Allows an employer to cover the taxes owed on a bonus or fringe benefit paid to an employee. The “gross-up” increases the gross amount of the payment to account for the taxes that would normally be withheld. This downloadable payroll calendar templates provide examples of common processing days and paydays. If these dates align with your schedule, use these calendars to help keep you on track or share with employees so that they know when they will get paid. Since 2013, an additional Medicare tax of 0.9% has been applied to unmarried employees who file an individual tax return and whose Medicare wages exceed $200,000.

Just like states have their minimum wages, they also set their corresponding tip credits. When employees are terminated through no fault of their own, they may be eligible for a special payment known as severance pay. This is designed to tide recently terminated employees over until they are able to obtain employment again.

There’s also Form W-2 reporting, state unemployment tax reporting and, for applicable large employers, Affordable Care Act reporting. Increasingly, payroll is outsourced to specialized firms that handle paycheck processing, employee benefits, insurance, and accounting tasks, such as tax withholding. Many payroll fintech firms, such as Atomic, Bitwage, Finch, Pinwheel, and Wagestream, are leveraging technology to simplify payroll processes. Taxable wages are the earnings from which an employer must withhold taxes. The definition of taxable wages depends on the tax you’re talking about. For example, taxable wages for federal income tax withholding isn’t the same as taxable wages for FICA taxes.

The A to Z of payroll: A guide on terms and concepts to manage payroll

Withholding doesn’t have to be approved by employees because these amounts are required by law. But all deductions from an employee’s paycheck except for deductions ordered by a court must be approved by the employee in writing. State Unemployment Tax Act (SUTA) taxes fund state-administered unemployment programs. SUTA is an employer-paid tax, except in Alaska, New Jersey, and Pennsylvania, where both employers and employees chip in. The W-2 form is a lot like a 1099, but it is used to report wages earned for traditional employees. The W-2 also contains information pertaining to taxes withheld (such as Social Security) and compensation outside of wages (such as moving allowances).

• A worker is considered non-exempt and eligible for overtime unless an exemption can be proved by the employer.
• The process of verifying payroll transactions and ensuring they are accurate.
• Most payroll providers charge a small monthly fee ranging from $20 to $100 per month plus a per-employee payroll fee―often less than $10 per employee per pay period.
• Search our glossary to get simple definitions of common payroll-related words, phrases, and acronyms.

These payments need to be shared with the employer and recorded on the employer’s tax returns, including employee W-2s. Courts sometimes issue garnishment orders for debts like student loans, small claims judgments, child support, or other amounts what is a variable cost per unit the employee owes. You must comply with the order if you receive a garnishment notice ordering your business to garnish wages. Garnishment is typically done on a per-paycheck basis, so you’ll have to add this to your list of deductions.

Best Payroll Services

Payroll deductions can be mandated, voluntary, pre-tax, or post-tax. Knowing the different types of deductions can help you understand where parts of your paycheck go each pay period. Tax withholding is the process of deducting applicable federal, state and local employment taxes from employees’ wages. Establish any benefits programs that you will offer employees, such as retirement plans or health insurance.

Timesheet

For more help with running your business, check out our glossaries for HR and benefits terms, too. If someone who works on day shifts also starts giving extra hours on night shifts, then that person is paid extra. Roles can be restaurant waiters, delivery people, or taxi drivers working for a taxi company. This website is using a security service to protect itself from online attacks. The action you just performed triggered the security solution. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data.

What are semi-monthly pay periods?

Her expertise is in personal finance and investing, and real estate. This is a form used to verify if an employee is legally eligible to work in the United States. I-9 – This is a form used to verify if an employee is legally eligible to work in the United States. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.

Employees can be paid based on a salary or hourly based on a time sheet. Salaried employees will get the same payment each pay period and generally don’t need to track hours. Hourly employees must provide an accurate time sheet to get paid. Review time sheets and compare them to employee schedules, checking for errors.

Her work has appeared on Business.com, Business News Daily, FitSmallBusiness.com, CentsibleMoney.com, and Kin Insurance. Payroll will run a lot smoother if you have the correct documentation on file for your employees. This means that you need every employee to complete a Form W-4 that documents filing status and records their personal allowances. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.

The deductions made on the employees’ wages are called payroll deductions, and it can be calculated as the difference between gross pay and net pay. Employers deduct taxes from the employee’s pay out and pay them to the government. Here are the most commonly used payroll tax terms that you may come across when processing payroll.

Overtime pay is a term that describes the amount of money an employee will be paid for overtime hours work. Some companies have a daily pay period, meaning employees need to work for a set amount of hours each day to get paid at the end of their working hours. Before you can think about deductions, you need to calculate gross pay. Multiply the number of hours worked by the hourly wage you pay them. Find out when you need to pay taxes to state and federal entities. You’ll need to withhold tax amounts and forward the totals at the appropriate time.