creditor. In an involuntary wage assignment (also called wage garnishment), the money is withheld from the paycheck by court order. See garnishment.

What is wage attachment?

Wage attachment is an involuntary wage assignment. See wage assignment. See garnishment.

What is a wage base?

A wage base is the amount of an employee’s pay that is subject to wage garnishment. It is based on an employee’s “disposable earnings” (earnings left after legally required deductions like federal, state, and local income taxes; the employee’s share of Social Security, Medicare, and SUI taxes; and withholdings for employee retirement plans required by law). See garnishment.

What is a wage claim?

A wage claim is a state or federal claim filed against an employer by an employee or former employee claiming their wages were not paid according to applicable labor laws. Examples of wage claims include unpaid wages, late wages, unpaid overtime, minimum wage violations, and incorrect pay information on pay stubs. See wage claim penalty.

What is a wage claim penalty?

If a wage claim against an employer is valid, they may be assessed a penalty in addition to paying the employee or former employee money owed. See wage claim.

What are wage credits?

Wage credits are wages earned by employees covered by state unemployment compensation laws. Employees must earn a certain number of wage credits to be eligible for unemployment benefits.

What is a wage detail report?

A wage detail report is a quarterly report an employer must file with the state that lists the name, Social Security number, wages, and hours worked of each worker employed during the quarter. This is also called a wage report.

What is a wage report?

What is wage withholding?

Wage withholding is prepayment of income taxes. Employers withhold income taxes from each employee’s pay and remit the money to the tax authority. Employees choose their wage withholding amounts by submitting Form W-4 to their employer. See Form W-4. See withholding allowance.

What are wages?

Wages are the payments for services an employee performs for an employer.

What is the waiting period?

A waiting period is a week of unemployment during which a claimant doesn’t receive any unemployment benefits but must meet the same eligibility requirements needed to qualify for unemployment benefits. In some states, claimants can receive payment for the waiting period at the end of their unemployment benefits. This is also called a waiting week.

What is a waiting week?

What is a week of partial unemployment?

A week of partial unemployment is a week in which an individual involuntarily works less than regular full-time hours for their regular employer due to a lack of work. If the employee earns less than their regular wages and less than they would receive in benefits during a week of total unemployment, they may be eligible for partial unemployment benefits to help supplement their income.

What is a week of unemployment?

This is any week during which a person is totally or partially unemployed.

What is a weekly benefit amount?

A weekly benefit amount is the number of unemployment benefits a claimant receives for a week of total unemployment. See maximum weekly benefit amount.

What is a weekly earnings allowance?

A weekly earnings allowance is the amount of compensation unemployment benefits claimants can earn in a week without having their weekly benefit amount reduced.

What are weeks claimed?

Weeks claimed are the number of weeks of unemployment benefits for which payment of benefits or credit for a waiting period is requested.

What are weeks compensated?

Weeks compensated are the number of weeks of unemployment for which benefits are paid.

What is a white-collar exemption?

The Fair Labor Standards Act (FLSA) creates several different categories of exempt employees. Executive, administrative, professional, outside sales, and certain computer employees fall under the “white-collar exemption.” Job titles alone don’t determine exempt status. Employees must meet certain guidelines regarding their job duties and be paid a minimum salary of $455 per week. See exempt employee. See Fair Labor Standards Act. See nonexempt employee.

What is a withholding allowance?

A withholding allowance is an exemption that reduces the amount of federal income tax employers withhold from an employee’s paycheck. Withholding allowances are chosen by the employee using Form W-4. See filing status. See Form W-4.

What is workers’ compensation?

Workers’ compensation is a state-administered insurance program that pays medical expenses, rehabilitation expenses, and lost wages to employees who are injured or become ill in the course of performing their jobs. Workers’ comp also pays death benefits to families of employees killed on the job. Each state determines what types of employers are required to purchase workers compensation insurance.

What is a workweek?

A workweek is any consecutive seven-day period chosen by an employer to serve as the basis for determining an employee’s regular rate of pay and overtime pay according to the Fair Labor Standards Act (FLSA). See Fair Labor Standards Act. See overtime.

What are year-to-date (YTD) deductions?

YTD deductions are the total amount of money deducted from an employee’s earnings from the beginning of the year up until the day the pay statement is prepared.