Payroll-Related Terms And Definitions

Payroll can be defined as the process of calculating, paying, and reporting employee wages, taxes, and deductions.

Below is a glossary of Payroll terms and definitions, as well as a list of recommended training courses to help with payroll compliance for laws, reporting, and operational issues.

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• 1099-MISC (Form)

  
  Miscellaneous Income. Form used to transmit miscellaneous income paid to a entity that is not a corporation. For payroll purposes, it is used to report the wages paid to deceased employees

• 401(k) Plans

  
  Type of deferred compensation plan. Refers to Internal Revenue Code that authorizes the plan

• 403(b) Tax Sheltered Annuities

  
  Type of deferred compensation plan. Refers to the Internal Revenue Code that authorizes the plan

• 457 Plans

  
  Type of deferred compensation plan. Refers to the Internal Revenue Code that authorizes the plan

• 940 (Form)

  
  Employer's Annual Federal Unemployment (FUTA) Tax Return. Used to report FUTA taxes

• 940EZ (Form)

  
  Employer's Annual Federal Unemployment (FUTA) Tax Return. Used to report FUTA taxes

• 941 (Form)

  
  Employer's Quarterly Federal Tax Return. Filed quarterly reconciling the federal income tax withheld and the FICA taxes withheld and paid

• 941c (Form)

  
  Supporting Statement to Correct Information. Used to correct Form 941

• Accountable Plan

  
  Reimbursement arrangement that meets IRS requirements for non-taxation

• ACH

  
  Automated Clearing House

• Accrual

  
  The accumulation of earned wages or benefits (such as PTO) over time.

• Annual Lease Value Method

  
  Under the annual lease value method, the employer determines the value of an automobile that it provides to an employee by using its annual lease value

• Annual Wage

  
  The fixed salary paid to an employee over the course of a calendar year

• Back Pay

  
  Wages or salary due to an employee from prior payroll periods

• Base Pay

  
  An employee's regular rate of compensation, not including bonuses or incentives.

• Belo Plan

  
  Named after the Supreme Court case that approved its use, it is a guaranteed wage plan for employees whose jobs require irregular work weeks-sometimes working less than 40 hours, sometimes more

• Biweekly payroll

  
  Paid 26 times per year

• BLS

  
  Bureau of Labor Statistics

• Branded Paycards

  
  Cards that usually carry either a VISA or Mastercard logo. The card functions just like a VISA or Mastercard debit card and are accepted anywhere a VISA? or Mastercard? is accepted

• Cafeteria Plan

  
  Type of plan that allows employees to pay their share of insurance premiums, certain out-of-pocket medical and dependent care expenses, and certain other benefits with pre-tax dollars versus paying these same expenses with after-tax dollars

• Cents Per Mile Method

  
  Used for taxation of the personal use of a company vehicle. Under the cents per mile method, the employer takes the vehicle log of mileage as describe under the annual lease value method, determines the personal use miles and multiplies that by the current rate per mile

• Certified Payroll Administrator

  
  An HR professional who has completed the Payroll Training & Certification Program and passed the accompanying certification exam.

• Child Support

  
  The money that is ordered by law to be paid by a parent for the support of his or her (minor) child, when that parent does not live with the child

• Child Support Enforcement Amendments of 1984

  
  The Consumer Credit Protection Act requires states to adopt laws governing withholding of child support payments by October 1985

• Circular E

  
  IRS publication number 15. Contains information to assist employers on IRS regulations

• COBRA

  
  Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

• CODA

  
  Cash-or-deferred arrangement

• Common-law employee

  
  A common-law employee relationship exists if an individual performs services for an employer and the employer can control what will be done and how it will be done. Since there is no statute or law that describes what an employee is, but is merely what has evolved over the years by the IRS, the term used is common-law employee.

• Commuting Method

  
  Used to determine the value of a vehicle that an employer provides to an employee for commuting use by multiplying each one-way commute (that is, from home to work or from work to home) by the allowed rate

• Consumer Credit Protection Act

  
  Federal law that limits the amount an employee’s wages that may be withheld for payment of debts

• Davis-Bacon Act

  
  The Davis-Bacon Act authorizes the Secretary of Labor to set minimum pay standards for laborers and mechanics working on federally funded construction contracts of $2,000 or more.

• DCAP

  
  Dependent Care Assistance Plan

• De minimis benefit

  
  A de minimis benefit is any property or service provided to an employee that has so little value (taking into account how frequently similar benefits are provided to employees) that accounting for it would be unreasonable or administratively impracticable.

• De Minimus

  
  Small, miniscule. In payroll terms, used to describe a payment or fringe benefit too small to keep track of for taxing purposes

• Disposable Pay

  
  The amount of the employee's earnings left after legally required deductions have been made for federal, state and local taxes, Social Security, unemployment insurance and state employee retirement systems

• DOL

  
  Department of Labor

• Earnings

  
  All compensation paid to an employee, including wages, salaries, overtime, bonuses, and commissions.

• EFT

  
  Electronic Funds Transfer

• EIC

  
  Earned Income Credit

• EIN

  
  Employer Identification Number

• Electronic Funds Transfer

  
  This is a system by which commercial payments are made electronically instead of using paper instruments such as checks or drafts

• Employee

  
  Individual who performs services subject to the will and control of an employer (common law rule)

• Employee Self Service Systems

  
  Uses the Human Resources Information System (HRIS) to automate many of the labor intensive and time-consuming tasks that payroll currently handles for employees

• Employee Stock Purchase Plan

  
  Stock option plan under which an employer grants employees stock options which entitles the employee to purchase stock in the employer corporation at a future date for a discounted price

• Employer

  
  Person or organization for whom a worker performs a service as an employee

• Employer Identification Number

  
  To deposit federal income taxes and employment taxes correctly, the IRS issues a nine-digit "Employer Identification Number" (EIN) to identify the tax accounts of employers and certain others that have no employees.

• Employer’s Quarterly Federal Tax Return

  
  The name of the Form 941 filed quarterly reconciling the federal income tax withheld and the FICA taxes withheld and paid

• Engaged to wait

  
  "Engaged to wait" time is compensable time because it is controlled by the employer.

• ERISA

  
  Employee Retirement Income Security Act of 1974

• Escheat

  
  Abandoned property such as uncased or unclaimed payroll checks

• ESPP

  
  Employee Stock Purchase Plans

• Exempt Employee

  
  An employee who is exempt from the overtime and minimum wage provisions of the Fair Labor Standards Act

• Expatriate

  
  U.S. citizen or resident alien working outside of the United States

• Fair Labor Standards Act

  
  Enacted in 1938, the federal law that sets the minimum wage, hours worked, overtime requirements and child labor regulations for employers; known as the FLSA

• Fair Market Value

  
  The cost the employee or a person would have to pay for goods or services if purchased on the open market. For payroll purposes, used to determine the gross taxable wages on non-cash goods or fringe benefits

• Family Support Act of 1988

  
  The Family Support Act allows custodial parents to request automatic withholding regardless of whether payments are in arrears

• FAVR

  
  Fixed and Variable Rate Allowance

• Federal Income Tax (FIT)

  
  Income tax withheld based on employee elections and IRS tax tables.

• Federal Insurance Contributions Act

  
  The Federal Insurance Contributions Act (FICA) provides for a Federal system of old-age, survivors, disability, and hospital insurance.

• Federal Reserve Board Regulation E (Title 12, Code of Federal Regulations, Part 205)

  
  Sets forth the consumer protection rights and requirements that apply to electronic funds transfer

• Federal Unemployment Tax Act

  
  The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs.

• Fee Basis

  
  If the employee is paid an agreed sum for a single job, regardless of the time required for its completion, the employee will be considered to be paid on a "fee basis."

• FICA

  
  Federal payroll taxes for Social Security and Medicare.

• FIT

  
  Federal Income Tax

• FITW

  
  Federal Income Tax Withheld

• Flat Rate Method

  
  Withhold federal income tax on a flat rate of 25% of taxable gross. State rates will vary

• FLSA

  
  See Fair Labor Standards Act

• FMLA

  
  Family and Medical Leave Act

• FMV

  
  Fair Market Value

• Form 941

  
  The IRS Form 941 was created to report and reconcile the payments made to the IRS for the income tax and FICA taxes during a quarter period.

• Form SS-4

  
  If an employer does not have an EIN, a Form SS-4 "Application for Employer Identification Number" must be completed and submitted to the Internal Revenue Service Center appropriate for the employer's location.

• Form SS-8

  
  The Internal Revenue Service has a service to help those employers who are uncertain as to whether its workers should be classified as employees or independent contractors. To utilize this service, employers should complete Form SS-8, "Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding".

• Form W-2

  
  Form W-2 is a six-part form (Copies A-D and 1 & 2) is used to inform both the employee and the taxing agencies how much the employee received in wages and what taxes were withheld and paid. It also includes information on fringe benefits paid and state taxation.

• Form W-4

  
  This IRS form is used to inform the payroll department on the marital status and number of allowances the employee wants the payroll department to use to determine the amount of income tax to deduct from the employee's paycheck.

• Form W-5

  
  The Form W-5 states the eligibility requirements for receiving advance EIC payments.

• Fringe Benefit

  s
  Non-wage compensation such as employer-paid insurance, tuition assistance, or company vehicles.

• FSA

  
  Flexible spending accounts

• FUTA

  
  See Federal Unemployment Tax Act

• Garnish

  
  To attach, such as money due, from a debtor while it is in the hands of a third party

• Garnishee

  
  A person or business served with a garnishment

• Garnishment

  
  Court order served on a person or firm as the result of a lawsuit or ruling that requires an employer to withhold money from an employee’s pay and disperse according to the court order’s requirements

• General Ledger

  
  A formal ledger containing all the financial statement accounts of a business

• Golden Parachute Payments

  
  A golden parachute payment is a contract entered into by a corporation and key personnel under which the corporation agrees to pay certain amounts to the key personnel in the event of a change in ownership or control of the corporation.

• Gross Earnings

  
  Grand total of all regular, overtime, and other compensation paid to an employee prior to any deductions being taken

• Gross Pay

  
  Total earnings before taxes and deductions are withheld.

• Hypothetical tax

  
  An approximation of what the employee's U.S. tax liability would have been had he or she remained in the United States

• HHS

  
  U.S. Department of Health and Human Services

• HI

  
  Hospital Insurance. Refers to the Medicare tax

• Host Based Stored Value Cards

  
  Value is associated with the card and this value is stored and authorized centrally on a host computer system versus on the physical card

• Hourly Rate

  
  The amount paid per hour worked.

• HRIS

  
  Human resources information system. A system of software and supporting computer hardware specifically designed to store and process all HR information

• HSA

  
  Health Savings Account

• Imputed Income

  
  The taxable value of certain employer-provided benefits.

• Incentive Stock Option

  
  A stock option granted under an arrangement that meets the requirements of IRC 422 is referred to as an ISO

• Independent Contractor

  
  An independent contractor is someone such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public.

• Information Return

  
  Form or report to the Internal Revenue Service that provides information on an employee/or employer’s tax liability

• Internal Revenue Bulletin

  
  An authoritative publication of the Commissioner of Internal Revenue. It is used to announce official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions and other items of general interest

• Interstate Commerce

  
  Trade, commerce, transportation, transmission, or communications among the several states or between any state and any place outside thereof.

• Involuntary Deduction

  
  Deduction withheld from an employee’s wages at the request of someone other than the employee such as the IRS, a court or other federal or state authority

• IRC

  
  Internal Revenue Code

• IRS

  
  Internal Revenue Service

• IRS Notice

  
  Any communication from the IRS to an employer

• Mandatory Deductions

  
  Deductions required or mandated by law. Examples would be federal income tax or the FICA taxes

• Manual check

  
  Term that is used to indicate any check that is issued off a normal payroll cycle

• Medicare Tax

  
  A payroll tax funding Medicare, including an additional tax for high earners.

• Minimum Wage

  
  Lowest legal amount an employer may pay an employee per hour

• MMREF

  
  Magnetic Media Reporting and Electronic Filing

• NACHA

  
  National Automated Clearing House Association

• National Automated Clearing House Association

  
  Private organization that establishes the rules for the exchange of commercial electronic payments - corporate, consumer, as well as direct de- posit payments - through a national network of more than 40 automated clearing houses

• Base Pay

  
  An employee’s regular rate of compensation, not including bonuses or incentives.

• NMSN

  
  National Medical Support Notice

• Non-accountable Plan

  
  Reimbursement arrangement that does not meet IRS requirements and payments made under this type of plan are considered taxable income

• Non-Exempt

  
  Employee who is subject to the provisions of the Fair Labor Standards Act

• Non-Qualified Deferred Compensation Plans

  
  Plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan

• Non-Statutory Stock Option

  
  A stock option issued under a plan that does not meet the IRC requirements is referred to as a Non-Statutory Stock Option (NSO)

• OASDI

  
  Old Age, Survivors, and Disability Insurance. The official name for the social security tax deducted from an employee’s taxable wages

• Opportunity Wage

  
  The opportunity wage allows employers to pay new hires under 20 years of age not less than $4.25 per hour for the first 90 days (calendar days) after the employee is hired.

• Overtime

  
  Hours worked in excess of a prescribed maximum weekly (or daily in some states) requirement permitted without excess compensation

• Parallel Testing

  
  Running the old system side by side with the new system using the same data

• Paycard

  
  Method of paying the employee by a plastic card that has the value of the net wages

• Pay Date

  
  The specific date on which wages are issued to employees.

• Payroll Register

  
  A detailed report summarizing payroll activity for a pay period.

• Payroll Reconciliation

  
  The process of verifying payroll accuracy by comparing reports, payments, and tax filings.

• Pay Period

  
  The recurring schedule on which employees are paid (e.g., weekly, biweekly, semimonthly, monthly).

• Payroll Taxes

  
  Required taxes withheld from wages and/or paid by the employer.

• Per diem allowance

  
  Flat rate, stated schedule, or other IRS-specified rate or schedule payment made under an accountable plan for lodging, meals, and incidental expenses for business travel away from home

• Percentage Method

  
  Internal Revenue Service method for withholding federal income tax on wages

• Phantom Employee

  
  Nonexistent employee

• Portal-to-Portal Act

  
  The purpose of this act was to offset the effects of a series of Supreme Court decisions that expanded the compensable working time that required payment under the FLSA.

• Pre-notification

  
  Process by which the accuracy of the direct deposit transaction data (e.g., the employee’s name, bank transit number, account number, etc.) may be tested before actual dollar transactions take place

• Private Letter Ruling

  
  A reply from the Internal Revenue Service in response to a particular question and set of facts to a specific employer

• PRWORA

  
  The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA): contains comprehensive child support enforcement provisions

• Qualified deferred compensation plans

  
  Retirement plans that comply with certain requirements set forth in the Internal Revenue Code and, as such, are afforded special tax treatment

• RDFI

  
  Receiving Depository Financial Institution

• Reciprocal Agreement

  
  Arrangement entered into by two or more states to decide the withholding of state income tax for an employee working in one state and living in another

• Regular Rate of Pay

  
  Hourly rate used to pay premium time

• Revenue Ruling

  
  A decision published by the Internal Revenue Service in the Internal Revenue Bulletin

• RFP

  
  Request For Proposal

• ROI

  
  Return on Investment

• Rule Of Constructive Receipt

  
  For income and employment tax purposes, wages must be considered paid when the check is issued, the funds allocated by the company, and the check is made available to the employee.

• Salary

  
  A fixed compensation paid to an employee for regular work or services

• Schedule B

  
  Employer’s Record of Federal Tax Liability. Used to report individual dates and amounts of FIT and FICA liability stated on the Form 941

• SDU

  
  State Disbursement Unit

• Semi-monthly Payroll

  
  Paid 24 times per year

• SEP

  
  Simplified Employee Pension

• Service Contract Act

  
  The Service Contract Act requires that employers who contract with the federal government to provide services to a federal agency or organization must comply with the McNamara-O'Hara Service Contract Act (SCA).

• Shift Differential

  
  Rate adjustment usually paid to employees working swing or graveyard shifts

• SIMPLE

  
  Savings Incentive Match Plan for Employees

• SS-4 (Form)

  
  Application for Employer Identification. Used to apply for an employer identification number

• SS-8 (Form)

  
  Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Used to determine if a worker is an employee or independent contractor

• SSA

  
  Social Security Administration

• SSN

  
  Social Security Number

• Social Security Tax

  
  A payroll tax funding Social Security benefits, shared by employee and employer.

• State Disbursement Units

  
  Centralize the collection and disbursement of specified child support payments

• State and Local Income Tax

  
  Income taxes withheld according to state and local requirements, where applicable.

• Statutory Employees

  
  Statutory employees are different from common-law employees in one important area: they are considered employees by statute or law and not under the IRS opinion.

• Statutory Non-Employees

  
  Statutory non-employees are workers who are expressly excluded as employees by the IRS Code.

• Stored value cards

  
  Similar to the prepaid phone cards or store gift cards that are popular today, funds are loaded directly on the card by the employer

• SUI

  
  State Unemployment Insurance

• Supplemental Wages

  
  Items paid to an employee in addition to regular wages. Examples include awards and bonuses or tips

• TAMRA

  
  Technical and Miscellaneous Revenue Act

• Tax-deferred arrangement

  
  Allows an employer to purchase insurance contracts (annuities) that promise to pay periodic payments to the employee upon retirement

• Taxable Wage Base

  
  The maximum amount of wages paid during a calendar year that is subject to a particular tax. Types of taxes that use a taxable wage base include FICA, FUTA and SUI

• Taxpayer Advocate Office

  
  Independently represents the taxpayer’s interests and concerns within the IRS by protecting his or her rights and resolving problems that have not been fixed through normal channels

• TDA

  
  Tax Deferred Annuity

• Theoretical tax

  
  Is an approximation of what the employee's U.S. tax liability would have been had he or she remained in the United States

• Timekeeping

  
  The method used to track hours worked, including regular time, overtime, and leave.

• Timesheet

  
  A record of hours worked during a pay period.

• Totalization Agreements

  
  Agreement between the United States and another country to eliminate dual social security taxation

• TSA

  
  Tax Sheltered Annuities

• U.S. Department of Labor Wage and Hour Division

  
  Department of the federal government that enforces the Fair Labor Standards Act

• Uniform Interstate Family Support Act

  
  Presented to the states as a model law in 1992, the Uniform Interstate Family Support Act (UIFSA) allows agencies to serve out of state child support orders directly to employers instead of having to register the orders with the agency in the receiving state

• Use it or lose it rule

  
  The IRS requires that DCAPs contain an element of risk for both the employer and employee. Therefore, amounts selected and deducted - but not used by the end of the plan year - must be forfeited. This is known as the "use it or lose it" rule

• USERRA

  
  Uniformed Services Employment and Reemployment Rights Act of 1994

• Voluntary Deductions

  
  Amounts withheld from an employee’s wages at the request of the employee

• W-2 (Form)

  
  Income and Tax Statement. Six part combined federal and state form. Given to employees and furnished to the Social Security Administration by January 31st of each year

• W-2c (Form)

  
  Corrected Wage and Tax Statement. Form used to correct the Form W-2

• W-3 (Form)

  
  Transmittal of Income and Tax Statements. Used to summarize the Forms W-2 submitted to the SSA

• W-3c (Form)

  
  Transmittal of Corrected Wage and Tax Statements. Form used to submit Forms W-2 to the SSA

• W-4 (Form)

  
  Employee Withholding Allowance Certificate. Used by employees to indicate number of withholding allowances and tax filing status they wish to claim for payroll taxation withholding

• W-5 (Form)

  
  Earned Income Credit Advance Payment Certificate. Used by employees to request payment of the EIC in advance

• Wage Bracket Withholding Method

  
  Internal Revenue Service method for withholding federal income tax based on wage tables provided in the Circular E

• Walsh-Healey Public Contracts Act

  
  The Walsh-Healey Public Contracts Act governs wages and hours of employees of manufacturers and dealers furnishing materials, supplies, articles or equipment to the federal government on contracts exceeding $10,000.

• WARN

  
  Worker Adjustment And Retraining Notification Act.

• Withholding

  
  Amounts deducted from employee pay for taxes or other required items.

• Worker Adjustment And Retraining Notification Act

  
  The federal Worker Adjustment and Retraining Notification (WARN) Act requires that employers with at least 100 employees who plan plant closures or mass layoffs of 50 or more employees for at least 30 days, must give affected employees at least 60 days written notice.

• Workweek

  
  Time frame for the fixed and regularly-recurring period used to base the payment of overtime.

• Year-to-Date (YTD)

  
  Cumulative payroll totals from the beginning of the calendar year to the current pay period.

For More Information About Payroll:

For details and suggested training courses about payroll, go to https://hrtrainingcenter.com/payroll-training management.

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