If you’ve been performing your own payroll calculations, you know how difficult it can be to keep up with new legislation,
changes in the tax code, and other elements that necessitate adjustments in employee pay amounts. One of the reasons most
businesses decide to use a payroll service is because payroll takes too long and is complicated.
| accounting period
|
the period covered by an income statement
(e.g., month, year); also known as the business cycle
|
| accrual |
the recognition of assets, expenses, liabilities, or
revenues after the cash value has been determined but before
it has been transferred
|
| ACH credit |
a transaction in which a tax-payer instructs its
financial institution to originate a federal tax deposit
through the ACH system to the appropriate Treasury account;
also known as EFTPS through a financial institution. An ACH
transaction initiated by the taxpayer resulting in a payment
of taxes; funds are "given" from the account
|
| ACH debit |
a transaction in which an employer's Financial Agent,
after receivign instructions from the employer, instructs
the employer's financial institution to withdraw funds from
the employer's account for a federal tax deposit and to
route the deposit to the appropriate Treasury account
through the ACH system; also known as EFTPS-Direct. An ACH
transaction initiated by the Tax Agent (e.g., IRS) resulting
in a payment of taxes; funds are "taken" from the account
|
| adoption assistance |
Financial benefit provided by an employer to an employee
to help with the child adoption process. Within certain
limitations, it is excluded from federal income tax
withholding, though not from social security and Medicare.
|
| Advance Earned Income Credit
|
Earned income credit that is partially paid in advance
by the employer during the year. This is done through a
reduction in income tax withholding during each pay period
|
| aggregate method |
method of withholding federal income tax from
supplemental wages in which the supplemental wage payment is
combined with the regular wages paid during the most recent
payroll period; after calculating withholding on the total
amount using the wage-bracket or percentage method, the
amount already withheld from the last wage payment is
subtracted to reach the amount that must be withheld from
the supplemental wage payment
|
| Archer medial savings account
|
An arrangement through which an employer or an employee
(but not both) can put tax-deferred contributions into an
account for the payment of health care deductibles under a
high deductible health insurance plan
|
| asset |
resource acquired by a business that is consumed by the
business
|
| Automated Clearing House (ACH)
|
A Federal Reserve Bank acting on behalf of an
association of financial institutions that operates a
facility (system) that serves as a clearinghouse for direct
deposit or other electronic payment transactions; entries
are received and transmitted by the ACH under the rules of
the association. Funds moved from bank A to bank B must go
through the ACH.
|
| balance sheet |
A financial statement that presents a business'
financial position in terms of its assets, liabilities, and
owner's equity as of a certain date (generally the end of
the company's fiscal year, but may be issued monthly or
quarterly as well)
|
| batch |
a sample or group of items (data) being processed
|
| batch control |
control that is designed to ensure a batch of data has
been entered successfully
|
| biweekly |
once every two weeks; type of payroll period that can be
used in the percentage of wage-bracket method of withholding
|
| cafeteria plan |
A plan that offers flexible benefits under Internal
Revenue Code (IRC) §125. Employees choose their benefits
from a "menu" of cash and benefits, some of which can be
paid for with pretax deductions from wages.
|
| cash or deferred arrangement (CODA)
|
An arrangement under a retirement plan that allows
employees to either receive cash or have the employer
contribute an equivalent amount to the plan.
|
| chart of accounts |
lists each account by a name and an identification
number; the numbering scheme is designed to identify the
type of account.
|
| commission |
percentage of sales, collections, etc., paid to an
employee
|
| common law test |
a test that measures the control and direction that an
employer has authority to exercise over a worker; where the
employer has the right to direct the worker as to how,
where, and when the work will be completed, in addition to
controllinf the result of the work, the worker is a common
law employee
|
| compensation |
All cash and noncash remuneration given to an employee
for services performed for the employer
|
| compound surname |
last name with more than one part, such as Smith-Johnson
or Rodrigues de Perez
|
| constructive receipt |
occurs when wages are made available to an employee, not
when the wages were earned
|
| deduction |
An amount subtracted from an employee's gross pay to
reach net pay, or an amount allowed to taxpayers as an
offset against income
|
| deferred compensation
|
In general, the deferral of a wage payment to a future
date. Usually describes a portion of wages set aside by an
employer for an employee and put into a retirement plan on a
pretax basis
|
| defined benefit plan |
A retirement plan that uses a formula (generally based
on an employee's salary and length of service) to calculate
an employee's retirement benefits and is not funded by
employee contributions to the plan
|
| defined contribution plan
|
A retirement plan with benefits determined by the amount
in an employee's account at the time of retirement. The
account may be funded by contributions from both the
employer and the employee
|
| dependent care assistance program
|
An employer plan providing dependent care services or
reimbursement for such services
|
| direct deposit |
the electronic transfer of an employee's net pay
directly into financial institution accounts designated by
the employee, thus avoiding the need for a paycheck
|
| discretionary bonus |
bonus paid for services performed; in order to be
considered discretionary, the bonus cannot be paid because
of a promise made in advance, a contract, or another
agreement.
|
| disposable earnings |
that part of an employee's earnings remaining after
deductions required by law (e.g., taxes); it is used to
determine that amount of an employee's pay that is subject
to a garnishment, attachment, or child support withholding
order
|
| Earned Income Credit |
tax credit that is availale to low-income employees; it
may be taken when the employee files his or her individual
tax return
|
| Electronic Federal Tax Payment
System (EFTPS) |
allows employers to make federal tax deposits
electronically through the ACH network
|
| electronic funds transfer (EFT)
|
the transfer of money electronically from an account in
one financial institution to an account in another financial
institution
|
| electronic tax application (ETA)
|
a "same-day settlement" procedure ender which tax
deposits are initiated and settled on the same day
|
| employee |
an individual who performs services for another
individual or an organization in return for compensation
|
| employer identification number (EIN)
|
the employer's acount number with the Internal Revenue
Service; it consists of nine digits and is always in the
following format: 12-0000345
|
| equity |
represents the owner's investment in a company, i.e. the
company's net worth
|
| excise tax |
tax imposed on a specific transaction
|
| exempt (Form W-4) |
if an employee claims exempt on his or her Form W-4, the
employer does not have to withhold federal income tax from
the employee's wages
|
| exempt employees |
while this term can refer to anyone not covered as an
employee under the Fair Labor Standards Act, it generally
means those employees who are exempt from the minimum wage,
overtime pay, and certain recordkeeping requirements of the
Federal Wage-Hour Law
|
| expense account |
shows costs for goods and services consumed by the
company during the accounting period
|
| Fair Labor Standards
Act |
law which regulates such areas as minimum
wage, overtime pay, and child labor for employers and
employees covered by the law
|
| fair market value (FMV)
|
used to determine the value of noncash,
employer-provided benefits for payroll tax purposes, or the
value of facilitiesprovided to employees in lieu of wages
|
| Family and Medical Leave Act (FMLA)
|
law guaranteeing 12 weeks' unpaid leave to most
employees to care for newborn or newly adopted children, or
to deal with a serious illness or injury suffered by the
employee or an ailing shile, spouse, or parent of the employee
|
| federal income tax withholding (FITW)
|
FIT withheld from employees' wages when they are paid
|
| Federal Insurance Contribution Act
|
describes the combined taxes levied for social security
and Medicare
|
| Federal Unemployment Tax Act (FUTA)
|
requires employers to pay a certain percentage of their
employees' wages (up to a maximum wage limit) as a payroll
tax to help fund unemployment compensation benefits for
separated employees
|
| filing status |
marital status of an employee for withholding purposes
|
| flat rate method |
method of withholding federal income tax on supplemental
wages in which the supplemental payment and regular wages
are treated separately; the employer withholds 27% of the
supplemental wages
|
| Form 940 |
Employer's Annual Federal Unemployment Tax Return
|
| Form 941 |
Employer's Quarterly Federal Tax Return. Provides the
IRS with a report of each employer's total taxable wages
paid and payroll tax liability
|
| For 941c |
Statement to Correct Information. a form used to make
adjustments to Form 941 when taxes have been underwithheld
or overwithheld; explains the nature of the adjustment and
shows the erroneous and corrected amounts of tax withheld
|
| Form 1099-MISC |
states how much a contractor was paid for services
rendered during the past calendar year
|
| Form 8109 |
Federal Tax Deposit Coupon. Coupon that accompanies
paper tax deposits indicating what type of tax is being
deposited, the quarter which the liability was incurred, and
the amount of the deposit
|
| Form W-2 |
Wage and Tax Statement. Employers must file a Form W-2
to report the total amount of wages paid and taxes withheld
for each employee in a calendar year
|
| Form W-2c |
Statement of Corrected Income and Tax Amounts. Form that
must be completed by an employer if an incorrect copy of a
W-2 has been sent to the SSA
|
| Form W-3 |
Transmittal of Income and Tax Statements. Form which an
employer must also file when filing paper Forms W-2 (Copy A)
with the SSA; contains totals of the amounts reported on the
employer's W-2 forms, acting as a "reconciliation" of these
forms
|
| Form W-3c |
Transmittal of Corrected Income and Tax Statements. Form
that accompanies Form W-2c in most situations when it is
sent to the SSA that totals the information from all the
W-2c forms being submitted
|
| Form W-4 |
Employee's Withholding Allowance Certificate. The W-4
tells the employer how many withholding allowances the
employee is claiming along with the employee's marital
status; it also tells the employer if the employee claims
exemption from withholding
|
| Form W-4P |
Withholding Certificate for Pension or Annuity Payments.
Allows retired employees to have input into the amount of
federal income tax withheld from a pension or annuity
|
| Form W-4S |
Request for Federal Income Tax Withholding From Sick
Pay. Filed when an employee receives sick pay from a third
party insurer due to a disabling non-job-related illness or
injury; the employee uses the form to tell the third party
how much to withhold from his or her pay
|
| Form W-5 |
Earned Income Credit Advance Payment Certificate. Must
be filed by employees who want to take advantage of advance
EIC payments and which attests to their eligibility for the
advance payments
|
| FUTA |
requires employers to pay a certain percentage of their
employees' wages (up to a maximum wage limit) as a payroll
tax to help fund unemployment compensation benefits for
separated employees |
| garnishment |
a legal proceeding authorizing an involuntery transfer
of an employee's wages to a creditor to satisfy a debt
|
| general ledger |
ledger containing all of the transactions in the debit
and credit accounts of a business
|
| golden parachute payment
|
payment made to business executives in excess of their
usual compensation (e.g., stock options, bonuses) in the
event the business is sold and the executives are terminated
from employment
|
| gross income |
the compensation for services, including fees,
commissions, fringe benefits, and similar items
|
| gross pay |
the total amount received from the employer before any
deductions are made
|
| group-term life insurance (GTLI)
|
term life insurance that is provided to employees, with
the cost being borne by the employer, the employee, or both
|
| highly compensated employee (HCE)
|
in the context of certain fringe benefit plans, an
employee who is an owner or officer of a business or whose
salary exceeds a certain amount (indexed each year for
inflation). Many benefits offered by employers do not
qualify for favorable tax treatment if they discriminate in
favor of highly compensated employees. And employers may
also be restricted in their use of safe-harbor valuations of
benefits provided to such employees
|
| Immigration Reform and Control Act
of 1986 (IRCA) |
Law enacted in 1986 that prohibits employers from hiring
persons who are not authorized to work in the U.S. and from
discriminating against those who are based on their national
origin or citizenship
|
| income statement |
financial statement showing a company's results of
operations for an accounting period or fiscal year
|
| independent contractor
|
a non-employee contracted by a business to perform
services; although the business specifies the result of the
work to be performed, it has no right to control the details
of when, how, or who will ultimately perform the work
|
| information return |
a return sent to the IRS (e.g., 1099 series) or the SSA
(e.g., Form W-2, Copy A along with Form W-3 or 6559) that
indicates information relevant to tax liability
|
| interface |
the place where two systems meet
|
| Internal Revenue Code (IRC)
|
federal tax laws; generally referred to as the Internal
Revenue Code of 1986, which was the year of the latest major
overhaul of the Code; the IRC also comprises Title 26 of the
United States Code
|
| involuntary deductions
|
deductions over which the employers and employees have
no control
|
| leased employees |
employees of a leasing agency who are hired and trained
for the client firm through the agency. Withholding,
depositing, and reporting responsibilities remain with the
leasing agency
|
| liability |
debt of a business that has yet to be paid
|
| long-term care insurance
|
an insurance contract providing for coverage of
qualified long-term care services, including diagnostic,
preventive, treating, mitigating and rehabilitative
services, which is treated as an accident and health
insurance contract for payroll tax purposes
|
| lookback period |
the 12-month period running from July 1 of the second
preceeding calendar year through June 30 of the preceeding
calendar year; the employer's payroll tax liability during
this period determines its depositor status for the current
year
|
| Medicare |
federal hospital insurance program for individuals age
65 or older and some disabled persons; it is funded through
the hospital insurance component of FICA tax
|
| minimum wage |
lowest amount that an employer can pay its employees per
hour under federal or state law; the federal minimum wage is
$5.15 per hour
|
| monthly |
once per month; type of payroll period
|
| net pay |
that part of an employee's wages that remains after all
deductions have been subtracted (e.g., taxes, health
insurance premiums, union dues, etc.)
|
| net worth |
amount by which a company's assets exceed liabilities
|
| noncash fringe benefits
|
benefits provided to employees in some form other than
cash (e.g., company car, health and life insurance, parking
facility, etc.), which may be taxable or nontaxable
|
| nondiscretionary bonus
|
contractual or agreed-upon bonus or incentive related to
production, efficiency, attendance, quality, or some other
measure of performance
|
| nonexempt employees |
employees who are covered by the minimum wage and
overtime provisions of the Fair Labor Standards Act; they
may be paid on an hourly or salary basis
|
| nonqualified plan |
in the context of employee benefiots, an employer plan
that does not meet IRS qualification requirements
|
| one-day deposit rule
|
if an employer's accumulated employment tax
liability reaches $100,000 on any day during a monthly or
semiweekly deposit period, the taxes must be deposited by
the close of the next banking day
|
| originating depository financial
institution (ODFI) |
a financial institution that is qualified to initiate
direct deposit entries submitted by an employer as part of
the direct deposit process
|
| overtime |
hours worked by nonexempt employees in excess of
maximums set by federal or state law that must be
compensated at a premium rate of pay (e.g., under the FLSA,
all hours worked over 40 in a workweek must be paid at not
less than 150% times the employee's regular rate of pay)
|
| overtime premium |
amount equal to one half of an employee's regular rate
of pay times all overtime hours worked
|
| paid time off |
payment received for time not worked due to holiday,
illness, vacation, jury duty, bereavement, or the failure of
the employer to provide sufficient work
|
| payroll expense |
expense that may be recorded in the payroll expense
journal by function or by type of pay
|
| payroll register |
report listing and summarizing the compensation paid and
deductions taken from each employee's wages for the payroll
period
|
| percentage method |
one allowable method for calculating federal income tax
withholding from an employee's wages, most often used when
the calculation is automated
|
| percentage method for advance EIC
payments |
one allowable method for calculating the amount of
advance EIC payments, most often used when the calculation
is automated
|
| pieceworker |
worker who is paid per unit or piece produced |
| posting |
recording a transaction in a journal entry or recording
a journal entry in the general ledger
|
| private delivery service
|
delivery service which may meet IRS criteria for
submitting tax forms
|
| profit |
occurs when income exceeds costs and expenses
|
| qualified plan |
a benefit plan that meets IRS qualification requirements
for tax-favored treatment (e.g., nondiscrimination)
|
| quarterly |
once every three months or four times per year
|
| reasonable basis |
a standard used to determine whether a worker can be
treated as an independent contractor whether or not the
common law test is mat, based on prior court and
administrative rulings, IRS audits, or long-standing
practice in the industry
|
| reconcile |
to ensure that amounts withheld, deposited, paid, and
reported by employers agree with each others and, if they do
not, to determine the reasons and make the necessary
corrections
|
| reconciliation |
process of ensuring that amounts withheld, deposited,
paid, and reported by employers agree with each other and
that is they do not, determining the reasons and making the
necessary corrections
|
| regular rate of pay |
hourly pay rate determined by dividing the total regular
pay actually earned for the workweek by the total number of
hours worked
|
| reimbursed expense |
payment for business-related expenses incurred by an
employee on behalf of, or for the convenience of, the
employer
|
| remuneration |
payment for services, including benefits
|
| retained earnings |
amount that a company's revenue exceeds its expenses,
reduced by any amount returned to the owners
|
| retroactive pay |
pay for time worked in a previous workweek; retroactive
pay must be applied to both regular and overtime hours
|
| revenue |
income received for goods and services provided by an
organization
|
| revenue account |
identifies amounts received for goods sold and services
rendered during the accounting period
|
| safe-harbor |
an IRS-approved alterntive method (usually a short-cut)
for complying with IRS rules, regulations, and procedures
(for example, per diem allowances and high-low
substantiation)
|
| semi-annual |
twice per year or once every six months
|
| semimonthly |
twice per month; type of payroll period
|
| severance pay |
a payment made by an employer to terminated employees
(usually those who are terminated through no fault of their
own) that is designed to tide them over until new employment
is secured
|
| shift differential |
extra pay received by employees for working a
less-than-desirable shift (e.g., evenings or late nights)
|
| sick pay |
replacement wages paid to an employee who cannot work
because of an illness or injury that is not work-related
|
| simplified employee pension (SEP)
|
an individual retirement arrangement (IRA) with special
participation requirements that is available to certain
small employers
|
| social security |
Old Age, Survivors, and Disability Insurance (OASDI)
component of FICA
|
| Social Security Administration
(SSA) |
the federal government agency that administers social
security
|
| social security number (SSN)
|
an individual's taxpayer identification number; it
consists of nine digits in the format 000-00-0000
|
| statement of cash flow
|
financial statement that shows the sources and uses of
cash during the accounting period
|
| statutory employees |
special groups of employees identified by law (for
example, full-time life insurance sales-peoples or certain
homeworkers) whose wages are not subject to FITW, but are
subject to FICA and FUTA
|
| subsidiary ledger |
replaces a journal; summarized entries are posted from
the subsidiary ledgers directly to the general ledger; arose
with the computerizations of monst companies' accounting
systems
|
| supplemental wages |
compensation received by employees other than their
regular pay; such as bonuses, commissions, and severance
pay; income tax may be withheld from such payments at a flat
rate under certain circumstances
|
| system edit |
warning or alert built into computer software; a system
edit checks for errors and either corrects them or notifies
the operator that something may be wrong; system edits
generally check for calues outside accepted ranges (e.g.,
negative net pay)
|
| take-home pay
|
in the context of a federal tax levy, the
amount of an employee's wages that remains after all normal
deductions in effect at the time the levy was received
|
| tangible |
type of asset which includes land and improvements,
buildings, computers and software, furniture, and
automobiles
|
| tax levy |
requres employers to deduct an amount of money that the
employee owes, plus any penalties and interest payments,
from the employee's wages and remit it to the proper
government agency
|
| taxpayer identification number
(TIN) |
a social security number, employer identification
number, or an individual taxpayer identification number
which serves as the taxpayer's account number with the IRS
|
| temporary help agency employees
|
workers hired through temporary help agencies who are
screened and trained by the agency to provide services for
client firms. They are employees of the agency, rather than
the client firm
|
| tip credit |
reduction in the minimum wage allowed for tipped
employees
|
| Treasury Financial Agent (TFA)
|
organization that verifies the accuracy of EFTPS
enrollment information, enters it in its enrollment record
database, and notifies employers of EFTPS procedures and
receives EFTPS transactions
|
| validity edit |
shows whether or not data entered meet the requirements
set forth by a company
|
| wage base |
wage limit beyond which an employee's wages are not
taxed
|
| wage-bracket method |
method for calculating the amount of federal income tax
to be withheld from an employee's wages based on
wage-bracket tables classified by the employee's marital
status and payroll period
|
| wage-bracket method for advance EIC
|
method for calculating the amount of advance EIC
payments based on wage-bracket tables classified by the
employee's marital status and payroll period
|
| weekly |
once per week; type of payroll period
|
| white collar employees
|
in the context of the Federal Wage-Hour Law, these are
executive, administrative, professional (including
computer-related professionals), or outside sales employees
who are exempt from the law's minimum wage, overtime pay,
and certain recordkeeping requirements
|
| withholding |
subtracting amounts from an employee's wages for taxes,
garnishments, or levies, and other deductions (e.g., medical
incurance premiums, union dues); these amounts are then paid
over to the government agency or other party to whom they
are owed
|
| withholding allowance
|
reduces the amount of wages subject to federal income
tax withholding based on exemptions and deductions claimed
on federal income tax Form 1040
|
| workweek |
basis for determining an employee's regular rate of pay
and overtime pay due under the Fair Labor Standards Act; it
can be any consecutive 7-day (168 hour) period chosen by the
employer (e.g., Saturday through Friday, Wednesday through
Tuesday)
|